There’s been a wave of public school teacher strikes around the US. It started in West Virginia and spread to Kentucky, Oklahoma, Arizona, and elsewhere.
Pensions have been an issue in all of them.
Demographic and economic reality says that younger teachers won’t get anything like the benefits they see current retirees receiving. And it’s not just teachers. The same is true for police, firefighters, and all other public-sector workers.
Thinking through this challenge, I’m struck by how many of our economic problems result from the steady aging of the world’s population.
Fertility Rates at All-Time Lows as Life Spans Peak
We are right now living through a demographic storm unprecedented in human history.
- Birth rates have plunged to near or below replacement level, and
- Average life spans have increased to 80 and beyond.
Neither of these happened naturally. The first followed improvements in artificial birth control. And the second came from better nutrition and health care. Each is beneficial in its own way, but together they have serious consequences.
This happened quickly, as historic changes go.
In just 16 years (1960–1976), fertility in the US dropped from 3.65 births per woman to only 1.76. It’s gone sideways since then. This appears to be a permanent change, as no one has figured out a way to reverse it.
I’m not saying this is bad. I’m happy young women were freed to have careers if they wished.
I’m also aware (though disagree) that some think the planet has too many people. If that’s your worry, then congratulations. New-human production is set to fall pretty much everywhere.
Who Will Support the Elderly?
Breaking down the US population by age, here’s how it looked in 2015.
Think of this as a python swallowing a pig.
Those wider bars in the 50–54 and 55–59 zones are Baby Boomers who are moving upward and not dying as early as previous generations did.
Meanwhile, birth rates remain low. So as time progresses, the top of the pyramid will get wider and the bottom narrower. (You can watch a good animation of the process here.)
This is the base challenge: How can a shrinking group of working-age people support a growing number of retirement-age people?
The easy and quick illustration to this question is to talk about the number of workers supporting each Social Security recipient. In 1940, it was 160. By 1950 it was 16.5. By 1960 it was 5.1.
It will be 2.3 by 2030—I think you can see a trend here.
Similarly, states and local governments are asking current young workers to support those already in the pension system. The math is the same, though numbers vary from area to area.
How can one worker support two or three retirees while still working and trying to raise a family with mortgage payments, food, healthcare, etc.? Obviously, they can’t, at least not forever.
But no one wants to admit that, so we just ignore reality.
The Pension Issue Won’t Solve Itself
We keep thinking that at some point in the future, taxpayers will pick up the difference. And nowhere is it more evident than in public pensions.
Let me tell you, that’s a higher-order problem. Do you think I want to volunteer to die so that Social Security can be properly funded? Are we in a Soylent Green world? This will be a very serious question by the middle of the next decade.
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Sharp macroeconomic analysis, big market calls, and shrewd predictions are all in a week’s work for visionary thinker and acclaimed financial expert John Mauldin. Since 2001, investors have turned to his Thoughts from the Frontline to be informed about what’s really going on in the economy. Join hundreds of thousands of readers, and get it free in your inbox every week.