11 July 2013

Pensions and Diapers

I've posted number times on the problem of unsustainable public pension obligations in America (check here, here, and here for some examples). Several factors contribute to the fact that cities and states (not to mention our federal government) have made promises that they won't be able to keep. In other words, there's not enough tax revenue to pay what's been promised to public-sector employees upon retirement.

Factor number one is what economists call the agency problem. Public decision makers (city council member, state legislators, etc.) are in the first place supposed to look out for their constituents. Yet, when it comes to getting elected (and staying in office), it's the focused interest groups who play the largest role. And among those focused interest groups are public employee unions. Decision makers thus tend to look out for who gets them money and votes over the diffuse citizenry, many of whom don't vote at all.

Second is the human preference to spend today and pay tomorrow. (Remember Popeye and Wimpy?) Just like consumers who charge a vacation and pay for for years to come, public officials like borrowing over raising taxes.

Third--and this is the point of this post--is America's aging population. For rust-belt cities like Detroit it's already the case that due to urban depopulation the city's pension obligations are unsustainable. At the national level, we are gradually approaching the time where there will be more retirees than taxpayers.

What does that mean? Look at Japan which is further along the depopulation trail than the U.S. And read this article here where the growing business opportunity in an aging country is making "adult incontinence products." And now it's the case that such products are outselling baby diapers.

Neither in Japan nor America does the failure of people to recognize the blessing of children bode well for our long term future.

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