Germany uses Ponzi schemes to support older Ponzi schemes
posted at 8:50 am on May 1, 2008 by Ed Morrissey
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The falloff of birthrates among Europeans has been one of the most compelling demographic trends of the last few decades. For various reasons, countries like Germany have fallen far below the replacement rate in fertility, and that portends disaster for the socialist states that rely on new workers to provide for retirees. The newer generations will not generate enough money to pay for the extensive net of social services to which Europeans have grown accustomed. Germany, however, has a solution, but one that compounds the problem instead of solving it:
Germany’s Federal Statistical Office predicts that the country’s current population of 82 million will decline to between 69 million and 74 million by 2050 — less than the population in 1963, when Germany had 75 million people.
As well as having detrimental effects on the country’s economy, that kind of demographic implosion would spell disaster for Germany’s creaking social security system, which relies on contributions from the current working population to finance the pensions of retirees. A combination of low birthrates and longer life expectancies means fewer people of working age supporting more retirees — and the pension math no longer works. With mass immigration a politically difficult option, and radical pension reform unpopular, encouraging more births is the easiest alternative.
So what did von der Leyen do which apparently gave Germans a sudden urge to procreate? The answer is simple: She paid them.
One of the cornerstones of her family policy is benefit payments for parents, known as Elterngeld (literally “parents money”). Under the new benefit, introduced in January 2007, the state pays the parent who stays home with the child 67 percent of that parent’s current net income, up to a maximum of €1,800 ($2,810) a month, for up to 12 months. If both parents elect to take time off, the total number of months the benefit is paid, split between both parents, goes up to 14 — a measure intended to encourage fathers to take time off work.
Let’s lay this out properly. Germany sees economic disaster from their declining birth rates, thanks to the heavy burden of social-service entitlements for the older population. New births haven’t kept pace with the minimum necessary to generate revenues for these services. Does Germany act to reduce the financial burden and eliminate some services? No — they establish an entirely new class of entitlement to solve the problem.
How exactly does this help? The increase in government payouts only adds to the massive deficits that their social network already generates. In order to pay for that increased burden, Germany will have to produce even more children — which will trigger higher payouts and larger deficits. It’s a massive application of the hair of the dog, only in this case, the hangover gets extended instead of the drunk. It’s a Ponzi scheme to fund another Ponzi scheme.
And this involves much more than pay-for-play and state-sponsored leaves of absence, which costs the businesses in money and efficiency, further burdening the tax base. Germany will also start providing state-sponsored day care, with mandates for providing slots for all these subsidized children, regardless of age. How much will that cost Germany, and which generation picks up that tab?
Germany and the rest of Europe needs to awaken from their decades-long dream of easy socialism. For that matter, so do many Americans. Entitlement programs will bankrupt nations before too long, and the answer to the problem is not more entitlement programs. It’s far past time to realize tht government does not exist to provide cradle-to-grave services for its citizenry, and that attempts to fit it into that peg have disastrous long-term economic consequences. Instead of extending the net from cradle-to-grave to waterbed-to-cradle-to-grave, Germany should dismantle its current Ponzi schemes and allow the private sector to use its creativity to generate better, less costly, and more efficient solutions.
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Don’t forget this one: By 2012 in the 10 largest German cities more than 50% of all male adults age 40 or below will be descendants of immigrants.
As one German demographer put it, in a few decades Germans might still drive Porsche, but they won’t know how to build them anymore.
Niko on May 1, 2008 at 8:55 AM
Does it sound at all like what’s happening here? Universal healthcare train-a-comin’ down the track. Senior prescription plan that started out at $40 bil for ten years, then had the actual cost of over $500 bil revealed after passage. Tons of illegals who can get medical, schooling, social security, etc. streaming across the border in WAVES. We are in trouble just as the Germans are.
RWLA on May 1, 2008 at 8:56 AM
It’s still a better scheme than the one our government is using. We have policy’s which make it more and more difficult to afford families, we have massive deficit spending, we are not moving quickly enough to thwart the increasing cost of living expenses such as fuel. What’s our answer? Cut back on spending? Change policy to benefit the society which is actually providing the income? HELL NO! Just allow in millions and millions of illegal immigrants, and millions and millions of legal immigrants instead! I mean, why would anyone expect the “American Dream” to include having families? Ironic that so many people came here to escape persecution and oppression from England and Russia, only to have their family line end in two or three generations. Who has really won the American War of Independance?
KMC1 on May 1, 2008 at 9:00 AM
We need those illegal immigrants – Americans aren’t pumping out the kids anymore. Maybe just one perfect child per family…the other kids have to come from somewhere.
(I have 3 so I did my fair share…step it up America!)
tlynch001 on May 1, 2008 at 9:04 AM
I just keep hoping America holds out long enough to see Europe collapse from within so we can see the results of their mistakes.
If we try to avoid them or not is another matter.
Grafted on May 1, 2008 at 9:05 AM
Ed,
You use Germany like the old “I have a friend” routine when you are talking about yourself or the USA in this case.
Well done! :-)
TwinkietheKid on May 1, 2008 at 9:07 AM
This would be a good set of questions for O’Reilly to ask McCain next week.
rockhauler on May 1, 2008 at 9:11 AM
We are not in as big a trouble as the Germans. (BTW, I blame feminism.)
Germany needs to find a way to produce more Germans and subsidized parenthood seems to be about the only way this is going to happen right now. I would have preferred tax rebates but this is only slightly worse considering the magnitude of the problem.
Bill C on May 1, 2008 at 9:11 AM
KMC1 hit the nail on the head. The funny part is that they’ll be paying all of their 3rd world immigrants to stay home and have babies, which is what they would do anyway since the women aren’t allowed to leave the home!!
el hombre on May 1, 2008 at 9:13 AM
When the bill for all that nonsense comes due I’m sure we will bail them out yet again, even if we can’t afford it and it breaks our back in the process.
Leonidas Hoplite on May 1, 2008 at 9:15 AM
You’re right, they need to get more money in the government coffers to make these payments. I know! They could nationalize some industries and feed the profits into the government. Brilliant!
Kafir on May 1, 2008 at 9:15 AM
I hope our country learns from the mistakes of others.
AbaddonsReign on May 1, 2008 at 9:19 AM
The coming catering economy along with creeping shari’a…..what a time to be a European.
Dr.Cwac.Cwac on May 1, 2008 at 9:27 AM
Sorry. They won’t. Don’t you see what the Democrats are trying to ram through?
Dr.Cwac.Cwac on May 1, 2008 at 9:28 AM
And give up the only thing, they believe, makes them “better than Americans”? Never!
They will stick with the slow death by entitlements; thank you very much.
RMR on May 1, 2008 at 9:32 AM
The title of the picture, “How many pensions will I have to fund, Mommy,” says it all.
burt on May 1, 2008 at 9:40 AM
Welfare for Yuppies.
Germany, and other dying European countries, need to stop preaching that children are pollutants who destroy the planet, and that families who have more than one or two children are to be shunned for using more than their fair share of resources.
Buy Danish on May 1, 2008 at 9:42 AM
Maybe that’s how it runs in the third-world crap chute of Mexico, but here in America, we don’t tolerate that kind of sexist crap, el hombre.
Which is exactly why we need to build that fence and deport all the criminals, drug runners, and thugs who ship themselves in from Mexico (and elsewhere) to make our functioning society more like the corrupt, dysfunctional wasteland that is Mexico.
And before anyone accuses me of xenophobia, the fact is Mexico is objectively a failed state. They have lots of natural resources, acccess to two oceans, a dirt-cheap labor force, and a republican government (in theory). And yet they are little better than third world hovels because their politicians are corrupt, they have no drive other than to bring ruin to their neighbor to the north, and in general they are every bit as low class as everyone makes them out to be.
Proud Mexicans should spend more time fixing Mexico and less time sucking the life out of America. If you love your home nation so much, why don’t you fix your home instead of barging into (and ruining) ours with the same piss-poor work ethic and love of corruption and filth? Why the hell is it that you can’t drink the water in Mexico if it is such a great place with a proud tradition?
We do need to end the nanny state here, but we also need to tell illegals to take a hike back to Mexico and petition THEIR leaders for public assistance. If you don’t like the leaders, do what every good little drug runner and thug does and run them out of town just like you normaly would common decency.
BKennedy on May 1, 2008 at 9:45 AM
Germany may get its solution from the free market of ideas.
A trend only marginally noted in the wave of bad demographic news from Europe shows religion in Europe on the rebound. The decline of church membership in Germany has stopped, and younger Germans are attending church in larger numbers than their parents. I have links to several articles discussing this phenomenon in a recent blog article I wrote, if you want to track it down.
Religious people generally reproduce at a much higher rate than non-religious people. The decline in birthrates all over Europe corresponds with the rise in secular attitudes, and is matched by similar declines in the “blue state” areas of the US, whereas the birth rate in “red state” areas remains at or above replacement level.
My guess is that Germany will start repopulating in the next generation, and the most dire demographic predictions will not come to pass.
philwynk on May 1, 2008 at 9:50 AM
Whatever happened to the looming population bomb? Remember
Paul Ehrlich’s book from the late 1960s which predicted disaster for humanity due to overpopulation. Then we were warned about the great global freeze and now hysteria over global warming, though I detect a slight softening of the message to imply “climate change.” I guess that covers all bets.
With the previous caveat of a tendency toward hysteria duly noted, the general de-populating of nations with liberal democratic histories and relatively free market societies is nothing less than stunning. A number of European nations face an uncertain future that goes beyond economics.
Large numbers of Muslim immigrants have settled in Europe and have much higher birth rates. As a result, France, Denmark and Belgium will likely be the first nations which will demographically become Muslim dominated nations. Others will likely follow.
The problem is less about race and ethnicity but rather much more to do with the failure to culturally assimilate those who have immigrated. Unlike the United States where immigrants are largely assimilated through work and school, liberal welfare states have unintentionally created a situation whereby immigrants are put on the social dole and not compelled through work to interact with people with the dominant group/identity.
Rather, they are able to sit at home, collect welfare and have idle time on their hands. Over the past few decades As large ghettos have emerged in places like Paris that are made up of young Muslims who are largely isolated, unemployed, unintegrated and increasingly angry. This pattern has repeated itself through a number of European nations. These are breeding grounds for disaffected youth.
More on the looming problem:
From CIA Factbook: Estimated Replacement Rates Ranked 1-223
1 Mali 7.34 2008 est.
2 Niger 7.29 2008 est.
3 Uganda 6.81 2008 est.
4 Somalia 6.60 2008 est.
5 Afghanistan 6.58 2008 est.
6 Yemen 6.41 2008 est
51 Iraq 3.97 2008 est
79 Malaysia 2.98 2008 est
86 Israel 2.77 2008 est.
87 India 2.76 2008 est.
88 Egypt 2.72 2008 est.
112 Mexico 2.37 2008 est.
127 United States 2.10 2008 est.
158 Norway 1.78 2008 est.
159 China 1.77 2008 est.
160 Australia 1.76 2008 est.
165 Denmark 1.74 2008 est.
166 Finland 1.73 2008 est.
171 Iran 1.71 2008 est
173 Sweden 1.67 2008 est.
174 Netherlands 1.66 2008 est.
175 United Kingdom 1.66 2008 est
184 Canada 1.57 2008 est
188 European Union 1.50 2008 est.
190 Switzerland 1.44 2008 est.
193 Germany 1.41 2008 est.
196 Russia 1.40 2008 est.
198 Austria 1.38 2008 est.
213 Ukraine 1.25 2008 est.
206 Italy 1.30 2008 est.
207 Spain 1.30 2008
217 Japan 1.22 2008 est.
220 Taiwan 1.13 2008 est.
221 Singapore 1.08 2008 est.
222 Macau 1.05 2008 est.
223 Hong Kong 1.00 2008 est.
moxie_neanderthal on May 1, 2008 at 9:52 AM
Thanks for noticing!
“There was this one time, in band camp …”
Ed Morrissey on May 1, 2008 at 9:55 AM
Is it even possible to wean people off of universal welfare after they have been exposed to it all their lives? Like trying to get an animal to leave its cage when that’s the only life it knows.
docdave on May 1, 2008 at 10:03 AM
Meanwhile, news today from Germany,
BDU-33 on May 1, 2008 at 10:44 AM
How is this much different than the US SSA/Medicare system?
Private accounts, although democrats hate em, are the only solution that is fair for all, young and old, good health and poor health, rich and poor.
CATO is great on this issue, AARP are the new Grey Panthers, horribly misleading with their divided we fail campaign. Read about the 6.2% solution and other articles in the Social Security Choice section by Micheal C. Tanner.
http://www.cato.org/pub_display.php?pub_id=1618
Angry Dumbo on May 1, 2008 at 11:10 AM
Not sure if you really meant to say that, but it actually is one of the root causes of Western decline.
Niko on May 1, 2008 at 11:16 AM
Over 90% of the world’s population increase occurs in the undeveloped countries. Since these are primarily agricultural economies, the population exceeds the carrying capacity of the land. People have to move to cities or go abroad. Hence, there is enormous pressure for people to migrate to industrial economies just for survival. I expect that in the end, the industrial world will have to accomodate these immigrants not just by admitting them, but allowing them to culturally transform their adopted lands into replicas of their native countries. It will take a while, and in the meantime, the Europeans, Japanese and Americans can enjoy their retirements, financed in the twilight of their nation’s identities, by the influx of foreigners who will, given enough time, completely wreck their new countries. But by then, the retirees will be gone.
NNtrancer on May 1, 2008 at 12:15 PM
Pay attention America, we’re next. Actually, with California (for example) bankrupt due to millions upon millions of tax dollars going to pay for social services for non-citizens, (27% of the illegal population in the U.S resides in California), ‘Germany’ is here.
Christine on May 1, 2008 at 12:44 PM
Ed how about a post on the Lisbon Treaty?
aengus on May 1, 2008 at 2:03 PM
I meant it. Feminism is the reason so many modern women have such a horrible opinion of motherhood. Feminists seek to make women feel guilty about the innate desire to nurture and care for a family.
We are starting to realize that the biggest problem of the 21st century will be underpopulation which is why I applaud Germany’s somewhat misguided attempt to incentivize birth.
Bill C on May 1, 2008 at 2:33 PM
Ms. von der Leyen needs to be put “an der Leine” (on a leash)! Such an embarassment for the CDU/CSU…. Unfortunately, they – and not the FDP – are seen as the “conservatives” in Germany.
Ponzi scheme though it may be, if it is applied only for a limited time (unlikely, sigh), in the short run it may be the tonic for the Germans. Problem is, it is not offset (for lack of better terms) with tax cuts, reduction in programs/spending, or the like. Being so addicted to “social democracy” blinds them to the real consequences of such policies, and hinders them from learning from us.
Lockstein13 on May 1, 2008 at 2:36 PM
The birth deficit in Germany has been squarely blamed on the increased participation of women in the workplace and the way this conflicts with their role as a mother. The idea behind the Elterngeld is to recompense parents for lost profit and thus reconcile their two conflicting roles as parents and economic actors. It is a scheme closely modeled on the demands of a market economy, which is efficient in generating profit, thus providing economic strength for the nation, but uncaring when it comes to our survival as a people.
Failing pension schemes are just another consequence of the birth deficit, they are not the main motivation of the Elterngeld. A close connection between the two was alleged here in order to allow for yet another tirade against Germany’s mixed economy, used as an example for the evils of “socialism”. It is not that simple.
GermanAtheist on May 1, 2008 at 5:02 PM
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