Generational Inheritance

There is an inherent problem with most industrial nations and their ‘retirement’ plans. That problem is insufficient human capital. (“Not enough kids”). I’ve mentioned this in the particular context of the U.S. Social Security / Medicare / Medicaid set of ‘entitlements’.

What’s got me thinking about this is the coming “Fiscal Cliff” food fight.

It has bothered me in a generalized way for some time that many other nations have a similar problem. Mostly those that have followed the “advice” to have fewer children “for the planet”… So Europe is below replacement rate and rapidly aging too. As is Japan. China has had the “one child policy” for a while now, and soon will fall off a demographic cliff (as it had onset in one specific year).

We’ve all expected to “invest for our retirement”. Either individually or collectively. The notion is that we can buy our desired consumption in retirement via financial assets. But can we? Does a T-Bill make you breakfast? Will shares of GE (or Sony or Samsung…) drive you to the doctor? They can BUY that service or product, if you can sell them, but they can not deliver the goods. Only a human service provider can actually make and deliver the desired goods and services.

The “fantasy” in the USA has been that immigration would provide the needed labor. ( I suspect a similar idea had currency in Europe). Japan has a fantasy of inventing robots to provide the desired personal services. China has invested heavily in U.S. Debt and is building a lot of capital stock. (But who will run that capital stock?)

So this got me thinking. EXACTLY what “asset” can be transferred from when I’m working ( “now” ) into some future non-working time ( “years to decades later” ) and lead to my having “care” in my old age? Not just me as a single person, but “me” as a generational “collective”?

When “we” don’t have enough kids to change the bed pans, make our food, drive us to the doctors, BE the doctors and nurses, and keep the home repaired, how can those things be done? It will not matter at all if a guy in China has $10,000 or $100,000 of T-Bills if there is no one to make him dinner. It will not matter if a person in the USA has an “annuity” or even a “care plan” if there are not enough bodies to make the system work.

So what IS transferable to that future time?

1) Stuff.

This further divides into “Productive plant and machinery” (aka “capital stock” or “plant and equipment”). Materials (so metals and collectibles and such. Gold for example.) Land (in all its forms. From timberland to farming land to gold mines.) Real, physical, tangible “stuff”.

2) Intellectual capacity and knowledge. ( The “how to” to do things better.)

So patents, education (and not the political indoctrination kind nor the ‘feel good’ degrees in “social studies” et. al.; but education in how to do things, build things, do more with less)

Those are, near as I can tell, the only things that let the next generation do more with less effort and thus let them have the time to both live their lives AND take care of a very large old population.

All the paper assets and contracts in the world just amount to “promises” and can just as easily become “empty promises”. Either via acts of war, outright repudiation, inflation, or simply via ‘the young’ choosing to live their own lives and not be bound by “our” social contract.

That is, I think, where our western ideas have gone off the rails.

Importing a bunch of foreign workers just means that after we are all retired, they can simply choose not to work for our benefit. Either by simply voting not to do it (as by definition their numbers rise) or by not entering the “desired” labor pools (thus driving prices so high that the ‘saved’ paper assets can’t pay for it), or even just via inflating way our “claims” on their productivity represented by our “paper assets”.

Holding paper assets of a foreign land is just as easily bypassed. Who, in the USA, will be doing the work to pay off our “30 year treasury bonds”? Not me. I’ll be dead by then. My kids will be in their late 50s by then and about to stop working too. Their generation is having even fewer kids than mine did. So how will a Billion Chinese retire based on the work of a few hundred million Americans and Europeans? Just not going to happen.

So that “paper asset” that represents some claim on future productivity depends on their BEING future productivity. And on the contract being honored.

That means a claim on the labor of a group that may simply choose instead to “Go Galt”, or just repudiate the whole deal. As we are seeing unfold in Greece today, as we saw in Russia during the fall of the Former Soviet Union, and as we must see when ALL of the USA, Europe, Russia, China and Japan try to retire at about the same time. Do you really think the Islamic World will be happy to labor long into their middle years supporting us in retirement? (They are one of the few places with excess population growth).

Faced with a choice of following their own dreams, having their own families, living their own lives; or slaving away for folks they don’t know due to a piece of paper they never signed; what will the “20 somethings” and “30 somethings” of today do then?

This ‘demand’ will show up when the “unfunded mandates” and “unfunded liabilities” come due. They will manifest as an astounding rise in the need for tax revenues. ( Something we are seeing start now). At present, between Federal and State, the “tax take” runs about 1/4 to 1/3. The nominal rates work out at about 1/2, but it is hard to actually collect to that level. So, say, we double the tax rates to 100%. ( Or 60% Federal, 40 % State – remember that California has 13+% top income tax bracket and nearly a 10% sales tax right now, plus property taxes and several others) Who will work with a tax rate of 100%? Now realize that we have about $200 Trillion of unfunded liabilities…. Even a 100% tax rate can’t cover that (as 1/2 that today is not keeping up with present expenditures and only a $1 Trillion deficit and $16 Trillion debt.)

We are seeing this happening now. Watch congress as we head toward the “Fiscal Cliff”. They will look over the edge, shudder, and try to move the problem 2 years and one month down the road (just past the next mid-term elections.) The simple fact is that it is not possible to fix.

What we DO have

So the USA has been busy packing up real physical plant and equipment and sending it to China.

Our money is no longer based on metals.

Our patent library was sent over on a set of CDs (and they expire in 18 years or so anyway, so anything invented prior to 1995 is already ‘up for grabs’).

We do have some land and structures, but they are mostly mortgaged to the hilt already.

We have some “know how”. We have some remaining industry (such as mining, transports, chemicals, oil refining, movies and TV production). But do “we” really own those things. Many are already owned by foreign owners. Those “recycled petro-dollars” have not all gone into T-bills…

Mostly we have some fundamental individual skills and abilities, along with our personal property and homes. Perhaps a little bit of personal “metals and stuff”, and some folks will own a bit of land.

Oh, and lots of pretty pieces of paper with promises of future returns… if we don’t all cash out at the same time; despite a lot of us retiring and cashing out at the same time.

How This Goes

I’ve tried to think of a good way out of this, but I can’t.

Does anyone really think that a U.S. young illegal hispanic population will feel bound to pay off our national debts and care for / feed / tend the “old yankees”? Or will it vote for “more stuff for themselves” and tax the old wealthy whiteys? We just had an election that basically said “tax the rich”. That “rich”, is the old white folks with pretty pieces of paper… And we haven’t even begun to hit the wall yet.

Does anyone think that the Chinese and Japanese (who each hold roughly even amounts of our paper) will want to accept more I.O.Us over the next 20 years as THEY retire? Will they be satisfied with our latest ideas on how to build things? When they have an ever shrinking workforce too?

Does anyone think that the ever growing Muslim populations of Europe and Russia will be happy to work long and hard every day to care for an old Infidel population? Just because they have some legacy and pieces of paper?

This is basically the same problem I’ve “admired” here before; but re-cast into specific terms and with specific ‘cast members’ assigned roles in the national play acting. Making it more clear what the problems will be.

Realize, too, that I’m NOT disparaging those future young folks. Heck, were I a ’20 something’ with dreams of a new family, fancy car, nice home… and told that I needed to carry my family and 2 old folk on nice government retirement packages based on my productivity… well, I’d likely say to ‘bugger off’ too. I’d either join a revolt, enter an underground economy, become a ‘bum’ (or the more modern Nini ) or just flat out repudiate the intolerable burden. And make no mistake, it WILL be an intolerable burden. $200 Trillion is $200 x 10^12 dollars. With about 200 x 10^6 workers, that’s about $ Million each. I don’t care how you cut it, nobody is that productive. Just not going to happen.

The only question is HOW the dodge will happen.

put the present level for the Feds only at $62 Trillion and rising at $5 Trillion per year. Add in the States and Local governments, and any underfunded private pensions, and I’d seen a $200 T number (but don’t have a link at hand.)

So IMHO, it’s pretty simple. The Baby Boomers have an irrational expectation. They have worked their whole lives and supported retirements for the much smaller “Greatest Generation” (who, IMHO, deserved it) but now expect the same or better for themselves. Yet they have not produced the labor force in terms of kids to provide for it. Not only that, we’ve put so much in hock already (to other nations expecting to retire on those pretty pieces of paper) that our kids are already obligated to be their slaves, not ours. Add to THAT, that those kids expect to have their own lives…

So for that reason, I can’t see this doing anything but blowing up. And rather badly too.

No, no crystal ball on exactly how it will go down. Wars are typically fought when the debtor figures out they don’t have to pay the debt to the subjugated… but I don’t expect us to take that direct a path. More likely it will just be a nice high inflation rate for a decade or two. But don’t count out some simple repudiation. Companies can go bankrupt and dump their pension costs on to the Government (who prunes them in the process). Cities and counties can go bankrupt too. Nations have done it, but more traumatically.

Tonight I drove past a “Motel 6”. They are one of my favorite trivial inflation gauges. They were named during the time of the Gold Standard. They charged $6 for a ‘good enough’ room. It takes a nice blend of labor, land, capital stock, energy, etc. to run a hotel, so costs are representative of broad price changes. They have added a nice computer driven changeable marquee to keep up with price changes. Tonight the price on the local Motel 6 was $62 so we’ve had a nice roughly 90% repudiation already, just over the time from Tricky Dick Nixon to now. No reason we can’t do double that rate (i.e. 25 years instead of 50 ). So that $10,000 30 year bond will be “worth” about $1,000 at redemption (or less). And likely we will take over 1/2 of that as tax on “profit” and “capital gains” taxes anyway…

Yet while I expect that to be the major pathway in ‘the civilized west’; there will undoubtedly be some cases settled via wars and such. Especially between countries with historical animosities.

Furthermore, expect the “class warfare” politics to enhance the abrogation of the “Social Contract” via rewriting the terms in keeping with the (then) current largest voting block. We’re already seeing that in the USA. Medicare being raided for Obamacare. Abrogating the promise to the old retired folks to pay for votes and ‘services’ to the younger group. Yes, dressed up in obfuscation. So claims that the old folks will still have ‘care’ but just more efficiently… yet that is just another way of saying rationing, higher co-pay (i.e. less payment), fewer choices. NOT the same ‘contract’ as the one prior generations had. Expect more of that kind of thing ‘going forward’.

Is it because these folks are evil? Nope. Not at all. It is the tyranny of numbers. There just isn’t any way in hell the contract can be honored. So we’ll put as much lipstick on this pig as possible, but in the end, folks will do what they must to survive. And nobody can survive with a $Million monkey on his back. Even if inflation cuts it down to “only” a few hundred thousand…

So the Political Ponzi Scheme will come to an end. It will be messy. It will be hidden as much as possible behind a veil of lies and deception. And it won’t be pretty (lipstick or no). When? My guess is about 2020 to 2025 (when the last of the baby boomers retire) in the USA and Europe. In China, the one child policy started in about 1978, so a parent 20 years old then becomes a burden about 45 years later. Call it 2022.

Can we play ‘kick the can’ for 10 to 20 more years? I doubt it. My best guess is about 4 years for the EU and the USA at a maximum. Maybe a dozen for China. During that time expect to see major efforts to import loads of new population to support the Ponzi scheme. Latin America and Muslims are two places with high birth rates, so likely candidates. (We’ve already tried that in the USA a time or two. As evidence, see our last election results). IMHO that will not lead to a more stable outcome, nor will it lead to a financial solution due to the shift of voting power to those who would be harnessed to pay the debts. (Also as seen in the last election results).

What to do for the individual?

While it needs more analysis, I think the best thing is to have ownership of “stuff” and productive plant and equipment. That’s land, facilities, metals, and some stock ownership (preferably in countries with more stable demographics and lower debts / entitlements). Bonds only from countries NOT afflicted with these problems. (Though for a few years TIPS in the USA ought to still work, until eventually abrogated or eliminated in some way when they become too much of a government expense.)

Also be on good terms with your own kids ;-)

What not to do?

Don’t expect government bonds to be a long term stable store of value, nor expect that of fiat currencies. Don’t expect pensions in shrinking industries nor from local governments to necessarily be honored (after about 2020 ) and Federal pensions some time later (though more likely to be nominally honored while inflated away). Do expect and prepare for ‘social strife’ (so ‘don’t expect everything to be peaceful and nice’…) Don’t expect ‘immigrant labor’ to fix the problem, it won’t.

There will likely be lots of pops and drops, so trading into and out of such instruments can be helpful. Just don’t buy bonds and put them in the mattress…

In Conclusion

There are two key concepts in Economics. One is that it is called “The Dismal Science” precisely because it looks at such demographic issues as this. And typically sees the problems. The other is that “demographics is destiny”. We can not make a batch of 20 year olds in the next decade no matter what we do. It’s all, already, a ‘done deal’. Importing a batch will not fix the problem, it will change it. From not enough labor, into voters saying “screw you, I want my own life”. (And I don’t blame them as I’d do the same thing.)

How to fix it is likely “we can’t” and at best it can be mitigated a little bit by early action to cut government (and the entitlements it is heaping on the ‘to be blown off’ stack) and recognizing that the Boomers and Gen X & Y folks are likely not going to have a decent lazy retirement (so neither ought our ‘masters’ in congress / Fed jobs). Unfortunately, the political winds are blowing exactly against that. So absent mitigation, prepare for a ‘bubble busting’ of astounding size. Mark your calendars, hide your wealth in “stuff” and practice ‘duck and cover’. It’s gonna be a bumpy ride ahead…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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28 Responses to Generational Inheritance

  1. EM – a gloomy forecast, but unfortunately seems pretty accurate based on current outlook. There is, however, starting to be some sign that robot technology may be starting to approach what we’ve read in sci-fi and that this may possibly solve the demographic problem. I don’t know whether it can happen in the next decade or two, but there have been reports about such robots helping in the caring professions/old folks’ homes. Currently fairly basic, but hopefully Moore’s Law will apply to this as to other similar projects. (Hope is not a strategy??)

    Maybe in 30 years’ time (if we’re still alive) we’ll be worrying about robot obsolescence instead.

  2. vukcevic says:

    There is an inherent problem with most industrial nations and their ‘retirement’ plans. That problem is insufficient human capital. (“Not enough kids”).
    Not in the UK, but the UK is hardly industrial country any more. I lived in England for some decades, got 2 children, grown up, both in work paying tax. Two ‘kids’ appear to be the norm with most of the English and Europeans or old commonwealth residents, not enough to sustain population (2.4 needed?).
    However, due to mass immigration from the new commonwealth, although it makes less than 15% of total population, the norm is 5-6 children (generous child benefits, subsidized or fully funded rent for large properties to accommodate large families, all paid from taxation, call it socialism if you wish) means that UK population is recording rapid growth. In one respect that could be good thing but at the same time there is a problem in providing employment for the youngsters; then they turn to street and gangs, which could have serious consequences, as many UK cities experienced in the summer riots of 2011.

  3. KevinM says:

    There are not bed pan changing robots yet, however one early 21st century combine harvester does the work of 1000s of early 20th century farmers. One modern blast furnace makes more steel than 100s of blacksmiths. Twenty companies with cell phone chip design teams has dropped to only about four.
    Those three examples are similar but not identical. The farming case it where mechanical technology replaces humans in a ginormous endeavor that is not going away. The steel case is where process technology replaces humans in a fading industry. We still use tons of steel, but since we don’t eat it every year there’s not much room for growth. The cell chip case is where the market has picked winners and losers in a not-new-anymore technology. Yay LTE is faster, but once the standard was set, only the handful of established companies had reason to think they were in a position to profit from it.
    If it takes fewer humans to keep society running, why make them? So they can be well fed and unemployed? I’ll buy that total output is still proportional to population, but equally it should be admitted that in exactly the places with low population growth current production (or import) exceeds current need. I’ll also surmise that by the time China or the next merchantile refuses to sell cheap underpants, all the underpants in the world will be manufactured robotically in a factory employing a few hundred people.
    The real problem is not that there will be too few people available to change bed pans. There will be too few WILLING to change bed pans.

  4. Graeme No.3 says:

    With the high unemployment rate in Europe, particularly among the young, I wonder if they can “kick the can” much longer.
    I think that trouble will break out a lot sooner than people “in charge” think, if indeed they do think.
    The fantasy that everybody will behave like good little europeans and that xenophobia and wars a thing of the past will rapidly collapse along with “united Europe”.

    I see that the Chinese government is talking of ending the one child per family law. Perhaps they alone have looked at the future and are taking steps. Introduction of the european “welfare state” is unlikely to be on their agenda.

  5. pyromancer76 says:

    Why must our kids change bed pans, unless it is for “temporary” rehab of a parent’s illness that has a prognosis of recovery? Why must we think that we have the “right to retire” at 65? My parents did (Mom at 62 to be with Dad) and they played thereafter. Nice if you can get it. How many societies in history made that a possibility, much less a likelihood? Funny, I do not begrudge my parents much because they were of The Greatest Generation — came of age in the Great Depression and fought and won the war against tyranny. And they worked bloody hard to develop their own business and work life, raise kids well, educate them, and see them get good employment. Our contribution to their retirement.

    Problem One. Both were very well at 65 with fine minds, in fact well into their 80s. Mom is still somewhat strong at 94, living independently even though legally blind (MD),keeping up with friends and playing bridge. They could have had a further 10, at least, productive years, even if perhaps less than full time. But they played while we worked, now we will work when it is our time to retire, even while our children are working. They both got pensions, reduced their living expenses, and played smartly. However, what if they had not had those pensions to depend on? Work after 65. Solution: people must save for their retirement, e.g., 401k (with employer contribution), whether working for private companies or the government. No more pensions with unending payments until death. “Retirement” would become much more realistic.

    Problem Two. Medical care then becomes the main issue.

    Heartless though I may seem, I want older people, myself first when my time has come, to be able to opt out of life and to get reasonable help to end life. No more eternal bed pans emptied by immigrants (legal or illegal?) in a nursing home (because children are not physically able to care) for those who no longer have a mind or quality of life. No one should be able to make the decision to end life but the person, him- or herself, in consultation with doctor and family (who do not have veto power). A directive made when in sound mind about the quality of life that is acceptable should do it. Some won’t make the choice for an ending, but many will — before an exceptionally painful end, or a mindless one, or a 24/7 totally incontinent and physically helpless one. We must have different options than Hospice.

    If we all are responsible for our own “retirements” and know this “from birth”, we would become more responsible for living is my guess.

  6. DirkH says:

    Graeme No.3 says:
    11 November 2012 at 3:03 pm
    “I see that the Chinese government is talking of ending the one child per family law. Perhaps they alone have looked at the future and are taking steps. Introduction of the european “welfare state” is unlikely to be on their agenda.”

    The one child rule was only enforced among Han Chinese anyway – not among the ethnic minorities (which form the majority in many satellite provinces of China). Trying to enforce it among them would have lead to civil war in parts of the empire.

  7. adrianvance says:

    You have documented the fact that collapse and revolution are inevitable. Our elected ruling class has been stealing from us virtually from the beginning and this is how it turns out: failure. It is beginning to look like the “survivalists” are not so crazy after all, but my question is, “Survive for what?” Can you imagine the world after a few months of collapse? Cannibalism anyone?

  8. jim2 says:

    EM – You are certainly right about minorities. They vote mostly for selfish reasons. They don’t take into account what is good for the economy at all, and I don’t see them voting to take care of old white people. The conundrum here IS white people. They still make up 75% of the population. THEY are responsible for Barry’s re-election. WHY???

  9. adolfogiurfa says:

    You are not seeing the right solution: INDIVIDUAL RETIREMENT ACCOUNTS, as it has been done in Chile, Peru; not a COMMUNAL/COMMUNIST WELFARE where the monies were traditionally stolen by the government (always with “justified purposes”).
    So you can fix things from one day to the other: Just keep the older people in the system and create the new private system.
    You also have the “luck” of having the largest world expenses in weaponry and armies, just cut them to defend the USA and forget “fighting for liberty” (really fighting/dying for increasing the assets of a few)
    Now tell me, who owns the lands in the USA? If the banks…you are done, as all the rest of the world: The only safe source of food is land, anything else is BLACK MAGIC.

  10. John F. Hultquist says:

    In the magazine Fortune (Nov. 12, p. 76), columnist Becky Quick writes about this issue. The national government is adding over $4,000 each year to the debt of every person in the country. She asked for and got a statement from Bill Clinton’s office. He gets it. She skewers Paul Krugman. Not very difficult – he claims no fiscal crisis. So, some responsible folks understand the problem. As you write – what’s to be done about it?

    In contrast, I know a die-hard progressive democrat that can trot out every supportive thing (to him, anyhow) for doubling down on all the bad ideas. Subsidies for wind turbines – we did the same for the interstate highway system, so there is good precedent for these massive shared investments in infrastructure. Right? He won’t shut up long enough to hear a counter argument.

    Speaking of renewables: Have you seen the recent buzz about compressed air storage:
    LightSail Energy:

  11. Petrossa says:

    The dutch still have real money put away for pensions. Almost a trillion euros i thought. But the EU has got their beady eyes on it so….

  12. As EM says, you need to keep your wealth as stuff not as money. If you’re that way inclined, maybe best to own a scapyard – most things are thrown away because a small part of them no longer works. In the event of breakdown of money, it would be a mine of stuff to be fixed and swapped for food or whatever.

  13. E.M.Smith says:

    @John F. Hultquist:

    The big problem with compressed air storage is capturing the heat released during compression of the air. It looks like Lightsail has an idea on that:

    Compressed air storage has been around for a while:

    The first commercial CAES was a 290-MW unit built in Hundorf, Germany in 1978. The second commercial CAES was a 110-MW unit built in McIntosh, Alabama in 1991. Several more CAES plants are in various stages of the planning and permitting process.

    Research is also ongoing to develop adiabatic CAES systems in which the heat of compression is stored and reused to heat the compressed air before expansion thus eliminating the use of natural gas in the system.

    In small tanks, the heat is lost. In large underground systems, the dirt acts as heat storage (but compressing the air into hot rock takes more energy…).

    So these guys add a water spray into the compressing air. OK, captures some heat into the water. Then it looks like they have a refrigerator to move that heat into other water that is sprayed into the air when it is being expanded. So they use water as a ‘heat exchanger’. Don’t know if that’s really all that much better than aluminum tubing…

    (Personally, I’d go with a eutectic salt. Compression cycle, the heat melts the salt. On expansion the salt freezes)

    In any case, there will still be losses in the cycle. The question is just ‘how much?’ and that isn’t stated.

    So we take already expensive electricity from wind and solar, run it through an electric motor, compressor, piping and pumping, expansion, turbine losses, generator losses and get more expensive electricity back… OK… This competes well with natural gas combined cycle or nuclear how?

    Sure, better than no storage, since the alternative is NOT using your wind / solar when the power is most available, but in the end it is just large battery. With all the losses of any battery system. They always lose energy and increase the cost per unit of power of the final (re)produced electricity. (Though they can reduce overall cost if the original electricity source is painfully out of sync with demand…)

    So IMHO a solution to ‘the storage problem’ can maybe move solar and wind from $0.50 / kW-hr to $0.40 / kW-hr via peak shaving. It will not make it $0.10 / kW-hr to compete with gas turbines nor nukes.

    @Simon Derricutt:

    My old college roomie is a retired computer guy. He teaches robotics ‘for fun’ and they have a regular competition. The ‘problem’ changes each cycle. So things like “pick up three blocks and stack them” or “climb a pole”.

    The basic technology is improving, but at nowhere near the rate of raw compute power. The basic structural problem is largely a mechanical one, not computes. You must build expensive high precision mechanicals.

    There are some ‘compute limited’ problems. Things like robot vision. Others have fallen before Moore’s Law (like voice recognition) but others have not (like understanding the meaning of the words once identified). For many of those problems, it is a mix of hardware and software that needs creating. Software does not advance as fast as I’d like (and, in fact, I’d assert much of the last 20 years has been a wasting of software skill, swapping it for cheap hardware).

    IMHO, we are several decades away from the point where you can ask the robot to get for you a glass of water…

    More plausible would be dedicated hardware (that could embody some robotic features). So you could have a bedside dispenser that would understand the word “water” and fill a glass. Perhaps a choice of water, tea, coffee, juice.

    The major problems with ‘health care’ are not amenable to that kind of solution. They require one-off custom solutions (like hip replacement surgery) or human decisions (like ‘is this patient sleeping or have they entered a coma?’) We already have automated monitoring of ‘vitals’ and such. Could a robot be invented to spoon feed a 70-something who is 1/2 way to dementia? Change their diaper? Frankly, I’d rather solve the problem of robotic airplanes and elimination of flight crews. It would be easier… (we’re almost there already with AirBus where the pilots are largely for QA and ’emergencies’.)

    Can we have robots delivering the food trays from the kitchen to each room? Sure. With factory made “TV Dinners” we could even automate the whole kitchen space. Would that be significantly cheaper than our present “frozen dinner and microwave at home”? Not seeing it myself…

    The problem comes in with the nursing and medical level of care. Those 2, 4, and 6 year degrees…

    So I think we’ll get incremental cost reductions, but offset by ‘advances’ in medical options that are more expensive. (Look for the government to stop funding R&D into ‘new’ care that’s expensive by the simple expedient of not paying for it – leaving it off the ‘approved list’. We’ve also picked up a tax on ‘medical devices’, so watch for more taxes to halt expensive solutions…)

    Maybe in 50 years we can have smart robots, but soon…


    That ‘lack of jobs’ is another aspect of an economic system out of balance. In a ‘free market’, everyone can find a job. The ‘equilibrium wage’ changes. In a regulated economy we set the wages paid higher than what makes money, and a load of folks (especially young and new workers) can’t get a job. (Why pay them $10 / hour when it looses me $2/hour and I can get an experienced worker for $10 anyway? Or move the production to China).

    So we set up a system where money is handed out to those ‘family formers’, who get on the dole and ‘go for it’. Then need to raise a lot of taxes to pay for it, so tax production and wealth (chasing it away) and applying ‘minimum wage’ laws (expecting to get more income tax) and find that fewer jobs exist as a product. Then we end up in an even worse situation. Not enough jobs for ANYONE, and still a population dislocation. We get old folks expecting to retire, and what young workers there are unable to work. But do not mistake the lack of work for too many workers. It is just too expensive a system.


    That ‘willing’ problem is very real, already. Very few folks entering ‘nursing’.

    BTW, I think that ‘manufacture of stuff’ is not the problem. As you point out, it is subject to large economies. It is the provision of ‘services’. Medical care in particular. Something like 90% of lifetime medical care consumption happens in the last decade or so of life. We have a giant bolus of “boomers” heading into those years.

    The local ‘old folks home’ had a staff of about 3 on duty ( and a few shift) to care for about a dozen folks. Then there were the ambulance crews, the medical staff at the hospital. The indirect labor in the production of consumables and capital stock (more subject to automation) and electrical power and water for showers and…

    In the end, it’s reflected in the cost. The cost was more than the average national income per person. That is, more than “one person” per person. When you only have about 2 to 1 anyway, ‘that is a problem’.

    So some of it can be improved with automation, but we’re a long ways from that point and it still doesn’t solve the more expensive and larger parts of the problem.


    I actually saw this coming about the ’80s (first admired it in the ’70s…)

    At that point realized that “retirement” in the classical sense was not going to happen for me. (It has for my elder siblings). So (as my parents died before retiring much – lung cancer from smoking) I’ve ‘taken my retirement in the middle’. Enjoyed it too.

    Now if I end up living a long time and ‘working in my old age’, well, fine.

    I don’t ever want to be in a ‘retirement home’ and will find a way to ‘tough it out’ at home first. Once “it is no fun anymore”, well, not seeing the point of being a bedridden profit center for some medical provider…


    Ending it you say? Hmmmm….


    IMHO, almost everyone votes for selfish reasons. For example, those “white voters” who returned “The One” to office. They voted to “feel good about themselves” and to feel “morally superior”. They, too, ignored the economic realities. (Almost everyone does. VERY few folks would ever even think about making the case that a minimum wage law harms those most in need of a job; yet it does. The “optics” are bad…)

    So in large part, the Limousine Liberals are voting from self interest in that they want to feel good about themselves while the Fiscal Conservatives are voting from self interest as they don’t want to be impoverished by a broken belief system… And so it goes.

    The problem isn’t that some minority group votes from self interest, but that ALL of us vote from different self interests and nobody is looking at the problem from a global level. So we get broken “solutions” that “feel good” for 51%, but don’t work.


    I think you missed the whole point. An individual retirement account is a paper asset. It gives you a contractual claim, but it does not in and of itself provide physical goods and services. So we have a few $Trillion now? of I.O.Us in the social security ‘trust fund’ with no productivity to back them up. No labor to perform on them. Similarly, the Japanese and Chinese have collectively about $2 Trillion of U.S. Treasuries. Nice ‘retirement account’. Yet we can not deliver $2 Trillion of goods and services to redeem them. It will make no difference if they are owned collectively or in individual accounts.

    So we as an economic system are repudiating growth of physical productive assets and population in exchange for paper ‘IOUs’. (The ‘progressive green agenda’ pushes hard for this; reduction of ‘resource usage’ and population). It is simply not possible to substitute a paper asset for a physical good or service (labor). You can exchange them, but not substitute them. At the end of the chain of exchanges, someone is left holding a worthless promise. (That’s how a Ponzi works).

    So China is ending up with the real physical plant and equipment and the intellectual capital of the patent library. They also have a load of ‘promises to pay’ from us. At some point they will realize that the ‘promise to pay’ is not backed up by ability to pay (as our productive capacity is now in their hands). At that point they will stop trading real goods for more ‘someday promises’. At that point too, we will be needing “stuff” and not have it. We will be placed with “demand to pay” and no ability. Will we repudiate the debt? Will we hand over ownership of whatever real assets are left? (That “selling the land” you like to mention). Will we just inflate the debt away? (What I expect).

    It will not matter if we have ‘individual’ accounts or collective. The disconnect between physical assets and paper debts will remain. I do agree, though, that to the extent contracts are honored, an individual retirement account can let ownership of a Chinese factory be held in a retirees hands and give a claim on that productive capacity. Will China honor that ownership when the US Bond Dept is evaporating before their eyes?….


    Realize I’m not being”dismal” about this out of some personal desire. I’m just looking at the pieces and seeing how they fit best. It is a natural consequence of the state of things.

    Is there some reasonable way out of this that I’m not seeing? I suppose there could be. I’d not rule it out.

    Perhaps some great leap forward in technology. Perhaps some “aging reversal” drug that lets us all work to 100. Perhaps everyone will just suddenly learn to ‘play well with others’ and always honor contracts while having stable money values.

    I just don’t see any historic evidence to justify those scenarios. I also see our governments doing “exactly wrong” things (that benefit the power brokers and obscenely rich and powerful).

    It is just that looking at how things stand now, I’m not seeing a nice peaceful generational transfer of things working out. It also looks like the clock has run out on the ability to pull back from this cliff. With ‘4 more years’ in the bag, of policies that will make things worse economically and not better; just don’t see any way to save the system via frugal fixes.

    More likely will be a ‘blow off top’ of huge extensive growth of taxes, regulations, economic stagnation, and squandering of assets. That will not increase our ‘ability to pay’ on our IOUs nor our ability to produce goods and services. So the problem will accelerate to a collapse. The end game having already arrived in places like Stockton and ‘on the cusp’ in all of California.

    But I could be wrong. Maybe some bright person will come up with a way to pay massive retirements and medical costs without the productive capacity and labor to provide them…

  14. E.M.Smith says:

    Oh, and I ought to add:

    While this POV looks at broad aggregates, the actual impact is likely to be very unequal. So expect the POTUS and congress to keep on getting fat pensions long after they’ve broken the payment of Medicare and Social Security. Expect taxation to be used to pay politically important military and government employee pensions long after it has also broken the economy (such as we see in Greece, and with the inevitable riots in response).

    We might well honor payments of inflation protected TIPS while removing the COLA from medical care payments. Etc.

    So there could easily be a way for the individual to find a ‘niche’ to get by. Owning Brazilian stocks and living in Costa Rica, or buying an annuity from a Swiss bank in Swiss Francs. Who knows. It is just that the past ‘all in dollars all the time’ and investing in ‘collective America’ with defined benefit plans is just not going to survive. And there will be a lot of losers in the transition.

  15. DirkH says:

    E.M.Smith says:
    11 November 2012 at 7:45 pm
    “IMHO, we are several decades away from the point where you can ask the robot to get for you a glass of water… ”

    Couple this one with a SIRI style voice processor and you’re good to go.
    German household robots, Karlsruhe, ARMAR 3A und ARMAR 3B, 2011

  16. DirkH says:

    Ending it you say? Hmmmm…. ”

    I don’t know if they’ll end the one child rule. I’m just stating that it was never enforced amongst the non Han Chinese.
    Basically I don’t care whether they’ll end it – China is like an EU on steroids with even sicker policies. They’ll have a lot of crisis management to do over the next years.

  17. Tim Clark says:

    I have an IRA. What odds are you giving that our government will not repossess it to redistribute?

  18. jim2 says:

    EM – there is selfish, then there is selfish. I want to see a vibrant economy. That is selfish in that I want a good job and I want my son to have a good job and a good chance for a good life. But, that will be good for everyone, including the poor, as it increased the size of the economic pie. If I vote so I can get hand outs from the government, that isn’t good for everyone else.

  19. BobN says:

    So many parts of society breaking down. It seems like everything is driving us to a collapse.
    The world demands more and more high tech workers, but our schools seem to be producing the opposite. Math and Science abilities are declining, but more importantly the practical skills are also going. Kids don’t grow up building things and work on cars like past generations. Young people are not learning the trades. I worry that when things collapse the younger generation will not have the basic skills to survive. I have a farm and periodically hire young people, they can’t do much any more.
    There is already rumors that Obama wants to move on the 401K money, not a good place for your money. Land, it always gets confiscated. If a collapse comes, short term assets will help, but in the long run its just a matter of the fittest surviving.

    I think the UN sees the problem and their agenda 21 is their version of saving the world. It sounds good unless your one of the 6 billion people they want to eliminate.They are brain washing our kids through the ICLEI group with the litterateurs to schools. They have their eye on all the land and water, they want to control it. They want everyone living in tenements next to railways so cars are eliminated.
    The government is doing everything wrong, so with 4 more years of the ONE I believe it will collapse before he is out of office. That’s the only way out, all wealth lost and the survivors start over.

  20. jim2 says:

    BobN – We need to be like Greece and give everyone a free college education. It certainly worked for them!

    On a past topic, something I intended to say but got lost in (my) shuffle. If you have a bad disk drive and you want to keep the info on it out of hackers hands, take it apart and soak the disc in hydrochloric acid. AKA muriatic acid, you can get it a Home Depot or Lowes -typically used to clean swimming pools and masonry. It takes the outer coating – the “memory” – off the aluminum substrate. It only takes seconds. You can then neutralize the remaining acid with baking soda – just beware the bubbles splattering the acid.

  21. KevinM says:

    Thanks for the clarification, I do concur the demographic imbalance becomes a money issue. I also agree that this is one of the last areas automation will be able to address efectively – I’ll go beyond your 30 year horizon and say 50. I don’t think higher population is the answer though.

    A larger pool of humans who would rather not be emptying bed pans only alleviates the somebody’s-gotta-do-it situation if the lowest rungs of culture buy into humble servitude. I don’t think American culture is headed in that direction.

  22. DirkH says:

    BobN says:
    11 November 2012 at 11:40 pm
    “So many parts of society breaking down. It seems like everything is driving us to a collapse.
    The government is doing everything wrong, so with 4 more years of the ONE I believe it will collapse before he is out of office. ”

    Highly likely. See Alvin Toffler’s prediction from 2007 here, at 22:45

  23. Mark Miller says:

    We have some malthusians out where I live. I got into a debate with one of them last year. He was saying that we need to reduce our population, because we were despoiling the earth, and there were too many people pursuing too few jobs. I told him, “Well I guess you want Social Security to go away then.” He said, “I didn’t say that.” I responded, “Social Security depends on a continually growing population,” and I explained why this is, and then said, “If the population shrinks, it will fail.”

    Bill Clinton has made this point many times that we need to in effect “import the children we’re not having.” You make an excellent point that as the immigrant population grows, they’ll eventually be at a point where they can vote to relinquish any responsibility to pay off the debts we incurred, or to fund our public pension programs.

  24. p.g.sharrow says:

    Wealth must be created before it can be consumed. Changing bed pans does not create wealth, it merely consumes wealth. The “greatest generation” consumed all the wealth they inherited, all the wealth they created, all the wealth that their children (baby boomers) created. We are now retiring and the entire system is in collapse. Our children CAN NOT support us and our debit. Medicare is in collapse and social security is no longer a productive cash cow for the federal government, it will be massively cut back with in 12 years. It is too late to “fix” this ponzi scheme. Any real increase in interest or inflation will increase interest on the national debt faster the it can be paid. The time to repair things is over, the fiscal cliff is in the past not the future. Time to contemplate reconstruction, not repair. There is no safe hiding place, no safe investment. Plan on survival first for yourself and then help for others around you. pg

  25. Jason Calley says:

    E,M., as you say, stuff and knowledge — those two things are wealth; a paper promise is just a paper promise. So, why has our society gone so extremely far in equating paper with wealth? In some cases, it makes sense. For example, the original purpose of the stock market was to create a mechanism which efficiently matched fresh capital up with companies which needed investment in productive capacity. That is a good use of paper and promises. Still, we see our economy fixated on paper, so much so that today the stock market is much more simply a form of gambling that it is of capital allocation. Why is that? I suspect that the reason is that by keeping people’s attention focused on paper it is easier to steal from them. If you are a person who wishes to become wealthy without work, paper is a good weapon. Making stuff is hard work. Inventing new processes or discovering new knowledge is hard work. Printing paper? Not so hard, and if you can convince people that paper is just as good as stuff or knowledge, it is an easy road to riches.

  26. adolfogiurfa says:

    We are indeed living in interesting times! :-)) The “turn of the screw” is right now!

  27. adolfogiurfa says:

    BTW, perhaps our friend Vukcevic could show us some new graphs…just to heat it on… :-)

  28. Heretic says:

    … the Islamic World will be happy to … have 28% birth deformities? (They are one of the few places … who insist on cousin marriage). Abortion helps. The age discrepancies … not so much.

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