"Cradle to Grave"
Bankrupt governments,
rotten social contracts and deadbeat currencies...
by Bill Bonner
“Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” ~ Charles Dickens, from ‘David Copperfield’
Normandy, France - "All the trains into Paris are canceled. Why? Is it because the western model of democratic socialism is going broke? Because it has allowed its expenses to exceed its income year after year? Is the bankruptcy of the welfare state among the ‘cluster’ of disasters headed our way?
Here’s the story from CNN: "France faces widespread protests and 'hellish Thursday' as anger at pension reform mounts French workers are set to take to the streets Thursday to protest radical reforms to the country’s pension system that, if implemented, will require most people in France to work two years longer before retirement.
Eight of France’s largest unions - covering transportation, education, police, executives and public sectors - called for Thursday to be the “first day of strikes and protests” against the proposed pensions reform. Widespread strikes are expected, and it may be “a hellish Thursday” on public transport networks, Transport Minister Clement Beaune warned French broadcaster France 2 Tuesday. Paris’ transport authority predicts “very disrupted” service on the city’s transport network."
We’re happy to stay where we are, about two hours west of Paris, in an old farmhouse. Outside, it is raining, snowing, sleeting – a typical winter in Normandy. But inside, in front of the open fire, ‘the weather outside is frightful…and the fire is so delightful.’ (Tomorrow, we’ll explain what brings us here.)
Public Disservice: Meanwhile, the French are on strike. Teachers. Air traffic controllers. Police. Many ‘public sector’ employees…that is, the people paid to provide services to the public…are not doing what they are paid to do.
To put this in perspective… Otto von Bismarck invented the model welfare state for Prussia in the late 19th century. What a clever fellow. He launched three short and successful wars, against Austria, Denmark and France. He realized that the masses could be rallied behind the flag in wartime.
But most of Ol’ Blood and Iron Bismarck’s efforts were spent on diplomacy, trying to preserve peace. And in peacetime, ‘the people’ had less need for government. If war was the health of the state, as Randolph Bourne suggested, peace must be its sickness. Bismarck’s medicine is described by Kees van Kersbergen and Barbara Vis as follows: “…granting social rights to enhance the integration of a hierarchical society, to forge a bond between workers and the state so as to strengthen the latter…”
In Sickness and Health: The state was strengthened because its new mission allowed the government elite to take more of the nation’s GDP by promising to provide social services in return. It also unified the people behind the government, in one, shared insurance program, giving citizens a stake in the system itself. They began to see ‘the government’ not just as a nuisance, but as a source of security and wealth. After all, it was the government that would support them in their old age. Today, at least 60% of the French and 50% of Americans receive ‘money’ from their governments.
The trouble with this scheme is mathematical. The feds can only give what they take. Logically, the money to pay for pensions still has to come from the people who get the money. And practically, government is a very poor manager of retirement funds. It wastes much of its revenues (especially in America, where the ‘defense’ budget dwarfs other spending). And much of it is siphoned off to the deciders themselves. So, the actual return on investment for the typical pensioner is low.
This defect was delayed and disguised for more than a century, thanks to the extraordinary growth of the fossil-fueled economy…and the big increase in population. As society became richer, with more people to support the government, the feds were able to pay retirees more than they deserved. So, retirees began to expect more. Politicians raised payouts. The costs crept higher…as revenues lagged behind.
Replacement Value: Every white shoe yearns for mud. And every public policy aims for failure. Today, almost everywhere, public pension programs are under-funded. Almost all the world’s governments are deep in debt. GDP growth rates have slowed to a crawl. Productivity – under the weight of so much social welfare regulation – is failing. And populations are peaking out.
In Europe, the fertility rate – the number of children per woman – was 3 in 1950; now, it’s 1.6, well below replacement level. In America, too, women are not having enough children to maintain the current population level or its Social Security system. Overall, the fertility rate is 1.7. For white women, it is about the same as Europe, at 1.6. That is why the elites tend to favor immigration; it helps keep the Social Security systems solvent.
The French are trying to ease the strain by raising the retirement age (along with other measures.) But those moves merely make Bismarck’s ‘social contract’ less attractive. And now the young Frenchman, who expects to be taken care of, cradle to grave, is wondering how it is going to work out. How can a bankrupt government…heavy with debt and legacy obligations, and managed by a large class of incompetent, over-paid, over-powerful deciders…make good on its promises?
Won’t it have to ‘inflate’ some of them away? Won’t its central banks and central governments have to back away from their ‘tightening’ policies? And won’t that be a death sentence to their currencies and their fixed-rate bonds? Yes."
