8. The demographic crunch time is here.
For more than a decade we’ve been worrying vaguely about the consequences of demographic change for government budgets. The problem is no longer abstract; the long-term deficits associated with rising entitlement spending in the US, Europe and even China are beginning to affect investor perceptions and to limit what governments can safely spend. Across the industrial world governments now face a long-term fiscal squeeze. For the foreseeable future, governments will be less able to respond to economic slowdowns with deficit spending. While the global slowdown has temporarily dampened inflationary forces, the unfunded liabilities for pensions and entitlement spending will begin to affect interest rates and inflation expectations when and if the world recovers to something more like a ‘normal’ growth pattern.
Policy and politics will be dominated by efforts to raise retirement ages and otherwise adjust to an era of diminished government resources and rising demand for health and other services. Governments that are unable to get their long term finances in order will pay an increasingly heavy price — especially in times of economic crisis when their markets will come under speculative attack and when their efforts to bail themselves out by increased spending will only undermine their global credibility.
Yep. The inescapable conclusion of unsustainable pensions and entitlements combined with declining birthrates make austerity measures a certainty. We can help ourselves, however, with a sensible immigration policy similar to Canada's. By sensible we mean a) securing the borders and b) choosing who it is we want to participate in our economy and in the American dream. We pick the best and the brightest, the producers in society who will help offset these declining birthrates and in turn re-invigorate our our economy.