Arnold Kling  

Is Europe Insolvent?

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Jagadeesh Gokhale writes,


By 2020, the average EU country will need to raise the tax rate to 55 percent of national income to pay promised benefits.

In other words, their Social Security systems are in worse shape than ours.


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COMMENTS (9 to date)
Greg writes:

Everyone already knows that this is going to be a very interesting topic for the next few decades. Hasn't it also been clear for a long time that Europe, with lower birth and immigration rates and larger entitlements, would be in much worse shape than the US?

I guess the real insight is taking funding deficits out indefinitely to avoid masking the true size of the problem. Good point. Personally, I take it as a given that entitlements will have to be cut way back. Maybe younger generations have the right idea by generally assuming that their Social Security will be worth nothing, especially if they earn enough to save for retirement otherwise.

I do have a couple of quibbles, which may just be because I didn't read (I mean skim) the article well enough. First, why are we lumping pension and health benefits together? This seems awfully confusing since health benefits probably make up the lion's share of the problem. Second, doesn't a perpetuity analysis make everything _highly_ sensitive to long-term forecasts? I would be much more confident in this analysis if I could see a sensitivity analysis. I guess that's secondary. The main point is right, even if the numbers happen to be way off.

Kevin writes:

This is one of the reasons I'm not ready to totally write off the future of the USA. Europe is on the same collision course with reality that USA is, but with decades less cushion. We will see a very good test case of the destiny of the nanny state that will be hard to ignore.

Russell writes:

Hi. A bit cheeky but I identified your blog as a possible source of good comment on a post I did called “GDP Plummets” as there are particularly interesting issues just now about plummeting Gross Domestic/National Product figures and environmental concerns. If you are so minded, please leave a comment. This is set to go wider. All the best.

[Russell: you are welcome to comment on EconLog, but we do expect commenters to contribute to the discussion here, and not just scrounge for commenters on their own blog articles such as yours at http://russellcavanagh.com/2/?p=133 You wouldn't like it much if commenters on your blog merely "identified it as a source of good comment" on their own blogs and had nothing else to contribute. It's fine to link to your blog so long as you have something unique and of value to contribute in your comments here. Fishing expeditions are crass, not cheeky, advertisements, and a good way to get banned here.-- Econlib Ed.]

MattYoung writes:

Russell,

I am interested, do you have a web site, a blog, or just comments?

Randy writes:

I remember from the discussions on Social Security a few years back that 2008/9 or so was the time that many were predicting that the crap would start to hit the fan because this was the point when the revenue coming in would start to decline and that the demands for entitlements would start to grow. So is this happening? And if so, how much impact does this have on the rest of what we're seeing?

Mike Rulle writes:

This has been one reason I have thought the Euro was over valued, as well as purchasing power parity. To borrow Arnold's phrasing, we are the tallest pigmy in the forest. Except I am not sure why Europe's relative weakness is good for the US. Further, China and India, while considerably smaller economies, in 30 years may not be. They also may not (who knows) have the same propensity to over promise their people. Does this make them a potential "threat"? I think it is better when less countries engage in risky behavior. I would rather be the shortest Watusi than the tallest pigmy (I think). But as Greg notes, I too assume these entitlement programs simply get cut on a as needed basis. The "as needed" will be defined by the voters when the time comes.

Kenya writes:

If the Japanese, the Europeans and increasingly the Chinese must save more of their money to pay for their social welfare programs and the US must expend its Social Security surpluses to pay for the baby boomers, who is going to buy all this debt that we are generating?

Robert Book writes:

One of the reasons for this is Europe has had lower fertility rates than the U.S. for a few decades.

Max writes:

[Comment removed for supplying false email address. Email the webmaster@econlib.org to request restoring this comment. A valid email address is required to post comments on EconLog.--Econlib Ed.]

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