It's the Demographics, Stupid

"We are facing an unprecedented transition, and it is going to be nasty. All of our institutions are based around the expectation that the economy will be bigger in the future, not smaller. When I pointed this out on twitter yesterday, a couple of people asked why this was a problem: wouldn't a shrinking population allow for higher per-capita incomes? Real estate would probably be a pretty sweet deal, for example.  "The problem with this is that our economic system revolves around a lot of debt. Biblical and Islamic bans on "usury" (lending money at interest) strike most modern people as pretty silly. But in the very-low-growth world of historical Palestine, they probably made a lot of sense. These days, it's easily possible to borrow money at 5%, invest it in something productive, like an education or a car to get you to work, and end up with both parties better off: the lender gets their 5%, and the borrower has so much extra income that the 5% will not be much missed. But at a time when economic growth was under 1% a year, this would have been extraordinarily dangerous behavior. Many, maybe most people who borrowed money at interest, would end up dramatically worse off. So the bible forbid it.  "In an era of economic growth, on the other hand, debt has become an integral planning tool for almost everyone. I mean debt, broadly construed, not simply actual bonds and loan documents. Social Security is a debt. So are pensions, and Medicare. And of course, savings accounts and and t-bills and municipal bonds are also debts. They are all promises to pay folks later, out of future earnings. And those are not per-capita promises; they are fixed. If GDP shrinks, those promises become unpayable, which is what we've already seen it Greece."

http://www.thedailybeast.com/articles/2012/12/04/our-demographic-decline
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As Steyn likes to say, "It's the demographics, stupid."

Our social programs are built on a model of sustained growth in economic activity and population, but we have neither. We could compensate, to a degree, with rational immigration laws that allow the motivated and educated to cross our borders and contribute to both population and economic growth - but "we" dork that up too. "We" could avoid living on massive debt - and we know how that's all working out since debt is to a politician what the next hit is to a junkie.  Interesting to ponder: "By law, Social Security will stop paying benefits in excess of its intake as soon as the "trust fund" is exhausted. And even in the absence of such provisions, governments can default, companies can declare bankruptcy. Or debts can be inflated away. But then what happens to the folks who planned futures around those promises?"  At least now I get the significance of the "trust fund" IOU drill.