Monday, May 10, 2010

Samuelson on "The Welfare State's Death Spiral"

Whether you want to celebrate it or lament it, demographic changes in Europe and the U.S. means that social insurance as we know it (a.k.a. "the welfare state") cannot be sustained at current levels. Robert Samuelson makes the argument here.

I'd add that globalization merely speeds to process -- it can neither solve nor prevent the problem.

There are two consequences to note.

First, the problem of "illegal immigration" will solve itself in 20 years or so. Maybe less. The U.S. is going to be begging for Mexican workers to immigrate to the U.S. in order to work here, and to pay the taxes necessary to sustain the aging Anglo population. This will prove increasingly difficult as Mexico continues its economic development -- soon enough, wages in Mexico will rival those in the U.S., thus deterring any incentive for Mexican workers to immigrate to the U.S. (whether legally or illegally).

Secondly, while globalization means wage supression in advanced industrial countries, it means increasing wages in developing countries. Knowing that doesn't necessarily make it easier for U.S. workers, but the fact is that average wages across the world increase as a result of globalization, even if they decrease (or don't rise as quickly) in the U.S.


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