‘You Think It’s Bad Here in the US of A?’
A few days ago, ELROD posted an interesting and eye-opening article, the opening sentence of which was “You think it’s bad here in the US of A?”
The article, “Eastern Europe is Broke,” was about the dire financial straits many of the nations of Eastern Europe find themselves in today, after several years of “astonishing growth.”
ELROD refers to this as phenomenon as “Oh, the good old days. Well, they’re done. Kaput”
I voiced a similar concern about a week ago, not for Eastern Europe, but for a country in Western Europe. A country that is a member of the European Union. A country whose economy has been repeatedly held as a model for other European economies. And a country on which the Organization for Economic Cooperation and Development (OECD) as late as January 31, 2008, had this to say:
The Netherlands is well out of its economic stagnation in the first half of the 2000s and is now once again in good shape. The recovery of the past years has been robust, helping to maintain GDP per capita in the OECD’s top league. The very open Dutch economy has benefited from the supportive international environment and investors have continued to be attracted by its business-friendly environment. The country has also benefitted from past structural reforms, notably reforms of pension systems, health care and disability benefits, which have contributed to putting public finances on a sounder footing and have encouraged labour market participation.
The report does go on to mention some possible storm clouds appearing on the horizon for the Dutch economy.
Talking about storm clouds, in “Time for a Global Stimulus Plan?,” I quoted the Dutch NRC Handelsblad’s article titled “Perfect storm in the Dutch economy”:
A perfect storm is bearing down on the Dutch economy. On Tuesday the Netherlands bureau for economic policy analysis CPB published a surprisingly bleak scenario for 2009 and 2010. The predicted economic shrinkage of 3.5 percent promises to be the greatest drop since 1931, on the eve of what became a lost decade.
This morning, the same newspaper carried another article with possibly bad news for a large segment of its population, pension recipients.
And, again, I thought of ELROD’s words, “You think it’s bad here in the US of A?” Especially after reading news reports of federal employees unions complaining that federal employees are slated to “only” get 2.0 percent pay raises next year.
Well, this according to the Handelsblad article “Dutch pensions under pressure”
More than 4.7 million Dutch run the risk that their pension fund will have to lower the pensions it pays out in the coming years in order to avoid collapse.
The article makes it clear that this only “concerns (former) employees and pension recipients from large industry pension funds, such as the fund for the metal working sector, the pension fund for civil servants and teachers and several company pension funds.”—about 4.7 million of them, and goes on to explain:
In the Netherlands, pension funds are required by law to have assets of at least 1.05 for every euro of committed pension. Pension experts say that the danger zone is from 0.90 euros and downwards – what the sector calls a coverage ratio of 90 percent (or lower). “With 90 percent or lower, an average fund cannot manage to reach 105 percent in five years’ time without taking drastic measures, like raising premiums or lowering the amount of pensions paid out to recipients,” says Dennis van Ek of consultancy firm Mercer.
The banks and insurers that finance minister Wouter Bos has spent billions of euros to bail out over the past months were all financially healthy, but the pension sector is in essence bankrupt.
“Many pension funds” had a shortage of assets at the end of 2008. “There is a problem of solvency,” social affairs minister Donner wrote to Dutch parliament. Numerous pension funds are in a position where their obligations exceed their assets.
And some encouraging words:
Regular companies that have an shortage of assets and can no longer raise capital simply go bankrupt. But pension funds are different. They are like piggy banks in the Netherlands, holding a total of 600 billion euros. Capital is the least of their problems. Creditors such as pension recipients may try to have their pension funds declared bankrupt, but it is doubtful whether a court will actually do that. As the pension world and minister Donner have repeatedly assured us: the payment of pensions is not in danger.
But, nevertheless, it concludes:
Union related funds with an ageing workforce are more vulnerable to setbacks than funds with many young people who will continue to pay premiums for another few decades. At the same time as the solvency crisis, the minister wants to discuss with the sector “the tenability of the pension system in the long term.”
A painful revelation for politicians and for the sector: the pension legislation from 2006 presupposes there will be a crisis once in forty years. The reality is now once in six years.
Now, how about our Social Security system?
8 Responses to “‘You Think It’s Bad Here in the US of A?’”
The fact is, we simply don't know about our Social Security system. It has been projected that it will be bankrupt in 75 years, give or take a decade. That's an eternity in terms of meaningful projection. Within 75 years we may halve the defense budget. We may have beaten cancer and reduced our health care from its current pitiful state–over 3 times what other nations pay with worse outcomes–to one that is proactive, lean and effective. We could have the world's most productive and sustainable green economy, pumping untold billions into social programs.
Or not. It is up to US to decide where we go from here. If we do focus on a sustainable green economy, we win. If we try to revive debt-driven hyperconsumerism, we lose.
This post serves as fair warning that we have reached a tipping point. Measuring our nation's success and that of other nations in terms of GDP needs to change. That's a measure of how fast we take resources from the earth, make them into “goods” and throw them away. We need a whole new way of thinking, and it's very hard to see how we get there. We need to make and buy things that last and shut down the marketing of wasteful living. Every single thing we do from now on should be oriented toward low-consumption lifestyles. And the truth is, there is tremendous opportunity in that. 120 million homes need to be retrofitted for energy savings and every home and commercial building from now on needs to be a net zero energy consuming building. Super-efficient appliances and technologies can be made to last for decades and honestly, we don't need new clothing styles every season. It is a different way of thinking and I don't know if we're ready for it.
But ready or not, it is upon us. Time to roll up our sleeves and get to work. Time for some long-term thinking.
“100 years from now, all new people.”
Very thought-provoking comments, GreenDreams.
I have not looked in detail at Obama's plans/budget for renewable energy, conservation, green technologies, etc., but I would bet a couple of dollars that it includes a billion times as much in both terms of dollars and commitment, than any of the Bush era efforts.
And, yes, it's time to roll up our sleeves and, regardless of the fierce opposition that is to be expected,start doing some long term thinking and working, for our grandchildren and theirs.
Thanks for you thoughts
Dorian
Seventy-five years? Where did you find that figure? Last I heard, it was due to be bankrupt no later than 2027, ironically, the year I'm supposed to retire.
Green how does massive social programs prevent bankruptcy of the social security fund?
Did you not just read the ops article?
More than 4.7 million Dutch run the risk that their pension fund will have to lower the pensions it pays out in the coming years in order to avoid collapse.
This post serves as fair warning that we have reached a tipping point.
Agreed. A head long plunge into socialism is not the answer as is evidenced by history. This should indeed be a warning. Look at the EU. Its bad times economically and they are bankrupt. The USA is just simply hurting. Thats the resilience of a Free Market society as opposed to a society that depends on the government from everything up to and including telling us how to wipe our butts with the proper paper.
Look Im in favor of a national health care plan. I believe that if we adopted a tax policy that I have put forward that we could actually pay off the debt and pay for national health care and in the meantime stimulate the economy with new jobs and expand the economy going forward.
But you do not just send a 650 billion dollar request to congress for national health care when your already running a 1.2 trillion dollar budget deficit.
GS, “socialism” is a euphemism that belittles an honest attempt to repair the damage of 30 years of coddling the rich to the detriment of our entire country. If we tone down consumerism and if energy costs make imports ever more expensive, we have to consider that we may not ever have full employment for displaced workers. we're going to have to find a way to assure minimal at least safety net that no one has to 'deserve' except for being a citizen. I'd love a link to your policy, as I consider you pretty smart, though given to demonizing “the left” even though it is “the right” who trashed our economy, our environment and our future.
I believe every American should have food, shelter and medical access as a right of citizenship. For the MANY of us who will not settle for that minimal lifestyle, we will continue to work for more. Yes, it's part socialism, part capitalism, but our current approach doesn't work for a sustainable future. There are things our citizens can contribute without always bowing down to the concept of money=worth. For-profit companies can't do it all and in certain areas, like health care, our goal needs to be to provide excellence in service, not in profit. Same thing for maintaining and improving our infrastructure, security and disaster response. So I DO see a much larger role for government, or at least, for NON-profit providers of these services. The GOP mantra, “privatize, deregulate, cut social spending”, has not worked and will not going forward. We need a new hybrid.
Health care. Medicare overhead 3-5%. For-profit, 35%. It's the same with for-profit security (Blackwater, Halliburton) and disaster relief (over 15,000 for-profit contractors instead of FEMA doing it.) This is not efficient and hugely expensive.
I agree on the debt and deficit, but don't see how to pull it out of the fire without some public spending. For decades our government borrow and spend policies have shortchanged the public, the environment, workers and communities, all for this bankrupt concept of “trickle down.”
Manchester2, that number is so bogus that it's just shocking that people believe it. Absolutely no reputable site that discusses economics and government will ever use that year or even discuss Social Security as being “bankrupt”. Conservative political sites with no respect for truth, on the other hand….
I heard a piece on NPR about how bad things are getting in Ireland now. They made it sound about as bad as the Netherlands.