Is the U.S. economy on the verge of collapse?

Just for a bit of perspective, I came across a book today at a used book exchange entitled something like “How to Survive in the Coming Tough Economic Times” (not the exact title), published in 1981, complete with a forward by Orrin Hatch praising the author’s astute economic analysis. The book loudly proclaimed that the author’s previous book was the bestselling book on economics in American history. I didn’t look at it very closely, but the back cover announced some of the author’s predictions - by the end of the 80s, the price of gold would top $2000, interest rates would be over 40%, and fixed rate mortgages would not be offered by banks. My impression was that the author’s advice was all about investing in gold and other things with “real” value to avoid being wiped out by inflation rates over 20%.


I base that on EU average unemployment being over 10%, GDP growth being very low, productivity being low, an immigrant population that isn’t assimilating into European culture, a debt/deficit situation out of control in some of the biggest European countries, and an aging population with overly generous retirement benefits which is going to cause a fiscal crunch much worse than what the U.S. is facing.

Kind of strange to see a rebuttal of a doom and gloom story with a presentation of another one. To follow up on the general point though of you and others that things are always more complicated then they seem, I’ll point out that Australia which shares european length holidays and short working week has a strong economy so the world isnt so simple. Also productivity has many measures, by some the US is ahead of Europe, by some its behind, by others its about the same. French per hour labour productivity is superior to the US for instance.

Not as many, and offset by the fact that Europe’s natural birthrate is much lower than the U.S.'s (1.2 vs 2.1).

To see the magnitude of the problem, look at this data for Europe from the U.N.:

                             2000     2025      2050
Median population age:       37.7     45.4      49.5 
Workers per retiree:          4.6      3.0       1.9

Now look at the data for the U.S.:

                             2000     2025      2050
Median population age:       35.6     39.7      41.0 
Workers per retiree:          5.4      3.4       2.8

In 2050, the U.S. population will be barely older than the European population is today. There will be almost one extra worker per retiree. In addition, the U.S. population is projected to grow to 400 million by then, while the European population slightly declines from today’s level.

Now, consider those numbers, and throw in the fact that the EU has much more generous retirement benefits. For example, the average retirement benefit in the U.S. is 42% of average earnings. In Germany, it’s 70%. And what’s even worse is that many of the Euro countries have large percentages of public employees, and their pension benefits are even greater.

Cite for Europe.

Cite for the U.S.

One of the big problems in Europe is that they aren’t assimilating. That’s the difference between a U.S. style melting pot and a European-style cultural mosaic. In the ‘liberal’ countries, multiculturalism is cherished, and immigrant populations are encouraged to keep their own culture (and the laws and social customs provide for that). For example, in Canada we are now allowing Sharia law to some extent.

The cultural mosaic is causing some serious problems in Europe, especially within the muslim immigrant community. They are not assimilating at all, and in fact they are beginning to cause all kinds of social upheaval. Look at what’s going on in the Netherlands, for example. In Germany there is a problem with honor killings of female muslim immigrants who attempt to marry outside their community or adopt western lifestyles. There are immigrant areas in Europe where even the police are afraid to enter. It’s a growing problem.

Oh, it’s possible for Europe to save itself. It needs reform in a number of major areas. All I’m trying to say is that compared to Europe, the American economy is much healthier, and the trends are all much better.

But I’m still pessimistic about Europe. What is it going to look like when the average age is 50 years old, there are only two workers for each retiree, and the population is split along ethnic and religious divisions?