Industrial Insight

our predicament…. | December 5, 2011

http://www.realclearmarkets.com/articles/2011/12/05/europes_predicament_similar_to_ours_99403.html

December 5, 2011

Europe’s Predicament Is Similar to Ours

By Robert Samuelson

The great expansion of Europe’s welfare states started in the 1950s and 1960s, when annual economic growth for its rich nations averaged 4.5 percent compared with a historical rate since 1820 of 2.1 percent, notes Eichengreen. This sort of growth, it was assumed, would continue indefinitely. Not so. From 1973 to 2000, growth settled back to 2.1 percent. More recently, it’s been lower.

Demographics shifted, too. In 2000, Italy’s 65-and-over population was already 18 percent of the total; in 2010, it was 21 percent, and the projection for 2050 is 34 percent. Figures for the European Union’s 27 countries are 16 percent, 18 percent and 29 percent.

Switch to the United States. Broadly speaking, the story is similar. The great expansion of America’s welfare state (though we avoid that term) occurred in the 1960s and 1970s with the creation of Medicare, Medicaid and food stamps. In 1960, 26 percent of federal spending represented payments for individuals; in 2010, the figure was 66 percent. Economic growth in the 1950s and 1960s averaged about 4 percent; from 2000 to 2007, the average was 2.4 percent. Our elderly population was 13 percent in 2010; the 2050 estimate is 20 percent.

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