A House of Cards

Today’s post is about morality, specifically the relationship between morality and economics, and where the lack of morality always leads - one of the ways in which it manifests itself.  We’ve heard a lot in the news about the federal government debt approaching $20 trillion, almost half of which will have been added in the last eight years alone.  What is largely unmentioned is that private debt is now over $42 trillion dollars as well.  The chart below shows total debt growth by sector since 1972 in 2015 dollars, and the growth in our economy’s real Gross Domestic Product (GPD) - its revenue - during that same period.  Our total debt to GDP ratio has grown from about 150% in 1972 to over 300% in 2014.  If we put together a balance sheet for our country, we would currently be highly leveraged, meaning we have a higher risk of not being able to meet our future obligations as they become due.


Figure 1:  US Total Debt vs. GDP - in Real 2015 Dollars, 1972 - 2014[1]


Why does this matter?  Because there are a set of converging variables that will make maintaining this debt level - let alone increasing it - unsustainable.  The first of these variables is our population, specifically its composition.  The two graphs below show the changes by age group within the US population from 1960 to 2014 - both in total and percentages. 


Figure 2: US Population by Age Group, 1960 - 2014[2]


Figure 3: US Population Percentages by Age Group, 1960 - 2014


While our total population has increased by over 76% since 1960, the second graph shows a significant shift in its age composition.  The peak for each age group as a percentage of the total population is shown in the table below.


Age Group

2014 %

Peak %

Peak Year

Under 15




16 - 19




20 - 24




25 - 44




45 - 64




65 +



Still increasing



Our population is aging and this is not likely to change anytime soon.  The youngest segment, those 15 and under, has decreased from 33% of the population to only 19% - a drop of over 40%.[3]  At the same time those 45 and above have increased from about 29% to just over 40%.  This indicates that there has been a shift from a population where a larger segment is entering the workforce to one where more will be leaving it.  But what about those in the workforce itself?


We can look at the labor participation rate.  This rate represents the number of people within the civilian noninstitutional population who are either employed or unemployed.  This rate has been between 65 and 67% for the last thirty years, although it has been below 63% in recent years.  These are the people whose productivity creates our GDP.  All other things being equal, more people should produce more output.  However, the general measure includes the entire population 16 years of age and older, and there is a significant difference in participation rates of those below and above the retirement age.  It should also be noted that the participation rate for those above retirement age decreases rapidly after age 70, no doubt influenced by tax consequences for remaining in the workforce after that time.  The labor participation rates for those 16 - 64 and those 65 and over versus the entire adult population are presented below.


Figure 4:  Labor Participation Rate by Age Group, 1970 -2014[4]



As our population ages, this shift alone will put downward pressure on the overall participation rate.  However, we can see that the participation rate for those below 65 has also been declining, and this decrease has accelerated over the last six years.  The rate for those under 65 peaked in 1998 at about 78%, and since that time has steadily dropped to about 72% - with about 4% of that drop occurring since 2008.  We have to go back all the way to 1979 to find a participation rate that low.  No doubt some of this is due to the methodology change in calculating the unemployment number.  No doubt some of this is also due to the product our present education system turns out.  For more on this latter issue, please see the series beginning with The Importance of Education.  Regardless of the source, this measure indicates that since the late 1990’s there are either fewer opportunities for those of workforce age or there is another incentive in place that serves as an alternative to participating in the workforce.


But before we leave this topic there is one other thing relevant to the workforce population that we should look at.  I mentioned the Civilian noninstitutional population (CNP) earlier.  This figure is made up of those employed, unemployed, and not in the labor force.  The equation is:


CNP = Employed + Unemployed + Not in Labor Force


We’ve looked at the relationship between the employed and unemployed with the CNP, but what about those not in the labor force.  These are people who are no longer looking for work, they are not seeking employment.  We would expect this group to include those who are retired and no longer working, so this number should increase as alluded to above.  But there is another significant component within this segment.  It is the poor.  Our current entitlement programs discourage work, because if you work and earn an income, you generally lose benefits.  This doesn’t matter for those who for whatever reason truly cannot work, but what about those who have some potential? 


Those 65 and older and the poor are shown against the not in labor force number in the graph below.


Figure 5: Retirement Aged, Poor, and Those Not in the Labor Force, 1970 -2014[5]


The above is a simplification.  Some of those in retirement are also classified as poor.  Some of the poor also work.  Not all of those included in the ‘Not in the labor force’ figure fall into either of these categories, those who elect to be a stay at home parent for instance.  Despite those inconsistencies, it is remarkable how well the figures track - especially since the early 1980’s as the percentage of two wage earner households increased.  Several things to note:


·         The total of these two population segments has increased by over 104% during this time, and both segments have grown larger.  The growth in the 65 and over segment is expected given the demographic shift noted above, but we see an increase in the poor population that corresponds with the decrease in the workforce age participation rate noted above.

·         The decrease in the poor during the 1990’s corresponds to the welfare reforms.  A trend that has somewhat reversed over the last six years.


This brings us to the next convergence item.  It is entitlement spending.  The expenditures for War on Poverty related programs, Social Security, and Medicare are shown in the graph below.  It should be noted that the expenditures on these later two items will increase still further as the population continues to age.


Figure 6: Annual Entitlement Spending, 1970 - 2014, 2012 Constant Dollars[6]


While our population has increased by 55% since 1970, spending on just these three entitlement areas have risen from $150 billion to $2.4 trillion - an increase of 1,600%.  So far we have:  (1) a growing, but aging population, (2) a decrease in participation by those of workforce age, either through fewer opportunities or an increased incentive not to work, (3) an amazing increase in entitlement spending, and (4) during this time we have tried to solve the problem by spending our way out of debt.  This is simply not a good combination, and for the following reasons.


All economies go through cycles of expansion and contraction, just like living organisms.  What collectivism does is promise economic security in exchange for some of your freedom - your ability to make choices for yourself.  This is not the view that all are equal, but rather that some are more equal than others.  This security is only received by groups that politicians have endowed through the creation of additional human rights - an act of attempting to play God, if you will.  While the protected groups are somewhat inoculated from the economic expansions and contractions that continue, the rest of the population is not.  As the percentage of the population receiving this extorted ‘protection’ grows, the effects of these contractions and expansions are felt on an increasingly smaller population segment.  The incentive grows to get on the dole.


Political promises always grow to outstrip the resources available to pay for them.  It is much easier to blame someone else for one’s own bad choices, rather than to put in the effort to correct them.  To demonstrate just how asinine this governance approach is, let’s look at the income distribution from the US.  Median income in 2012 was $51,017 and the average $71,274.[7]  One hundred percent of the earnings of everyone above the median could be confiscated (a little over $7 trillion) and it would not even cover the cumulative deficit created by the current president.  You could take all of the earnings of the top 1% of earners (less than $1 trillion), and you wouldn’t even close the federal government’s annual spending deficit.  The only thing you would do is destroy the earnings base of those who drive economic growth.  I’m not sure which is worse, those making promises to fix our problems by that approach - or those ignorant enough to actually believe them.  Lenin had a word for the later - useful idiots.  The only thing that will change this trajectory is education, but one needs to be willing to open their eyes and acknowledge what is happening before that is possible.


It is easy to promise more when there is no accountability - no ownership - but eventually it becomes impossible to deliver.  You eventually run out of other people’s money to use to fulfill your promises.  In order to retain control, political elites will normally take the following steps,[8] only beginning to advance to the next step as the effects of the previous step exhaust themselves:


·         Print more money - as in ‘quantitative easing’, this doesn’t take your money away, it just becomes worth less.

·         Promise even more benefits, as they are your right - see the 2016 election for the current seemingly endless supply of ‘freebies.’

·         Force you to take specific actions - such as requiring the purchase of insurance - Obamacare.


In the end these actions are never enough.  No one is intelligent enough to be capable of controlling all of the levers of a large economy, let alone all of the unintended consequences that occur from the attempts.  Generally distortions are created which are often worse than the initial problem programs were created to solve.  Witness the War on Poverty and the housing bubble collapse - both fueled directly by government intervention in areas where they have no constitutional authority, and we let them.


We are in the position where, as a society, we face the following:


·         A relatively smaller population segment generating output - revenue:

o   A workforce that although larger, has a decreasing rate of participation.

o   A workforce that has relatively fewer people entering it, and more people leaving.

·         We have increased our debt relative to our revenue.  Our total debt to GDP has grown from about 150% to over 300%.  We are now highly leveraged, and highly leverage organizations are risky - they pay more for debt.

·         Our expenditures for entitlement programs have skyrocketed since their inception, and are projected to grow even larger, with an aging population and increasing benefits in the war on poverty, in the name of social justice.



So we have relatively stagnant revenue, extensive excessive borrowing, and projected increases in expenditures.  This is simply unsustainable, and the promises of more and greater benefits being expounded by some of this year’s presidential candidates is not only a lie, but immoral.


The lie is in this, the promises being made are not for your benefit.  They are to buy your submission, for those who view themselves as the elite to retain power.  This is collectivism.


·         The state is the lowest level of society that matters.

·         You matter only to the extent you are useful to the state.


I am not against charity, far from it as charity is the way in which we accomplish our purpose.  However, true charity leads to assisting another gain their independence; it does not lock them into dependence as the growth in our entitlement programs indicates is happening.  This is a path that does not lead to independence and prosperity, but to dependence, misery, and economic disaster - it serves to prevent fulfilling our purpose as individuals and a people.  It is a form of slavery in the guise of charity, a perversion, and the subject of my next book.

[1] Public Debt, US Treasury Dept.,    Private Debt, Federal Reserve,  Accessed 4/2016.

[2] US Census Bureau,  Accessed 12/2015.

[3] Beginning in 2011, the Bureau of the Census changed the category for 15 and under to 14 and under, reducing the number in this category by about four million by shifting it to the new 15 -19 age category.

[4] Bureau of Labor Statics,  Accessed 12/2015.

[5] US Census Bureau,  Accessed 12/2015 and 3/2016.  Bureau of Labor Statics,  Accessed 12/2015. 

[6] War on Poverty figures, Rector, Robert and Sheffield, Rachel, The War on Poverty After 50 Years, The Heritage Foundation, September, 2014.  Accessed 01/2016.  Social Security Spending,  Accessed 04/2016.  Medicare Spending,  Accessed 04/2016.

[7] Elwell, Craig K., The Distribution of Household Income and the Middle Class, Congressional Research Service,

[8] Hayek, F.A., The Road to Serfdom, The University of Chicago Press, 2007.

Posted in: Charity


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About Dan Wolf

Dan WolfMy goal is that my writing will help you to get started on your own journey of discovery, or help you along the way on a journey you may have already begun. Our Founders considered education, religion, morality, and virtue to be the cornerstones for any successful society. Being successful requires understanding both the languages of reason and faith; reason alone is insufficient.