Populations in rich countries are ageing fast as the baby-boomer generation heads towards retirement and birth rates decline. If current social-insurance promises are to be honoured, spending on state pensions will have to go up steeply, which means a sharp rise in taxes. Older people are also by far the heaviest users of health care, which will increase the strain on public finances. Even in America, which relies far more on private health insurance than other OECD countries, health care for the elderly is largely paid for out of taxation. The sort of tax rates implied by unreformed social-insurance systems threaten not just a loss of economic competitiveness, but something worse.
Inflation makes an insidious comeback as government deficits and debt explode . . .
Young investment strategists overseas dismiss the United States along with other G 7 nations as poorly run nursing homes in terminal decline. In many countries, social insurance is being blamed for worsening some of the problems it was supposed to solve. This will not necessarily produce a perfect blueprint to suit every country. Any social-insurance system involves value judgments, and different societies have different values and different cultures that need to be accommodated. Yet these differences are easy to exaggerate, and there is plenty to be learnt from comparing different systems about what does, or does not, work.