Philadelphia Reflections

Adjusting Government Finances with Immigration

Wars, religious conflicts and natural disasters provoke mass emigrations. When emigrants choose a place to go to, they primarily focus on economic betterment. It's true they like to settle among people of the same language and culture, but it must be pointed out that during the first half of the Twentieth century the quotas for Great Britain were frequently unfilled. This sort of observation leads to the conclusion that American immigrants have mostly been poor, and come from poor countries. The first generation clings together in cultural havens, their descendants are motivated to learn to assimilate, to become as rich as the earlier settlers seem to be. The prisons tend to fill with recent immigrants, but the victims of their crimes tend to be other members of their immigrant communities. The pattern has been repeatedly observed in successive waves of different ethnicities. There is always a wave of initial friction; every group seems to get over it, eventually.

In America during the Nineteenth century, there was a frontier to welcome newcomers. Usually, the first immigrants are single males, so the advancing frontier was a scene of disorder and special attitudes; after women came along to the frontier, things got quieter, but the unattached rowdy males moved onward. According to Frederick Jackson Turner who started the idea, the frontier finally closed at the beginning of the Twentieth century, provoking the cultural upheaval we now call the Progressive Era. In modern Europe, the frontier had long been gone before European integration began its present upsurge, except for the extensive devastation areas caused by World War II. To whatever extent the Frontier Concept eased American resettlement, under-inhabitation is not now an important factor in Europe. Nor is agriculture nearly so important as it once was. The family farm was a nice isolated little unit, able to preserve the cherished traditions, but now an immigrant mostly starts out as a busboy waiter, surrounded by the urban bustle. And urban temptations. Assimilation is greatly eased by television; an observant immigrant can learn things we wish he wouldn't, but many immigrants have learned English, bent over an ironing board in the family kitchen. The assimilation of immigrants is certainly quicker than it was, but it is not necessarily much easier.

Welfare State

But by far the greatest social difference between 18th Century immigrant America and Twenty-first Century cross-immigrant Europe, is the set of attitudes and expectations variously called Socialism, or the Welfare State. All of the uproars and crossness associated with the Welfare state are threatening to get much worse, on both continents, because the inciting factors are getting worse. They would be: the astonishing improvement in longevity, and the massive avoidance of the topic until it has almost, we hope not definitely, reached a point where it can destroy the economic system. As a reminder, life expectancy at birth in 1900 was age 47 and now is at least thirty years longer. This incredible benefit to mankind crept up on us through two world wars and many smaller ones, plus several sickening genocides on several continents, but every year it kept getting better, or worse depending on how you view it. Newsmagazines are now confidently predicting it will go to age 100 in a few decades. The problem masquerades as a Social Security problem, or a disability problem, or a health cost problem, or a pension fund problem. But it's all the same problem: we got thirty years of extra retirement time, without making adequate provision to pay for it. Some of us provided for it privately, many made no provision at all. Governments generally pretended to make provision for it, but actually made it much worse with short-term fixes. Our elected representatives "kicked the can down the road."

ERISA

What is true for individuals is also true of nations. The Germans, badly disconcerted by the hyper-inflation of the 1920s, almost developed a national psychosis about frugality, hard work, savings for the future, and the avoidance of inflation. Unfortunately, they had also developed a hatred for war. That's a good thing, but it is not the same as recognizing the need for frugality, when a whole nation convinces itself that avoiding war will provide the funds to pay for a thirty-year vacation, following a few decades of efficient work on a short work week. It will allow the German nation to enjoy a longer retirement period than, say, the Greeks. But it may not stretch to a full thirty years, even for them. Or even for us Americans. We work long hours with less vacation time, but we retire too early, and we are too extravagant with wars, infrastructure, bailouts, improvement of the poor, and unlimited immigration of more poor people. Our pension funds were started on a collision course by the passage of ERISA, the appalling accounting standards of which are only now becoming evident after forty years. The adequacy of the accounting methods was based on the return on assets, with no connection to the pension liabilities, they were supposed to pay for, with no mark-to-market readjustments, no investment benchmarks, inadequate inflation adjustments, and a definition of risk based on volatility of asset prices -- a total irrelevance in this situation. The trustees of these pensions are provided no asset portfolios to examine, no readjustment for changes in the workforce composition, and no running comparison between each year's assets and each year's adjusted liabilities. Even the term "Liability" does not cover what is owed. Only the large corporations which dumped these defined benefit plans can feel comfortable that the company can survive a serious accounting of future pension costs.

Because we are getting well off from our announced topic, this is enough about off-the-books accounting for retirements which have grown much longer than originally contemplated. The point here is that European countries are hoping to merge twenty-seven nations, each of whom has a different version of this symphony. If a nation can afford to give its citizens twenty years of retirement, it is still not willing to sacrifice for another nation which can only give its citizens five years of retirement, because it is own frugal elderly are facing ten years of destitution, nevertheless. Are they expected to increase the ten years they cannot afford--to fifteen years of destitution, in order to help another nation that is even worse off? The common reading of human nature is that they will instead prefer to assess the other nation as shiftless and lazy and shrug their shoulders.

Originally published: Wednesday, June 06, 2012; most-recently modified: Monday, May 13, 2019