This won’t solve Portugal’s problems (or ours)

This won’t solve Portugal’s problems (or ours)

Portugal, like most Western European countries, has a problem. According to the Financial Times, it has promised its citizens high, publicly funded pensions (in some cases equaling more than 100 percent of final salaries!) but the country’s low birthrate means that there are not enough youngsters to pay for it all. (The article didn’t specifically touch on health care –but the principle is the same.) Now Portugal is going to try to do something to solve both problems, or at least to link them. It plans to pay smaller pensions to those with 0 or 1 children, and higher pensions to those with more than 2 kids. The FT was light on details, but somehow I doubt that the promise of a higher pension 30 or so years down the road is going to be enough to entice young Portuguese couples to start breeding. And I don’t think it will make much difference to those in their late 40s or 50s who are past their childbearing prime.

Perhaps it will increase the number of marriages between older men and younger women…

On a related note, a letter writer to the FT noted that the pension “scheme” in the UK and elsewhere in Europe is a Ponzi scheme, with new investors (i.e., younger workers) paying for the gains of older investors (i.e., retirees). The writer noted that Mr. Ponzi might have died a financial hero rather than a goat if –like the government– he had the power to compel new investors to continue to contribute at increasing rates.

Tying this back to the US, Medicare fits in a similar category. Costs are rising fast, and the system is increasingly tapping into general revenues. I applaud the provision in the Medicare Modernization Act that requires the Trustees to report when Medicare will derive 45 percent of its budget from general revenues, and I would like to see Medicare spending reduced to a manageable level through a combination of means testing, reduction of benefits, and better management.

May 16, 2006

4 thoughts on “This won’t solve Portugal’s problems (or ours)”

  1. Of course the problem Portugal is trying to address is fundamentally a demographic problem. Portugal is becoming less Portuguese and more Arab. Same phenomenon is happening throughout Europe, most notably in France, where the political repercussions have been most severe.

    There’s an excellent article in this month’s Commentary by George Weigel. Check it out here.

    best,

    Flea

  2. Hi, i´m portuguese and it was very interesting to see this article, i have only a small correction, in portugal de main imigration is from the ex-urss countries and from the former portuguese colonys in africa like Angola and Mocambique or Guiné. The Arab fenomena is in Spain and France.

  3. Obrigado pela ajuda, Carolin,

    Claro que vc tem rasao. O sujeito do link foi que a populacao dos paises do Europe sao baixando e as poplulacaos dos arabes voa creser relativamente.

    Flea

  4. If pension based on a population increase sheme worked in the 50’s, it is time to move to other stuff.

    What if the people that were born in a particular year would pay for themselves. The risk would be spread, without having to tax another generation.

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