The People’s Ponzi

We’ve been hearing quite a lot recently about Ponzi schemes, as the financial chickens come home to roost. A Ponzi scheme is an investment scam that promises investors a high rate of return but in fact is paying earlier entrants out of the money collected from later entrants. Eventually, for whatever reason, the scheme will be unable to go on expanding, at which point the game is up.

The United Kingdom has an ageing population, with Wessex, as the centre of the retirement industry, having a particular interest in the matter. Three out of the five ‘most aged’ local authority areas are in Wessex and the statistics reveal something of a ‘retirement belt’ stretching across the south of our region from Exmoor to the Isle of Wight and beyond.

It is generally asserted that immigration is needed to sustain a working age population capable of supporting this mass of greybeards. The problem is, of course, that everyone who survives long enough gets old, and immigrants are no exception. The population equivalent of a Ponzi scheme is the belief that you can deal with the economic consequences of ageing simply by having an ever-expanding population. The reality is that this is simply not sustainable in environmental terms. Once ecological capacity is exhausted, the result is collapse. To maintain the ratio of 15-64 year-olds at its current level, the UK population would need to rise from about 61 million today to 136 million by 2050. Pro rata, the figures for Wessex would see a rise from about 8 million to over 18 million. Bristol, for example, would need to become a city of over a million folk.

The available data suggests an almost totally misplaced concern about ageing, and that concern needs to be refocused elsewhere. The UK spends about 6.2% of GDP on State pensions, rising to 8.5% by 2050. But if the retirement age were to be raised proportionately in line with life expectancy, the rise is only to 7.75%. So a third of the problem simply disappears.

Low population growth actually brings massive economic, social and environmental benefits. Productive work can be aimed at improving the quality of life, instead of building ever more infrastructure and housing. Less money spent on rearing children and on education means more to spend on pensions. In the UK 43% of young folk go into higher education and can be dependents well into their twenties. Young folk are also disproportionately reflected in crime and unemployment statistics. Conversely, many retired folk remain active in developing the social capital of their communities, giving time to voluntary organisations, in effect free labour that might otherwise have to be paid for. In 2007/08 the UK spent £76 billion of public money on support costs for young folk, compared to £71.5 billion supporting the over-65s. Financial assistance is given down the generations – not up – on average until the age of 75.

Smaller families can mean that folk inherit more housing capital: two children each inherit half the parental home, three children only inherit a third. The potential importance of housing equity – which can be freed up to part-fund consumption in retirement – is huge. The value of housing assets in the UK, even after mortgage debt, is considerably larger than all pension funds combined. (How much of this money really exists is, of course, another matter!)

Economist Phil Mullan, author of The Imaginary Time Bomb, has suggested that the obsession with a looming pensions deficit has less to do with demographic fact and more to do with a political agenda to cut back the welfare state. Countries with much older age structures have out-performed those with younger ones, while a report for the Institute of Public Policy Research confirmed that “there is little correlation between ageing and increased health care costs”.

In short, the way we relieve the ‘burden’ of an ageing population is that we draw upon the money that would otherwise have been spent on the extra housing, schools, hospitals, roads and other infrastructure needed to accommodate population growth. Energy infrastructure is one very significant part of that package. So too are the additional costs of growing a population through immigration, such as translation costs, along with those that stem from inter-communal tension and divided loyalties.

The alternative to population restraint is a planet confronting unsustainable trends, where each new child will likely produce more than 20 tonnes of greenhouse gases every year and where civilisation everywhere is in imminent peril as a result.

If we go on building, we are sure to find ourselves living in a house of cards, miserably waiting for the wind to blow.