18-03-2025
A formula for making America solvent again
Although the way Statistical Offices calculate labor force and working age population numbers vary drastically across countries, it is possible to do a Fermi calculation about dealing with today's budgets and debts based on their different formulas.
The calculation simplifies the problem and arrives at a quick estimate of a solution. In the present case, the solution implies an acceleration of education of the younger generation – real education, not certifications.
Statistics offices calculate working populations in Western countries as the number of people aged between 25 and 65, though their definition of 'working' differs. The way they calculate labor force participation among countries varies, too.
Still, the World Bank publishes the Labor Force Participation Rate, which is the labor force participation number divided by the working population while accepting the figures at face value.
In the US and Germany, the number stands at 62%, whereas in France it's around 58%. Subtract from these percentages an optimistic 5% unemployment rate, and you get about a 55% rate of the working population.
The last number implies that the income generated by this 55% of people working for roughly 40 years between the ages of 25 and 65, added to the returns on both assets they inherited and accumulated during their working years, pays for the living expenses of those under 25, who, assume for simplicity's sake, have no incomes.
In addition, they also pay for the over-65 age group, as Social Security in the US is not capitalized. Since, according to the 2022 Survey of Consumer Finances, the average retirement savings for all families is US$333,940, let us make another Fermi calculation.
Assume that all this amount derives from returns on assets this group inherited and generated. Assume, too, that they can withdraw $20,000 every year after the age of 65, with life expectancy between 85-90.
Even with such optimistic numbers, the 55% working population ends up paying for both the non-income generating younger population and 50% of the retired ones with increasing life expectancy (assuming $40,000 yearly income needed for living).
As of 2023, US federal and state government spending stood at $10 trillion, roughly 36% of the $27 trillion GDP. Of this, the federal government spending amounted to roughly $6.5 trillion.
Of this, $1.3 trillion was dedicated to Social Security, $1 trillion to Medicare, $1 trillion to the military, $1 trillion to interest payments and $300 billion to education (though it is hard to know how and where exactly the hundreds of billions in education debt forgiveness appear). Combined, these add to $4.6 trillion.
If Medicare, Social Security, military and interest payment expenditures stay at present levels (never mind paying down the national debt), what is the only remedy left to significantly improve America's fiscal picture?
Increased taxes are out of the question under the Trump administration. Perhaps DOGE can find over time a few hundred billion worth of savings in the other roughly $2 trillion worth of spending. Possibly elderly people will stay longer in the labor force, and life expectancy will stop rising.
Perhaps the US' new $5 million per head green card, as well as green cards awarded for skilled workers, will bring new revenue-generating entrepreneurs. Although slashing regulations is in the current administration's picture, lowering taxes is not. How much more assets, how much faster and by how much the returns would exceed interest rates are thus all in the distance.
What remains under immediate control is to drastically accelerate the younger generations' education and entry into the labor force. This can be done -– and was done in few countries (Israel and Switzerland among them) – in a variety of ways.
Where done it required disciplined education from an early age and directed youth to a variety of rigorous technical education and apprenticeship programs after grades 7 or 8. Not all young students are interested in general education.
As for colleges and universities, most programs could be completed in three years if such programs consisted of education to start with rather than indoctrination, lingering leisurely or marching and waving ignorantly for causes they often know little or nothing about.
Although the $300 billion is the smallest number in the aforementioned US budget, abolishing it and also bringing education closer to parents in all states, would have significantly more impact than this number.
First, future younger generations would join the working population one or two years earlier, meaning the age group would become significantly larger and thus help to sustain much other – as of now – 'untouchable spending.'
Its impact would be more significant as this generation that starts to work at a younger age would conceivably be more disciplined. This is a quality change hard to put into numbers, though easily visualized by having institutions of higher learning reverting to what they once were: bastions of disciplined learning and civilized debate.
By necessity, Eastern European countries have been moving in this direction, with mandatory conscription being an extreme example. That's something that Western European countries have just started to talk about – though, as of now, their younger generation identifies 'patriotism' with 'decarbonization.'
The US has a chance to accelerate the creation of a more disciplined workforce while also attracting such talent from around the world.
These have been one of the secret sauces of the prosperity miracles seen in 17th century Amsterdam, Hong Kong and Singapore's recent rises and on a larger scale in post-WWII West Germany, which received some 12 million German immigrants thrown out of Eastern European countries.
The same went for Israel, which at the end of the 1980s added one million Russian migrants, a 25% addition to its then population. Combined with rapid decentralization, wars and three years of mandatory military service notwithstanding, Israel became a 'start-up' nation.
Of course, the US has been the most obvious example of such experiments – and with the right reforms, it can be again.
This article draws on Brenner's 'Accelerate Education,' (American Affairs), 'Accelerated Education Would Add Trillions,' (AEI) 'The Trouble with Aggregates,' and 'Avoiding Economic Pseudo-Science' (both in Law & Liberty).
