Telling the truth

Republican Presidential candidate Rick Perry is in trouble. His misfortune began when he described the US pension system as a Ponzi scheme. This was something that nobody wanted to hear. There is now a long queue forming to attack Mr Perry, both from within his own party and from the Democrats.

George Orwell once said that "during times of universal deceit, telling the truth becomes a revolutionary act." If that inconvenient old Etonian were alive today, he would recognise the revolutionary candour of the Texan governor.

Pension systems in advanced economies are financially unsustainable. It doesn't matter whether you think Mr Perry would make a good or bad president. He told the truth about US Social Security.What he said also applied to European pension systems. The frightening thing is how people reacted to Mr. Perry's plain speaking.

The idea behind a Ponzi scheme is as old as time. A fraudster offers to pay investors an abnormally high return. Investors, blinded by greed, pay into the scheme. The fraudster returns these cash payments as interest payments back to the investor. So long as the fraudster can attract new investors the scam grows. However, when the the fraudster can no longer attract new investors the scheme collapses.

That pretty much describes modern pension systems. The government offers to pay its citizens a generous retirement income. Workers pay into a pension system on the understanding that they will receive generous future payments The system continues so long as there are sufficient workers today willing to pay into the scheme to pay current recipients.

Unfortunately, rapidly ageing populations make it a mathematical certainty that without a radical reduction in entitlements, pension systems in advanced countries will go bankrupt within 15 to 20 years. The ratio of workers to pensioners is now declining.  There are now too many recipients and not enough contributors. It will not be possible for the government to honour its future commitments.

That's pretty much how it Ponzi scheme works.But hey, I'm telling you nothing you don't already know. Anyone who ever looked down a British high street or into an Italian Piazza can see it happening. Let's face it, the streets aren't exactly bustling with young children or teenagers. So why the faux denial, and the outraged attacks on poor Mr Perry.

I have my answer, for what it is worth. Advanced economies are looking at a bleak future of decrepitude, and decline. It is too late to reverse this destiny. We have fallen into a demographic trap. There are no solutions, no escape routes, no fancy sophisticated answers from intellectuals. The world as we know it is going to disappear. In 20 years time, Europe will be one massive retirement home. Given the choice, between universal deceit and facing the future truthfully, the vast majority of us prefer the lie.