Governments worldwide are trying to shore up pension systems by pushing back retirement ages. But cost-saving measures has a lot to do with gutting the future tax base, as well
Wouldn't removing the cap on earnings that are taxed for SS also help a lot for closing the funding gap, or should we just admit that the Congress will never ever go for that and pursue other options?
I loved this article, but did find myself confused by one specific point. Why do you see raising birth rates as a response to what you're describing?
As you note, what this is is the result of intentional decision-making and policy, not some kind of basic natural law of markets playing out. I'm not following how increasing the supply of young workers addresses this problem, seeing as part of the problem is a lack of supply of quality jobs for existing rates of youth entering the workforce.
Great question, and I am glad you love the article!
At the end of the day, you still need people to build out infrastructure, fund programs and debt obligations. Because of the system's failures, people just aren't affording kids, despite wanting more kids. You can't pour in more workers in a broken system like you said, the only way forward is to fix as much as you can.
I agree with the ultimate point that it’s all about finding a way to raise birth rates, and investing in clearly useful industries like energy buildout (and on-/friend-shoring those supply chains) makes a lot of sense. (Now if we can just convince the US government to not keep their heads in the sand…)
Though on some specifics, RE why startups went off a cliff from 2020-2023, you mention the Fed rates as one factor but not fully explanatory of the decline - doesn’t that explain most of it? As an entrepreneur myself I hear from other founders that it’s hard to raise money these days, along with general worry about not being able to bounce back if they don’t make it - a riskier environment to make a startup.
(I’m insulated from this since my company is bootstrapped, outside of the SV tech bubble, and taking a small business early profitability approach, but maybe that’s just another reflection of a more risk-averse approach to business creation 🤷)
And I haven’t really heard of people seeing a lucrative acquisition as being a bad outcome for a startup that would drive them to not want to build one altogether (though I agree that it’s not great for the ecosystem of jobs and competition). After all if a company felt that they could get a better outcome by not taking an acquisition, they could just not take it, but they are (especially in this market).
RE hiring young people for cheaper with the expectation of growth in the world of software, it seems like the age of LLMs isn’t helping, where an LLM can take a newbie to being a more productive but still junior engineer, whereas it takes a knowledgeable and motivated senior to being a 10x developer—which in my case means getting away with a much smaller and manageable team. Seems nobody wants to hire junior developers anymore, to the industry’s long-term detriment, though I think this has little to do with retirement ages or social security spending, at least in software.
Thanks for the thoughtful response! A few *very* quick points:
On Fed rates: They explain the 2020-2023 timing, but the structural trends (public companies declining from 8,090 to under 4,000, establishment entry rates falling since the 1980s) span decades across multiple rate cycles. The consolidation forces create the underlying vulnerability that rate hikes expose.
On acquisitions: Individual founders acting rationally doesn't mean the system works well (think collective action problem!). When 60% of acquired tech products get discontinued, that's value destruction at the end of the day. The issue isn't founders making bad choices, it's that the incentive structure channels talent toward building acquisition targets instead of genuine competitors. The FTC blocked Adobe from acquiring Figma ended up causing Figma to IPO is a good example
On LLMs: That might explain some tech hiring patterns, but doesn't account for 7.2% unemployment among electricians and plumbers, or graduate unemployment hitting record highs across sectors, especially in electrical or mechanical engineering. The promotion bottleneck affects industries where AI isn't a factor.
On your approach: Your bootstrapped, profitable, non-SV model actually proves the point, you had to explicitly opt out of the VC system to build a real business. The fact that this feels "risk-averse" shows how distorted the baseline has become.
The cyclical factors (rates, AI) matter, but they're operating on top of structural changes that have been building for decades.
Again, thanks for the response and I hope you subscribe!
I agree with Omar RE the point on startup creation. When I look at technical college grads looking at all the startups getting acquired for 8-9 figures by big tech companies, they’re certainly not dissuaded and seem encouraged to go into startups. It doesn’t seem plausible to me that the M&A environment is itself leading to fewer startups being created.
This doesn’t detract from the points around value destruction / the types of businesses being created and persisting which are interesting.
The retirement/financial impact on young is a very salient point. I've also thought that this does naturally tend to increase the amount that goes into social security (with less labor, each unit of labor should get paid more). The cost is lower productivity/lower innovation as young people are more likely to be innovative.
On the M&A point - I've been leaning to the side that antitrust is ill-equipped to model which markets get impacted by an acquisition. Especially with tech, what is a relevant tech market becomes less clear, meaning both regulations and judges are not set up to effectively regulate. A crude rule - like if you have revenues of X, you cannot acquire - might be intense but could be economically justified.
It gets even crazier the more you dig in. Stephen Gross, a former chief actuary of SS, was trying to get people serious about rising inequality in younger people's wages (which could be explained a lot by late retirements)
> Chinese manufacturers pay $0.09/kWh while California companies pay $0.24/kWh. When electrons cost three times more on one side of an ocean, industrial capacity goes to the other side. A massive American energy buildout targeting $0.01/kWh electricity would create millions of jobs across skill levels
Print it on a million paper airplanes and swarm the capitol buildings with them.
Wouldn't removing the cap on earnings that are taxed for SS also help a lot for closing the funding gap, or should we just admit that the Congress will never ever go for that and pursue other options?
It would! It could also lead to other programs like funding child benefits also!
But yeah, Congress as it stands isn't going to do it
I loved this article, but did find myself confused by one specific point. Why do you see raising birth rates as a response to what you're describing?
As you note, what this is is the result of intentional decision-making and policy, not some kind of basic natural law of markets playing out. I'm not following how increasing the supply of young workers addresses this problem, seeing as part of the problem is a lack of supply of quality jobs for existing rates of youth entering the workforce.
Great question, and I am glad you love the article!
At the end of the day, you still need people to build out infrastructure, fund programs and debt obligations. Because of the system's failures, people just aren't affording kids, despite wanting more kids. You can't pour in more workers in a broken system like you said, the only way forward is to fix as much as you can.
Thanks for reading, and I hope you subscribe!
I agree with the ultimate point that it’s all about finding a way to raise birth rates, and investing in clearly useful industries like energy buildout (and on-/friend-shoring those supply chains) makes a lot of sense. (Now if we can just convince the US government to not keep their heads in the sand…)
Though on some specifics, RE why startups went off a cliff from 2020-2023, you mention the Fed rates as one factor but not fully explanatory of the decline - doesn’t that explain most of it? As an entrepreneur myself I hear from other founders that it’s hard to raise money these days, along with general worry about not being able to bounce back if they don’t make it - a riskier environment to make a startup.
(I’m insulated from this since my company is bootstrapped, outside of the SV tech bubble, and taking a small business early profitability approach, but maybe that’s just another reflection of a more risk-averse approach to business creation 🤷)
And I haven’t really heard of people seeing a lucrative acquisition as being a bad outcome for a startup that would drive them to not want to build one altogether (though I agree that it’s not great for the ecosystem of jobs and competition). After all if a company felt that they could get a better outcome by not taking an acquisition, they could just not take it, but they are (especially in this market).
RE hiring young people for cheaper with the expectation of growth in the world of software, it seems like the age of LLMs isn’t helping, where an LLM can take a newbie to being a more productive but still junior engineer, whereas it takes a knowledgeable and motivated senior to being a 10x developer—which in my case means getting away with a much smaller and manageable team. Seems nobody wants to hire junior developers anymore, to the industry’s long-term detriment, though I think this has little to do with retirement ages or social security spending, at least in software.
Anyway thanks for the post!
Thanks for the thoughtful response! A few *very* quick points:
On Fed rates: They explain the 2020-2023 timing, but the structural trends (public companies declining from 8,090 to under 4,000, establishment entry rates falling since the 1980s) span decades across multiple rate cycles. The consolidation forces create the underlying vulnerability that rate hikes expose.
On acquisitions: Individual founders acting rationally doesn't mean the system works well (think collective action problem!). When 60% of acquired tech products get discontinued, that's value destruction at the end of the day. The issue isn't founders making bad choices, it's that the incentive structure channels talent toward building acquisition targets instead of genuine competitors. The FTC blocked Adobe from acquiring Figma ended up causing Figma to IPO is a good example
On LLMs: That might explain some tech hiring patterns, but doesn't account for 7.2% unemployment among electricians and plumbers, or graduate unemployment hitting record highs across sectors, especially in electrical or mechanical engineering. The promotion bottleneck affects industries where AI isn't a factor.
On your approach: Your bootstrapped, profitable, non-SV model actually proves the point, you had to explicitly opt out of the VC system to build a real business. The fact that this feels "risk-averse" shows how distorted the baseline has become.
The cyclical factors (rates, AI) matter, but they're operating on top of structural changes that have been building for decades.
Again, thanks for the response and I hope you subscribe!
I agree with Omar RE the point on startup creation. When I look at technical college grads looking at all the startups getting acquired for 8-9 figures by big tech companies, they’re certainly not dissuaded and seem encouraged to go into startups. It doesn’t seem plausible to me that the M&A environment is itself leading to fewer startups being created.
This doesn’t detract from the points around value destruction / the types of businesses being created and persisting which are interesting.
Section 174 is going to get repealed, so we may see software employment tick back up- companies can write off 100% of their salary every year again.
The retirement/financial impact on young is a very salient point. I've also thought that this does naturally tend to increase the amount that goes into social security (with less labor, each unit of labor should get paid more). The cost is lower productivity/lower innovation as young people are more likely to be innovative.
On the M&A point - I've been leaning to the side that antitrust is ill-equipped to model which markets get impacted by an acquisition. Especially with tech, what is a relevant tech market becomes less clear, meaning both regulations and judges are not set up to effectively regulate. A crude rule - like if you have revenues of X, you cannot acquire - might be intense but could be economically justified.
It gets even crazier the more you dig in. Stephen Gross, a former chief actuary of SS, was trying to get people serious about rising inequality in younger people's wages (which could be explained a lot by late retirements)
https://www.plansponsor.com/inequality-worse-for-social-security-than-low-birthrates-chief-actuary-says/
On the M&A point, I am going to refer back to Erez Maggor's work on how becoming more M&A focus ended up having negative downstream effects.
> Chinese manufacturers pay $0.09/kWh while California companies pay $0.24/kWh. When electrons cost three times more on one side of an ocean, industrial capacity goes to the other side. A massive American energy buildout targeting $0.01/kWh electricity would create millions of jobs across skill levels
Print it on a million paper airplanes and swarm the capitol buildings with them.