FacebookTwitterGoogle+RedditEmail

Fear of the Old

by DEAN BAKER

One of the recurring canards in Washington policy debates is that the United States has an aging population that is going to bankrupt our children and grandchildren. According to this tale, an increasingly small number of workers will have to support an ever-growing number of retirees, which will impose an enormous hardship on our descendants. This argument is put forward to justify cutting back Social Security, Medicare and other social protections.

This story makes demonstrably little sense in the context of the U.S. economy. As for the rest of the world, The New York Times reported last week on an effort at Davos to export this story to China and other Asian countries. This is unfortunate, since it makes even less sense in these countries. It’s worth reviewing some simple facts and arithmetic to clear up confusion.

First, aging populations are not new. The United States and other wealthy countries have been seeing aging populations for centuries, as increases in living standards and improvements in medicine have led to longer life expectancies. This has meant a growing population of retirees relative to the number of people working.

The D.C. fearmongers point to projections showing the number of workers per Social Security beneficiary falling from 2.8 his year to just 2.1 in 2035. But this prospect looks considerably less scary when we consider that the number of workers per beneficiary was 5.1 back in 1960. We have seen this number cut almost in half over the last five decades, yet both workers and retirees have seen substantial increases in their standard of living.

The logic here is simple: Productivity growth has allowed workers to produce far more today than they did in 1960. According to the Bureau of Labor Statistics, productivity is more than three times as high today as it was in 1960. This means that for every hour worked, a worker in 2014 on average produces three times as much by way of goods and services as did a worker in 1960. This is the reason that both workers and retirees can enjoy higher living standards even though there are fewer workers to support each retiree.

We should expect this to continue to be the case. Even if productivity grows at only a 1.5 percent annual rate, the same rate as in the productivity slowdown from 1973 to 1995, output per hour will still be almost 40 percent higher in 2035 than it is today. If productivity grows at the same 2.5 percent rate it sustained from 1995 to 2007, output per hour will be almost 70 percent higher than it is today.

While economists’ track records in predicting productivity growth have been abysmal, the talk of robots displacing massive numbers of workers implies productivity growth that is even more rapid than this 2.5 percent rate. In that case, we will have no problem whatsoever supporting a far higher ratio of retirees to workers than will ever exist in the world. Our problem will be finding work for people to do, since the robots will be doing all the work for us.

In fact, raising demographic fears in the context of China is similar to the robot story. China has seen an incredible increase in its productivity since 1980. As a result, its per capita income is more than 17 times as high today as it was in 1980. This increase has taken place over the working lifetime of those about to retire.

This sort of extraordinary income growth means that the country will have no problem providing these retirees with pensions that are much higher than what they earned during their working life while still leaving future workers with wages that are far higher than their parents’. The gains in productivity swamp the potential impact of a falling ratio of workers to retirees.

The arithmetic on this is straightforward, even with the rapid drop in the ratio of workers to retirees projected for the next two decades. In fact, it would take productivity growth of just 0.4 percent annually over this period to keep after-tax wages constant, assuming that benefits for retirees cost 75 percent of the average after-tax wage. (Note: The average Social Security benefit is 40 percent of the average wage.)

The United States has never seen two decades of such slow productivity growth. And after 2035 the ratio of workers to retirees is projected to remain pretty much constant for the rest of the century while productivity keeps growing. In other words, there is no basis for concern that an aging population will prevent future generations from enjoying much higher standards of living than workers today.

The only circumstances in which an aging population could impose a real burden is if productivity growth ground to a halt. But in that case, the problem would be the failure of productivity to grow, not an older populace. It would take some pretty biased thinking to focus on the latter.

There are in fact real threats to the living standards of our children and grandchildren. At the top of this list is inequality. If the pattern of income growth we have seen over the last three decades continues, with most of the gains going to the richest 1 percent, then most of our children will not fare well. Global warming also poses enormous threats to living standards, as a changing climate will make many areas uninhabitable and possibly lead to severe shortages of food and water in many parts of the world.

These are the sorts of issues that desperately need the public’s and policymakers’ immediate attention. The fact that people are living longer is not a problem.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared in Al Jazeera

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

More articles by:
Weekend Edition
May 27, 2016
Friday - Sunday
John Pilger
Silencing America as It Prepares for War
Rob Urie
By the Numbers: Hillary Clinton and Donald Trump are Fringe Candidates
Andrew Levine
Hillary’s Gun Gambit
Paul Street
Feel the Hate
Daniel Raventós - Julie Wark
Basic Income Gathers Steam Across Europe
Gunnar Westberg
Close Calls: We Were Much Closer to Nuclear Annihilation Than We Ever Knew
Jeffrey St. Clair
Hand Jobs: Heidegger, Hitler and Trump
S. Brian Willson
Remembering All the Deaths From All of Our Wars
Dave Lindorff
With Clinton’s Nixonian Email Scandal Deepening, Sanders Must Demand Answers
Pete Dolack
Millions for the Boss, Cuts for You!
Peter Lee
To Hell and Back: Hiroshima and Nagasaki
Karl Grossman
Long Island as a Nuclear Park
Binoy Kampmark
Sweden’s Assange Problem: The District Court Ruling
Robert Fisk
Why the US Dropped Its Demand That Assad Must Go
Martha Rosenberg – Ronnie Cummins
Bayer and Monsanto: a Marriage Made in Hell
Brian Cloughley
Pivoting to War
Stavros Mavroudeas
Blatant Hypocrisy: the Latest Late-Night Bailout of Greece
Arun Gupta
A War of All Against All
Dan Kovalik
NPR, Yemen & the Downplaying of U.S. War Crimes
Randy Blazak
Thugs, Bullies, and Donald J. Trump: The Perils of Wounded Masculinity
Murray Dobbin
Are We Witnessing the Beginning of the End of Globalization?
Daniel Falcone
Urban Injustice: How Ghettos Happen, an Interview with David Hilfiker
Gloria Jimenez
In Honduras, USAID Was in Bed with Berta Cáceres’ Accused Killers
Kent Paterson
The Old Braceros Fight On
Lawrence Reichard
The Seemingly Endless Indignities of Air Travel: Report from the Losing Side of Class Warfare
Peter Berllios
Bernie and Utopia
Stan Cox – Paul Cox
Indonesia’s Unnatural Mud Disaster Turns Ten
Linda Pentz Gunter
Obama in Hiroshima: Time to Say “Sorry” and “Ban the Bomb”
George Souvlis
How the West Came to Rule: an Interview with Alexander Anievas
Julian Vigo
The Government and Your i-Phone: the Latest Threat to Privacy
Stratos Ramoglou
Why the Greek Economic Crisis Won’t be Ending Anytime Soon
David Price
The 2016 Tour of California: Notes on a Big Pharma Bike Race
Dmitry Mickiewicz
Barbarous Deforestation in Western Ukraine
Rev. William Alberts
The United Methodist Church Up to Its Old Trick: Kicking the Can of Real Inclusion Down the Road
Patrick Bond
Imperialism’s Junior Partners
Mark Hand
The Trouble with Fracking Fiction
Priti Gulati Cox
Broken Green: Two Years of Modi
Marc Levy
Sitrep: Hometown Unwelcomes Vietnam Vets
Lorenzo Raymond
Why Nonviolent Civil Resistance Doesn’t Work (Unless You Have Lots of Bombs)
Ed Kemmick
New Book Full of Amazing Montana Women
Michael Dickinson
Bye Bye Legal High in Backwards Britain
Missy Comley Beattie
Wanted: Daddy or Mommy in Chief
Ed Meek
The Republic of Fear
Charles R. Larson
Russian Women, Then and Now
David Yearsley
Elgar’s Hegemony: the Pomp of Empire
FacebookTwitterGoogle+RedditEmail