FacebookTwitterGoogle+RedditEmail

Why an Aging Population Won’t Make America Poor

by DEAN BAKER

Virtually the entire economics profession failed to recognize the housing bubble and the devastating impact that its collapse would have on the economy. Hundreds of millions of people across the globe are suffering as a result of this failure. The economics profession has responded with a limited dose of soul searching and a promise to do better.

Six years later there is little evidence that it is meeting this commitment. Most obviously, the fact that the economies of all the wealthy countries are still operating well below potential GDP is compelling evidence of continuing failure of economists to produce an agreed upon solution to the crisis.

This is not the only area where economics has failed in a very fundamental way. In recent years, we have been given numerous warnings about a future in which robots and the computerization of tasks once done by people will displace tens of millions of workers creating a world of mass unemployment. At the same time, we have a whole industry of deficit fear mongers who warn the public that we lack the means to support an aging population. Their argument is that a rising ratio of retirees to workers will impose an impossible burden on the dwindling pool of young people still in the labor force.

In case it is not immediately apparent, these are directly opposed concerns. The robot story is one of too few jobs. In this scenario technology is rapidly displacing workers, leaving little need for human labor. This is a world of abundance; we can have all the goods and services we may possibly want, while working less than ever. There can be an issue of distribution if we manage our economy poorly, but there is no basis for concern about scarcity or inadequate resources.

Even environmental problems will not be a concern. The robots will be able to produce and install solar panels everywhere at very low cost. And, we can save an enormous amount of energy that is currently wasted commuting, since few of us will have to go to work.

By contrast, the demographic story is one where we experience hardship because we don’t have enough workers to meet essential needs. Our aging population will be trying to get workers to provide health care and cook their meals at the same time their children need workers to educate and care for their kids. This leads to an inevitable conflict where one group or the other must suffer. The robots are nowhere in sight.

The incredible part of this story is that we have prominent economists who argue each position. Of course it’s not a bad thing to have a diversity of views in any discipline, but if economics cannot tell us whether we will have incredible abundance two or three decades from now or be suffering from extraordinary scarcity, then we have a serious problem. This would be like biologists not being able to tell us whether carbon was an essential component of most life on Earth or a deadly poison.

In this case the reality almost certainly lies somewhere in the middle, a point that is quickly clarified when we remember that the item at issue is productivity growth. Under any remotely plausible scenario, productivity growth will proceed at a pace that is fast enough to ensure that both seniors and young people have higher standards of livings. The aging of the population is not new; we have been seeing it for more than a century. However, productivity growth swamps the impact of demography.

Even if productivity growth fell back to the 1.5% annual rate of the slowdown years (1973-1995), output per worker hour would be almost 60% higher in three decades than it is today. And, productivity would keep rising in subsequent decades, whereas the demographics would change little for the rest of the century.

The moral of the story is that we could have a situation where inequality within generations is a drag on living standards, but changing demographics will not make us poor.

Those claiming that technology will lead to mass unemployment need to provide a productivity number. We saw productivity growth of almost 3% annually from 1947 to 1973. This was a period of high employment and rapidly rising wages. In their technology story, is productivity growth even more rapid? And if so, why shouldn’t that lead to even more rapid improvements in living standards?

These contradictory stories of future dystopias seriously confuse current economic policy. We badly need to focus on policies that will bring us back to full employment now. If we can sustain full employment, we will have little reason to fear either demographic or technological change.

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. 

This article originally appeared on CNN Money.

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:
May 26, 2016
Paul Craig Roberts
The Looting Stage of Capitalism: Germany’s Assault on the IMF
Pepe Escobar
Hillary Clinton: A Major Gold-Digging Liability
Sam Pizzigati
America’s Cosmic Tax Gap
Ramzy Baroud
Time to End the ‘Hasbara’: Palestinian Media and the Search for a Common Story
José L. Flores
Wall Street’s New Man in Brazil: The Forces Behind Dilma Rousseff’s Impeachment
Patrick Cockburn
The Battle of Fallujah: ISIS Unleashes Its Death Squads
John Feffer
The Coming Drone Blowback
Alex Ray
The Death Toll in Syria: What Do the Numbers Really Say?
Richard Pithouse
We Shall be the Prey and the Vulture
Binoy Kampmark
Trump and the Polls of Loathing
Manuel E. Yepe
A Cruise Ship Without Tourists Arrives in Havana
Jack Rasmus
Greek Debt Negotiations: Will the IMF Exit the Troika?
Ajamu Nangwaya
Pan-Africanism, Feminism and Finding Missing Pan-Africanist Women
Howard Lisnoff
Israel, a Palestinian State and Anti-Semitism
May 25, 2016
Eric Draitser
Obama in Hiroshima: A Case Study in Hypocrisy
Ryan Mallett-Outtrim
Does Venezuela’s Crisis Prove Socialism Doesn’t Work?
Dan Arel
The Socialist Revolution Beyond Sanders and the Democratic Party
Marc Estrin
Cocky-Doody Politics and World Affairs
Sam Husseini
Layers of Islamophobia: Do Liberals Care That Hillary Returned “Muslim Money”?
Susan Babbitt
Invisible in Life, Invisible in Death: How Information Becomes Useless
Mel Gurtov
Hillary’s Cowgirl Diplomacy?
Kathy Kelly
Hammering for Peace
Dick Reavis
The Impeachment of Donald Trump
Wahid Azal
Behind the Politics of a Current Brouhaha in Iran: an Ex-President Ayatollah’s Daughter and the Baha’is
Jesse Jackson
Obama Must Recommit to Eliminating Nuclear Arms
Colin Todhunter
From the Green Revolution to GMOs: Living in the Shadow of Global Agribusiness
Binoy Kampmark
Turkey as Terror: the Role of Ankara in the Brexit Referendum
Dave Lindorff
72-Year-Old Fringe Left Candidate Wins Presidency in Austrian Run-Off Election
May 24, 2016
Sharmini Peries - Michael Hudson
The Financial Invasion of Greece
Jonathan Cook
Religious Zealots Ready for Takeover of Israeli Army
Ted Rall
Why I Am #NeverHillary
Mari Jo Buhle – Paul Buhle
Television Meets History
Robert Hunziker
Troika Heat-Seeking Missile Destroys Greece
Judy Gumbo
May Day Road Trip: 1968 – 2016
Colin Todhunter
Cheerleader for US Aggression, Pushing the World to the Nuclear Brink
Jeremy Brecher
This is What Insurgency Looks Like
Jonathan Latham
Unsafe at Any Dose: Chemical Safety Failures from DDT to Glyphosate to BPA
Binoy Kampmark
Suing Russia: Litigating over MH17
Dave Lindorff
Europe, the US and the Politics of Pissing and Being Pissed
Matt Peppe
Cashing In at the Race Track While Facing Charges of “Abusive” Lending Practices
Gilbert Mercier
If Bernie Sanders Is Real, He Will Run as an Independent
Peter Bohmer
A Year Later! The Struggle for Justice Continues!
Dave Welsh
Police Chief Fired in Victory for the Frisco 500
May 23, 2016
Conn Hallinan
European Union: a House Divided
Paul Buhle
Labor’s Sell-Out and the Sanders Campaign
FacebookTwitterGoogle+RedditEmail