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Gray Nation: The Very Real
Economic Dangers of an Aging America
Derek
Thompson, The Atlantic
March 26, 2012
Reuters
In the future, U.S. growth will
be slower. Recessions will be deeper.
Recoveries will be weaker. And there's
exactly one thing to blame.
Demographics.
That's the stark conclusion
from James Stock and Mark Watson in this
fascinating, and occasionally
depressing, new paper. In fact, they
say, the future is now. For the last few
years, we've weathered the beginning of
what demographers have called the grey
tsunami. "Most of the slow recovery [in
today's job market] is attributable to a
long-term slowdown in trend employment
growth," Stock and Watson write.
The authors blame two
demographic demons for our uncertain
future: (1) the plateau in the female
labor force participation rate, and (2)
the aging of the U.S. workforce. Their
underlying logic is that without
continued growth in female workers or a
significant boost in population,
employment and GDP growth will slow,
leaving us vulnerable to recessions with
"steeper declines and slower
recoveries." In such a future, jobless
recoveries will be the only recoveries
we know.
Demographic Demon #1
WOMEN'S PARTICIPATION RATE
In the first half of the 20th
century, female employment wasn't
exactly a high-priority concern for
policy makers. For the first 20 years of
the century, women didn't have the right
to vote. For the next 30 years, they
barely made up a fifth of the labor
force. Then everything changed.
The ascendance of women in the
workforce was perhaps the singular
cultural/economic triumph of the second
half of the 20th century. In 1960, just
four in ten working-age women were
active in the labor force. By 1990, it
was more like six in ten (see graph
below of female participation rates). By
2010, women made up a majority of the
workforce. But that growth appears to
have hit a ceiling. The female
participation rate in early 2011 was the
same as in 1994. In that time, the male
participation has fallen. That's not
good news for a country that will
require more workers to both grow the
national pot of money and provide for an
aging population transitioning out of
the workplace.
Demographic
Demon #2
THE
GRAYING OF AMERICA
Famous economic worrywart Thomas Malthus
famously predicted that population growth
would get in the way of economic growth,
because we wouldn't be able to make enough
stuff to keep everybody healthy and happy.
What's fascinating about the threat of a
gray society is that it turns Malthusian
pessimism on its head. In fact, the more
reasonable threat we face is that an aging
population will require more resources
that can be -- and must be -- provided by
more people.
Let's take the long view. In 1950, there
were more Americans under 25 than over 45.
By 2050, the share of seniors will nearly
treble while the country's portion of
twentysomethings will decline. Here's a
look at 100 years of America aging, from a
National Journal/Atlantic special report:
"People
[used to take] dynamism and economic
growth for granted and saw
population growth as a problem,"
David Brooks wrote last week. "Now
we've gone to the other extreme, and
it's clear that young people are the
scarce resource. In the 21st
century, the U.S. could be the
slowly aging leader of a rapidly
aging world."
Here's another way to see what
Brooks, Stock, and Watson are
concerned about. In the late 1990s,
a remarkable 67% of the country (16
and over) was working or seeking
work. That number has fallen
steadily in the last decade for two
reasons. First, there's the Great
Recession, which pushed people out
of the labor force. But as you can
see in the graph below, demographers
were already expected labor
participation to decline due to
demographics. As 80 million Boomers
move into retirement, a smaller
share of our population will be
working ... and a rising share will
be seeking increasingly expensive
medical attention from the workforce
that is left over. That adds up to a
less dynamic economy.
Some of the implications of the Boomers'
retirement are predictable. If medical
inflation continues apace, either the
government or families (or both) will face
rising budget pressures to pay for
increasingly expensive treatments. As
retirees live longer, Social Security will
have to be mildly reformed or else we'll
have to dip into general tax funds to
fulfill our promise to seniors. One hopes
that the transition to a service economy
will allow older people to work longer
than they have in the past. But one of the
advantage of being old and affluent is
that you don't have to work until the day
you die. Sixty- and seventy-somethings who
can work desk jobs might choose not to.
The aging of the Baby Boomers could have
more unpredictable effects, too. Various
studies have attributed stock booms in
1980s and 1990s "to the fact that baby
boomers were entering their middle ages,
the prime period for accumulating
financial assets," the San Francisco
Federal Reserve reported. If those studies
are right -- and if demographic changes
aren't already priced into the stock
market -- it implies that we could see
worse equity performance coinciding with
an unfavorable worker-retiree ratio and
slower economic growth. Not a good formula
for the future.
DON'T
WORRY, BE ... PROACTIVE
The fact that the United States is getting
older is good news. Longer lives are good
news. Healthier people are good news.
Declining child mortality rates and a
modern post-industrial service economy
requires smaller families and fewer
children are also good news. But this kind
of affluence has a price.
Two centuries ago, Malthus predicted that
growing populations would act as a tax on
growing economies. In fact, the opposite
might be true. Stagnating populations are
taxing economic growth in rich economies,
and we're only beginning to feel the
implication of a historic graying of
affluent nations. The United States got
rich off young workers. Transfers to the
old and sick might be the necessary price
of a wealthy modern society. But too many
of those transfers from the pockets of too
few workers isn't a smart plan for growth.
If the
most significant barrier to growth is our
supply of workers, there are low-hanging
solutions to creating more working
Americans. One solution would be to reform
immigration laws to let smart foreigners
stay here after they graduate from
college. Another would be to reform
housing policy in our most
high-productivity metros to encourage more
people to cluster around our most
successful industries. Another would be to
allow innovations in K-12 and higher
education to bring down the cost of school
and the implicit cost of having children.
Another might be to reform our corporate
income tax laws to encourage more
foreigners to start businesses here.
Another would be to cure medical inflation
to reduce the financial burden of caring
for older Americans. This is all much
easier said than typed. The upshot is that
demographics can be dangerous, but they
aren't destiny.
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