September 2, 2014

With a New Year, the World Ages

To start out the new year, I want to call attention to a recent Washington Post Op-Ed by Neil Howe and Richard Jackson, the editors of the Concord Coalition's Facing Facts Quarterly.

The editorial highlights one of the fundamental problems the Concord Coalition was formed to call attention to--the aging of the population. Population aging is a function of longer life expectancy and lower birthrates. It is a phenomenon that tends to occur in countries throughout history as the economy in that country gets wealthier and more developed. The problem is that it is also correlated with declining economic growth as workforce participation eventually declines. There is even a suggestion in some research that this phenomenon is the number one explanatory factor when looking at the success of economic systems throughout history.

The Concord Coalition's primary concern with the aging of the population is that its resulting lower economic growth in the future will occur at the same time that the nation's entitlement programs, which are designed to provide benefits to retirees, will swell in size--increasing the burden on working age citizens. Furthermore, irresponsible budgeting leading up to the time where aging really begins to effect the economy and the budget makes the problem even more difficult in a number of ways.

One way is that (under normal economic circumstances) government borrowing due to budget deficits is thought to crowd out more productive private investment in the building blocks for economic productivity. Another way is that the associated interest costs from irresponsible budgeting force the government to use its limited resources to support borrowing (especially borrowing from abroad) instead of spending those tax dollars on needed public investment which could pave the way for greater economic growth down the road. Finally, failing to make the tough choices in a budgetary sense forces us to live with an inefficient tax system and a spending regime not equipped to provide for the best possible economic future.

Howe and Jackson, both in their Op-ed and in a recent issue of Facing Facts Quarterly discuss the importance of grappling with aging and the global implications of the phenomenon. They also point out that the United States is in a better position to deal with these issues than most other countries, and might hold the key to sustaining the global economy even with these challenges if it acts sooner rather than later to deal with its own fiscal problems.

--Josh Gordon