On the latest Facing the Future, I was joined by Concord Coalition Executive Director, Bob Bixby, and Richard Jackson, president of the Global Aging Institute. We discussed the fourth issue brief in GAI and Concord’s series, “The Shape of Things to Come.” The brief is titled “Five Imperatives for an Aging America.”
[Note: Portions of this week’s Facing the Future can be seen in the video clip posted below.]
Jackson began the program by reminding listeners of the nation’s demographic challenges.
“There is going to be a future after the pandemic, believe it or not,” Jackson said. “Unless we address the challenges arising from the aging of the population, that future is going to be one of chronically anemic economic growth, rapidly rising fiscal burdens, and diminished prosperity and opportunity.”
“In this paper, we identified five imperatives, or five goals, for an aging America,” he added. “The aging is inevitable, but the extent of it is not.”
Those imperatives include:
- Limit the extent of population aging by increasing the fertility rate and net immigration above today’s low levels;
- Offset the demographic drag of population aging on economic growth by encouraging longer work lives and leveraging the productive potential of the elderly;
- Control the growth in health-care spending, which is the main driver of long-term structural budget deficits;
- Stabilize the national debt as a share of GDP, since its continued rise threatens to exact a heavy toll on future generations of workers and taxpayers; and
- Resist the rising tide of protectionism, which if unchecked will deprive an aging America of the immense benefits that can flow from open global capital markets and labor markets.
On net immigration and fertility rates, “we had essentially replacement-level fertility … and substantial net immigration, we weren’t projected to age nearly as much as other developed countries, and our workforce was projected to continue growing,” Jackson said. “But, since the Great Recession, fertility has steadily declined … and unless that birthrate comes back up, the United States is going to age much more than previously projected.”
“Immigration is a closely related topic, because in the near term, net immigration acts much like a higher birth rate,” he said. “And net immigration has fallen also … nonetheless, immigration is much more responsive in the near term to policy than birth rate.”
On longer working lives, “the elderly labor-force participation rate has come up over the past decade and a half; this is a trend that policymakers need to encourage, and they need to encourage it because the growth rate in the population of the traditional working years is falling to zero,” Jackson said.
He added that extending work lives is both natural and necessary because life spans and health spans have risen dramatically and an aging society cannot afford to prematurely cashier the fastest-growing portion of the population that still has much to contribute.
With health care cost growth being a significant driver in long-term federal budget challenges, Jackson included addressing the issue as a top priority for policymakers.
“According to the Congressional Budget Office, about two-fifths of the increase in total health care spending between now and 2050 is due to the aging of the population,” Jackson said. “The other three-fifths is essentially due to the rising cost of what everybody consumes in terms of health care services – it’s sometimes called excess cost growth.”
“Good health is a moving target; it’s not a fixed standard, and it rises over time,” he added. “All of that is driving up health care spending faster than the economy, which is why it’s projected to rise both as a share of GDP and as a share of the budget.”
Jackson expressed skepticism that improvements in the health of the elderly would actually reduce health care spending because, in part, the fact that we are spending more on health care could be driving population health improvements.
That is one reason why much of the burden falls on finding ways to limit excess health care cost growth.
On Jackson’s fourth imperative — stabilizing the national debt as a share of GDP — he said that the paper acknowledges that there are legitimate reasons for the government to borrow.
“But Concord, and deficit hawks in general, have also always warned that borrowing entails certain long-term risks, particularly when debt is growing faster than the economy,” Jackson said.
Bixby agreed, saying that investment that promotes economic growth and addresses long-term workforce challenges is important and necessary, but fiscal responsibility also needs to be in the mix. “If we just have an economic growth strategy on ever-rising debt, eventually it will collapse,” he said. “It will not be able to sustain itself.”
“I want to emphasize immediately that we are in the middle of a global pandemic,” Bixby added. “It is still raging and it has taken a major hit on the economy because of the need to react to the illness.”
“But, at some point, we’re going to have to transition,” Bixby said. “When the immediate health care crisis is behind us, policymakers will need to shift their focus to the long-term.”
“A good initial goal on that is to stabilize the debt-to-GDP ratio so at least it is not growing ever higher,” he added.
Both Bixby and Jackson stressed the importance of not taking a gamble on the nation’s future that the current, friendly climate of low interest rates and remaining the world’s reserve currency will continue into perpetuity.
“Now is not the time to turn off the spigot, but we need to be developing an exit strategy,” Jackson said. “The aging of the population is going to be putting ongoing, upward pressure on federal spending; ideally we would have been approaching this juncture with a low and falling debt.”
The final imperative outlined by Jackson is to resist policies that continue the rise of protectionism.
“Countries may legitimately have certain measures in place to protect domestic markets and domestic interests, obviously, they can and should have an immigration policy in place,” Jackson said. “But open global trade, open global capital markets, have enormous economic benefits over the long-term.”
“An aging America stands even more to benefit from open capital markets and labor markets than has been the case in the past,” he added. “It would be a tragedy, really, if right at the point we need that more, we continue to erect barriers.”
Hear more on Facing the Future. I host the program each week on WKXL, NHTalkRadio.com (N.H.), and it is also available via podcast. Join me and my guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
A QUARTERLY SERIES
The Shape of Things to Come
Over the next few decades, the aging of America promises to have a profound effect on the size and shape of our government, the dynamism of our economy, and even our place in the world order. The Concord Coalition and author Richard Jackson of the Global Aging Institute (GAI) have joined forces to produce a quarterly issue brief series that explores the fiscal, economic, social, and geopolitical implications of the aging of America. Although the series is U.S. focused, it also touches on the aging challenge in countries around the world and draws lessons from their experience. Concord and GAI hope that it will inform the debate over the aging of America and help to push it in a constructive direction.