As with most western countries, the extension of what we consider “normal lifespans” creates financial and demographic changes that our social welfare systems are struggling to keep up with:
Who will take care of all the old people?
That’s the theme of Nicholas Eberstadt’s latest piece on demographics, which I highly recommend to all of you. The core problem of the welfare state is that it relieves people of the need for family to take care of them, but it does not relieve society of the need for caretakers. In fact, because there’s evidence that more generous social-security systems cause people to reduce their fertility, you can argue that these systems are undercutting the very actuarial basis upon which they depend.
The effect is what social-security systems are struggling with around the world: As the ratio of workers to retirees declines, it gets harder and harder to raise the tax revenue to cover benefits. Though Americans talk anxiously about the fiscal health of our systems, international pension-reform wonks actually look enviously at our system, which contains fewer of the incentives for earlier retirement that plague many countries.
But our demographic transition is not just a problem of pension math. There’s also the problem of what it does to economic growth as society ages. As workforce growth slows, so does gross domestic product growth. In theory, this can be made up with greater productivity growth. But productivity growth is moving in the wrong direction — and because older people tend to be more risk-averse as workers and investors, that too may be a natural result of an aging society.
