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The Truth About Aging Boomers' Effect on Our Economy

It's true that as boomers retire, they will consume more and produce less. But gloomy projections about them bankrupting us are deeply flawed. We trim and append this 2008 article from Foreign Policy of March 12.

By John B. Shoven

Demographers warn of a crisis in America, Europe, Japan, and China that will reshape the way we live and work. In two decades, there will be more Americans who are older than 65 than younger than 15. By 2040, 45% of the populations of Spain and Italy will be 60 years or older. That same year, China will have 400 million elderly. In Japan, which is aging faster than any other country, more than 40% of the population will be elderly by the middle of this century. The fiscal burden of supporting this rapidly expanding segment of the global population not only threatens to bankrupt national healthcare systems and shrink armies as countries' median ages run past military age, but also revolutionize electoral politics -- clashes no longer of right versus left but young versus old.

Yet these projections rest on the misleading way in which we measure age. Typically, a person's age has been determined by the number of years since his or her birth. Thanks to the medical revolutions of the past century, however, life expectancies have been radically prolonged. Since 1960, the average Chinese person's life span has increased by 36 years. Over roughly 40 years, South Koreans have seen their lifetimes extended by an average of 24 years, Mexicans by 17 years, and the French by nearly a decade. Given these drastic changes, our conception of what qualifies as "old" has itself become old-fashioned.

Measuring age by years since birth is just as foolish as using the dollar as a timeless unit of value. Per capita spending in the United States in 1960 averaged $1,835, in 2006 it averaged $31,200, yet spending did not increase 17-fold. When we adjust for inflation, average per capita spending approximately tripled between 1960 and 2006.

For measuring age, let’s adjust for mortality risk, or the chance a person has of dying within the next year. The higher the mortality risk, the "older" a person is. This figure reflects more accurately a person's health, likely productivity, and remaining life expectancy.

When Social Security was designed seven decades ago, the 65-year mark was deemed the moment when Americans moved "beyond the productive period" and into dependency. That age was chosen based on mortality risk: a 65-year-old man in 1940 could expect to live an additional 11 years, a 65-year-old woman another 15 years. But medical advances have shifted mortality risks enormously. When an American man hits 65 today, his mortality risk is just 2%; he can expect to live nearly 17 more years. He has the same risk of dying that year as a 56-year-old man did in 1940 or a 59-year-old man in 1970. In other words, a 65-year-old today and a 59-year-old in 1970 are the same "real" age. The effect with women is similar. A 70-year-old American woman today has about the same mortality risk as a 65-year-old woman did in 1950.

Consider what would happen if we replaced the 65-year marker with a mortality risk measurement that governs who is considered "elderly." In 2000, 12.4% of the US population was over the age of 65, or about 35 million people. The Census Bureau predicts that, by 2050, the US elderly population will grow to about 87 million citizens. But if we look instead at the fraction of the population with a mortality risk higher than 1.5%, the growth is not nearly as dramatic. By 2050, only 62.5 million Americans, or about 15% of the population, will have a mortality risk greater than 1.5%. That's hardly a demographic tidal wave. The global outcomes are similarly striking: A mortality-based measurement lowers the projected elderly population in 2050 in Japan, Spain, and Italy by an average of 30%.

Altering the age when entitlement benefits kick in or retirement becomes mandatory doesn't mean shortening retirements, just stabilizing them. In 20th-century America, the average length of retirement grew from two years to more than 19 years. As life expectancies continue to rise, retirements could get longer still -- and the pension bill far larger. Or, if benefits and retirements are governed by mortality risk instead of age, the costs will be far more manageable.

JJS: Delaying retirement might be one solution. A more humane one might be to shrink the workweek and spread “retirement” throughout adulthood. Advances in automation in particular, in technology in general, raise productivity -- getting more from less. We need not remain slaves to work, we could liberate ourselves from labor.

To do that, we’d have to pay ourselves an extra income, one not from our labor or “stored labor” (capital), but from our society’s land, somewhat similar to Alaska’s oil dividend yet on a grand scale. Were we to share all the money we spend on the nature we use, we could use the added cushion to work less. And any money we save would be worth more in the future after techno-progress has continued to lower the cost of living.

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Jeffery J. Smith runs the Forum on Geonomics.

Also see:

Weak Politicians Want Deficit Spending
http://www.progress.org/tcs99.htm

Free-Market Health Care
http://www.progress.org/archive/fold59.htm

Seven Fictions from the Status Quo Crowd
http://www.progress.org/conc06.htm

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