The Economics of Aging

I am just finishing up the 12th edition of Population (it's already in production), and recently I analyzed the data from the latest Forbes list of the richest 400 Americans. Although people aged 65 and older comprise only 14 percent of the US population, they account for 60 percent of the richest Americans. The richest person in the world, Bill Gates, is only 58, but #2 in the world, Carlos Slim of Mexico, is 74, and #3, Warren Buffet, is 83. It is the latter who caught the eye of editors at The Economist and this week's cover story reflects on the potential economic effects of an aging, well-off older group of people. And they also give some thought to those who aren't going to be so well-off. 

The experience of the 20th century, when greater longevity translated into more years in retirement rather than more years at work, has persuaded many observers that this shift will lead to slower economic growth and “secular stagnation”, while the swelling ranks of pensioners will bust government budgets.

But the notion of a sharp division between the working young and the idle old misses a new trend, the growing gap between the skilled and the unskilled. Employment rates are falling among younger unskilled people, whereas older skilled folk are working longer. The divide is most extreme in America, where well-educated baby-boomers are putting off retirement while many less-skilled younger people have dropped out of the workforce.

These are important issues that I have been talking about for a long time. The better educated you are, the more money you make, and save (building your wealth), and the more you enjoy your work, which keeps you at it longer, benefitting you and the wider economy. At the same time, it seems to me that economists worry that as people get older and start spending their savings, the amount of capital in the system will diminish and the economy will suffer. This seems at odds with the idea that people need to spend money in order to stimulate the economy. In all events, I'm on board with the basic policy ideas floated in the main article about aging and the economy--push retirement age to older ages, and provide lifelong learning programs in order to promote the skills needed by the economy that will also provide the kind of work that will keep people productively in the labor force. This, of course, requires substantially more public investment in education. We need fewer student loans and more public investment, in my opinion.