Coping with Population Aging

The aging of the US population has been front-and-center in the presidential race, with discussions about how to fund (or not fund) Social Security, Medicare, and Medicaid. A new volume from the National Academy of Sciences has just been inserted into the discussion, and one can hope that policy makers will pay attention (which is naturally one of the reasons why the National Academy of Sciences was created in the 19th century, although it is not directly funded by the US Government). The book is called "Aging and the Macroeconomy: Long-Term Implications of an Older Population." Not a very sexy title, but it is does describe the study's purpose. The committee put together to do this volume, under the auspices of the Committee on Population, was headed up by economic demographer Ronald Lee at UC, Berkeley, one of the world leaders in the economics of aging, and the introduction does a very nice job of laying out the policy alternatives:

There are four basic approaches for adapting to the new economic landscape created by an aging population, and for providing the resources to support the consumption of households in their later years: 

• Workers save more (and consume less) in order to prepare better for their retirements.

• Workers pay higher taxes (and thus consume less) in order to finance benefits for older people.

• Benefits (and thus consumption) for older people are reduced so as to bring them in line with current tax and saving rates.

• People work longer and retire later, raising their earnings and national output.

The fundamental issue that society faces is how to adapt in some or all of these ways to absorb the costs of population aging. Each option has different implications for which generation(s) will bear the costs, or receive the benefits, of an aging population.

The rest of the book lays out the details of those several options, and I will return to these themes over time, since they apply not just to the US, but to any and all societies experiencing these later stages of the age transition.