An aging United States reduces the economy’s growth — big time. That’s the startling conclusion of a new academic study, and if it withstands scholarly scrutiny, it could transform our national political and economic debate.
We’ve known for decades, of course, that the retirement of the huge baby-boom generation — coupled with low birthrates — would make the United States an older society. Similarly, we’ve known that this would squeeze the federal budget. Social Security and Medicare spending would grow rapidly, intensifying pressures to cut other programs, raise taxes or accept large budget deficits. All this has come to pass.
But the study goes a giant step further, claiming that the very fact that the United States is an aging society weakens economic growth. “The fraction of the United States population age 60 or over will increase by 21 percent between 2010 and 2020,” says the study. This aging shaves 1.2 percentage points off the economy’s present annual growth rate, the study estimates.
Although this seems small, it’s enormous. Consider the numbers. From the 1950s to 2007, the economy (gross domestic product) grew about 3 percent a year, sometimes a little more, sometimes a little less. By contrast, annual growth since 2010 has averaged about 2 percent. But add in the 1.2 percent annual growth lost to aging, and we’re roughly at 3 percent growth again.
To say the same thing differently: If other economists confirm the study, we’d probably resolve the ferocious debate about what caused the economic slowdown. The aging effect would dwarf other alleged causes: a lag in new technologies; increasing economic inequality; debt hangover from the housing bubble; government over-regulation ; heightened risk aversion by shoppers and firms, reflecting the legacy of the Great Recession.
Read more at The Washington Post.