The Economic Danger of an Aging Population
By Jason Cox
It’s the Third Rail of politics; if you touch it, you get shocked. They’re the big three so-called “entitlement” programs of Social Security, Medicare, and Medicaid. Together these programs make up half of the Federal budget, and this is set to grow substantially in the coming years primarily due to one major aspect of the American population; we’re getting older.
When Social Security was introduced, there were over 40 workers for every person receiving benefits, now the numbers are 3 workers for every recipient. This will continue to decrease, until eventually we will have just a single worker providing for every beneficiary of Social Security payments. This will bring the unfunded liability of the program to over $23.1 trillion, using the Social Security Administration’s rosy estimates.
While this may sound bad, Medicare presents an even larger problem. As our lifespans increase, our need for medical treatment does as well. Healthcare costs, which are increasing steadily, will ensure that Medicare becomes an increasingly large part of our budget. The total unfunded liability for this program over the next century stands at $36.8 trillion according to the Congressional Budget Office, again utilizing rosy projections.
As social insurance programs continue to grow, we’ll find ourselves having to finance other uses of government entirely by deficit spending. This includes the military, the normal functions of government, food stamps, education, and countless others. The national debt, currently standing above $17 trillion, has no foreseeable end in its growth. The cost of these programs will be increasingly visible as we buckle under the weight of increasing debt.
Politically, these problems are hard to fix. On one side, you have calls for increases in taxation, which beyond being unpopular, are damaging to the economy. On the other side, cuts in these programs bring the Third Rail into play, and are often politically damaging as opponents run ads of grandma being thrown off a cliff.
The immigration reform debate being waged in Congress provides another way to deal with the problem. Immigrants, who are often younger, and more likely to produce children, can help ensure the demographics of the country remain young enough to carry on these programs for a longer duration. Plans to privatize the programs, while again unpopular, may provide a more efficient means of bearing the load of the aging baby boomer population.
There is unfortunately no perfect solution to fixing these programs, as we must constantly face a set of trade-offs brought about by the natural scarcity of resources. As it stands now, these programs are unsustainable, and failing to act will only ensure the problem will continue to grow. The United States need only look across the Pacific at Japan to see the growing risks this poses, as it has a debt-to-GDP ratio of over 200%, and an even worse demographic problem. If we continue to view “entitlements” programs as untouchable, we will see the baby boom bring our economy crashing down.