The U.S.’s ongoing budget battle has lacked scrutiny of underlying issues that keep us on the fiscal treadmill. We won’t move an inch until we address the role of aging populations in the 21st century economy.
While demographics won’t grab headlines like Obamacare, the aging of the population is the structural issue underlying our troubled national finances.
Washington’s finest would have us believe the math is impossibly complex. Yet Lloyd C. Blankfein, chairman of Goldman Sachs, nailed the simplicity of the matter when he told President Obama after a recent American bankers meeting: “If the money doesn’t flow in, then the money doesn’t flow out.”
The money’s outward stream will persist as long as “seniors” are encouraged to withdraw and retire when they still have decades of productive life remaining.
Blankfein’s assessment of the fiscal situation is exactly right. But the simple perspicacity of his thinking keeps bouncing off tin ears. Three years ago, Standard and Poor’s issued a clarion call, warning that today’s demography required a fundamental re-construction of 20th century social and economic institutions. According to S&P, “No other force is likely to shape the future of national public health, national finances and national policies as the irreversible rate at which the world’s population is growing older.”
In the U.S. - and perhaps only here - Washington lawmakers are granted reprieve. Japan is the world’s “oldest” country, and it hasn’t undertaken the necessary reforms to reverse its decades-long decline. Europe remains mired in recession as it ignores its aging population. And even the emerging markets are sputtering as their “demographic dividend” disappears. If misery loves company, the U.S. is hosting quite the global gala.
Why are these two coexisting trends - global population aging and global economic recession - not seen as interwoven? The answer, perhaps, is that we keep analyzing the economics of aging through the wrong metrics.
Take HelpAge International’s recent report released with the United Nations Populations Fund. Though HelpAge is a strong champion of aging, and while it’s done admirable work getting aging on the global agenda and serving older people worldwide, the group’s metrics for assessing the health and wealth of a country’s aging population seem backwards.
HelpAge’s Global Age Watch Index measures the “quality of life and wellbeing of older people around the world” in 91 countries. But instead of measuring the extent to which older people are enabled to work and be active and healthy in social and economic life, the Index measures how much public assistance is made available to them. So while Sweden and Norway come out on top, there is no connection between this “success” and sustainable 21st century economic policy.
As Blankfein might say, they’ve measured what’s going out – but not what’s going in. As Japan (a canary in a coal mine if ever there was one) has shown, this is no system for success – certainly not for 21st century fiscal sustainability, let alone growth.
Back in the days of Otto Von Bismark, well over a century ago, the social safety net was constructed to provide assurance to the elderly who couldn’t take care of themselves economically. The age that Bismark identified is still in place today, despite an incredible three decades added to the average global lifespan. Economist Martin Feldstein’s recent piece in The Wall Street Journal, “How to Create Real Economic Stimulus,” suggests this mismatch had led to a legacy of “age-dependent benefits” that will sap economic growth until they are updated for 21st century realities.
Until then, the latest government shutdown and budget standoff is little more than poorly written political theater. Even if Congress and President Obama can agree on a budget, we won’t get off the treadmill until we balance “what goes out” with “what comes in.” And until we have the right metrics by which to measure aging populations, we’re stuck with a different century’s version of institutions and policies, to boot.