Comparative Demographic Charts on Aging Populations

Clemens Kownatzki at Business Insider talks today about the effects of demography on public pension liabilities in different countries.  The article has great OECD data organized as charts by 5 year age groups, showing population distribution today and projected for 2050 – for Greece, the US, and Japan.  Excellent graphics and sobering reading.

The current government budget deficits and the overall debt burden may be frightening but they pale in comparison to the scale of unfunded liabilities for pensions and healthcare.  Temporary measures for bailouts and economic stimulus packages are one thing but without drastic measures, ongoing government deficits are simply not sustainable for the simple fact that people live longer and there are not nearly enough young people joining the work force to generate sufficient government revenues and to support the growing unfunded liabilities.

In my view, the root of the problem (in addition to the obvious irresponsible spending habits of most government officials) is demographic in nature; the easiest way to hint at the scale of the predicament is to look at projected population charts ….

This is not news, of course; as demographer Nicholas Eberstadt has occasionally pointed out, demographics involves long time lines, and if you are able to get reasonably accurate population figures at the front end, you will know an awful lot about what things will be like decades down the road.

However, though we talk a lot about the effects of demography and aging populations, etc., there is a curious sense in which we suddenly stop thinking about them when assuming things like long term regression to the mean of economic growth, and many other things.  Indeed, an eminent demographer once mentioned to me – clear back in the late 1990s, before the current housing crisis – that he did not understand the apparent assumption among many baby boomers that they would fund their retirements through houses as investments.  He asked, clear back in the 1990s, whether either ordinary people or public policy types had taken into account the singularity of the baby boom bulge, and its effects on supply and demand for housing and many other things.  I asked, half-jokingly, what he thought the market would be for boomer “antiques,” and he simply laughed.

Yet factoring in these demographic patterns, while easy in principle, seems not to happen, for example, in the undergraduate economics texts or other places that form many educated people’s basic intuitions about this.  The models are relatively static, which befits the purely abstract principle – but tends to convey an impression about the real economy that is not true, and will become less true over the next few decades.