Ape Man

Megan McArdle ran a post entitled Demography is Destiny today. I was happy to see it. For some reason I had her pegged as part of the “Demographics don’t really matter” group because of some posts that I saw go up on Free Exchange. Recent posts at her new site have demonstrated that I was mistaken.

Unfortunately, her latest post revolves around Social Security and why the optimistic projections for its future are almost certainly wrong. This issue has been hashed over so many times that revisiting it does not contribute much to the debate. Most Americans realize Social Security has problems. Most Americans also think that Social Security problems are relatively easy problems to fix. If you talk about America’s demographic problems in terms of Social Security, most Americans are already going to have a well formed opinion so discussing the issue is not going to get you anywhere.

One of the problems with discussing America’s demographic problems in the context of Social Security is that all the answers seem obvious. Only blind ideologues refuse to admit that Social Security has problems. But by the same token, when the focus is only on Social Security, only people with a blind hatred for the program will refuse to admit that the problems are easily solved.

So you have to raise the retirement age to keep the program solvent. Big deal. We are all living longer. Heck, we don’t even have to raise the retirement age. If we were willing to stop playing super cop and cut our military spending we could keep the current form of social security with only modest tax increases. As Barkley Rosser likes to point out, by 2030 we will have a retiree to worker ratio that much of Western Europe has right now. So if you keep the discussion focused on Social Security, reasonable people are going to feel that America’s demographic problems are no big deal.

But of course, we will not be dealing with Social Security in isolation. There are the other entitlements like Medicare. There is the fact that most local and state governments have severely underfunded retirement systems. There is the fact that medical costs soar with age so health care costs will sky rocket as the average age of population increases. There is the fact that world birth rates have been falling so that the supply of immigrants that we currently rely on to do many jobs will start to dry up just as we need them most. It is only when we consider all the ways that an aging population will cost more that we start to realize the true scope of the demographic problem. Social Security is only a drop in the bucket.

I wish Ms. McArdle had chosen to focus more on the issue of the shrinking labor force. She mentioned the issue, but only in the context of why it would be harder to fund Social Security. But the shrinking labor force is going to have a profound effect on how we live our lives. Even if Social Security were not a problem, the effects of the shrinking labor force would be devastating.

I don’t think most people appreciate how devastating the shrinking work force is going to be because they think that all parts of the work force will shrink at the same rate. Thus they imagine the work force of the future as being a smaller version of the one we have now. But it is not going to work out that way. It will be a long time before our stock of trained IT workers depletes significantly. But our stock of people trained in the construction trades is going to all but disappear in the next 10 to 20 years. Given the state of our infrastructure, that is going to cause big problems down the road.

This entry was posted on Wednesday, November 28th, 2007 at 9:17 pm and is filed under Demographics, Economics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.