The population of the US is getting older on the average. Why? Because families are having fewer children, people are living longer (and retiring earlier), and because the roughly twenty-year-long bulge of births that we call the baby boom has reached the fifth of Shakespeare’s seven stages and will soon arrive at the lean and slipper’d pantaloon. Much the same is true of other rich countries; the aging of the population is happening sooner and more suddenly in Japan and more gradually in Europe.
This demographic certainty will have all sorts of consequences for these societies, affecting the need for schools, the demand for housing, the amount of crime, the volume of health care, and, most broadly of all, the general standard of living their economies can support. Peter Peterson writes of “the wrenching economic and social costs that will accompany this demographic transformation—costs that threaten to bankrupt even the greatest of powers, the United States included, unless they take action in time.”
It is better to start a little less feverishly, so I begin with an abstract exercise.
Think about a completely artificial population. A million people are born every decade. For the first twenty years they are at home, in school, or otherwise dependent. In their third, fourth, fifth, sixth, and seventh decades of life they are in the labor force, working for a living. Everyone retires at age seventy, lives for ten more years, and dies promptly at eighty. The population thus amounts to eight million souls, and it is neither growing nor declining; a million people are born in every decade and a million people die.
There are five million workers (aged twenty to seventy) and three million dependents. The five million workers have to produce enough for all eight million people to live on. Of course they do not produce with their bare hands. The more machinery, computers, and other capital equipment they have to work with, and the more technologically advanced that capital equipment is, the more productive they will be, and the higher the average standard of living they will be able to provide for the whole society.
Now suppose that medical advances allow everyone to live to age ninety. After a while the population will grow to nine million, of whom the same five million work. But now they will have four million dependents to support, instead of three million. Unless something happens, the average income of the population will be roughly 11 percent lower. Try a different experiment: Suppose the age of retirement falls to sixty. This is a more drastic development, because it both adds to the dependent population and subtracts from the labor force. There would be four million dependents and four million workers; the average standard of living would fall by a whole 20 percent. Put both cases together and 4 million workers would have to support themselves and…
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