Two Problems, Not One
America in 2030 will be “a country whose collective population is older than that in Florida today.” It will be in “desperate trouble” because the expense of caring for all those old people will cause a fiscal crisis. The nation will be plagued by “political instability, unemployment, labor strikes, high and rising crime rates.” That’s the picture painted in The Coming Generational Storm by Laurence Kotlikoff and Scott Burns, a book that has helped to feed a rising tide of demographic alarm.
But is that picture right? Yes and no. America does have an aging population, and a responsible government would take preparatory action while the baby boomers are still in the labor force. America also has very serious long-run fiscal problems. But these issues aren’t nearly as closely linked as much of the discussion would lead you to believe. The view of demography as destiny is only a half-truth, and in some ways it’s as damaging as a lie.
In this essay I’ll try to set the record straight. Unfortunately, I can’t do that by following Kotlikoff and Burns closely. Kotlikoff is a fine economist, one of the world’s leading experts on long-run fiscal issues. His book with Burns is full of valuable information and sharp insights. Yet in their effort to grab the lay reader’s attention, Kotlikoff and Burns do little to alert readers to the distinction between two quite different issues—an aging population and rising spending on health care. And their failure to make that distinction grossly distorts their discussion.
The demographic problem is, of course, real. It is, however, of manageable size—exaggerating the problem by confounding it with the problem of medical costs just gets in the way of dealing with it. The problem posed by rising medical costs, on the other hand, would be there even if the population weren’t aging—and misrepresenting the problem as one of demography gets in the way of confronting it.
I’ll start here by looking at the demographic problem—the aging population—which mainly concerns Social Security, then at proposals for Social Security “reform”—the scare quotes are there because the scheme currently under discussion would undermine our social insurance system, not save it. At the end I’ll talk briefly about the much bigger, more intractable issue of paying for the expanding quality and quantity of health care, and the current state of political debate.
Social Security and the Demographic Challenge
Chapter 1 of Kotlikoff and Burns’s book is called “From Strollers to Walkers”—a catchy way to describe the aging of the US population. It’s followed with a chapter called “Truth Is Worse Than Fiction,” centered on a chart familiar to everyone who has looked at this issue: long-run projections from the Congressional Budget Office showing the combined expense of Social Security, Medicare, and Medicaid rising from less than 8 percent of GDP now to more…
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