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December 10, 2012 11:24 AM Demography and Productivity

By Ed Kilgore

One of the hardiest of all the arguments for “entitlement reform” is that demographic factors (notably the size of the baby-boom and baby-bust generations) make current retirement programs inherently unsustainable. It’s also part of the even more ancient Decline of the West hypothesis that selfish, non-procreative Americans and Europeans are doomed to be overwhelmed by the fecund hordes of the Global South (and/or by religious fundamentalists there or here), an argument that made a highly visible appearance in a recent Ross Douthat column.

But getting back to the narrower proposition that falling birthrates represent an unavoidable fiscal and economic calamity if not the Judgment of God on Infidels, Dean Baker had a tart response over the weekend that tosses the question of intergenerational burdens back to entitlement reformers like a returned hand-grenade:

Fans of arithmetic might note that the ratio of workers to retirees fell from 5 to 1 in the early sixties to 3 to 1 in the early 90s. This sharp drop in the ratio of workers to retirees did not prevent both workers and retirees from enjoying substantial improvements in living standards over this period. The reason is that productivity growth, what each workers produces in an hour of work, swamped the impact of a falling ratio of workers to retirees.
That will also be the case as the ratio of workers to retirees falls from the current 3 to 1 to a bit under 2 to 1 over the next 23 years under any plausible assumption about productivity growth.
[U]nder any plausible scenario the potential gains to living standards from increased productivity swamp any potential negative impact from a declining ratio of workers to retirees. And these calculations do not even take account of unmeasured benefits of slower population growth, like less pollution and reduced strains on the infrastructure. It is also important to remember that these numbers show the absolute largest impact of demographics. If we were look out another 10 years to 2045, the demographics would not change, while productivity would continue to raise living standards.

The problem with offsetting a declining ratio of workers to retirees with productivity gains, of course, is that these gains have in recent years been harvested almost exclusively by those at the top of the wealth-and-income ladder.

In short, the idea that demographics will impoverish our children and grandchildren is absurd on its face. Readers may rightly note than most workers have not see the gains of productivity growth over the last three decades, but this just highlights the importance of intra-generational distribution. The impact of battles over distribution of income within generations will dwarf the impact of battles over distribution between generation.

So if you’re worried about the actual impact of demographic changes on living standards, the place to look for relief is at the distribution of productivity gains—unless you simply want to use the “unsustainability” of retirement benefits to cut them as an ideological end in itself.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • Anonymous on December 10, 2012 11:55 AM:

    I believe you have just uncovered the permanent flaw in "conservative" (small "c") thought. Nothing ever changes, nor should it, and we should never, ever pay attention to changing circumstances. Tides goes out, tide comes in...in the small minds of those who refute the idea of evolution (again, in lower-case.) Let those who do not wish to keep up with progress wither away and die. Also, too, screw the GOP!

  • Mimikatz on December 10, 2012 12:06 PM:

    Productivity gains have gone almost exclusively to the rich, and a big factor why is the tax code. Taxing investment income at a lower rate than worker's income, fictions like carried interest, all the Romney tax dodges ave allowed companies to transfer wealth to top management and to a lesser extent shareholders and shortchange workers to the extent that workers are unable to fuel economic growth.

  • c u n d gulag on December 10, 2012 12:11 PM:

    GOP POV:
    What is this, "arithmetic," that you speak of?

    The only thing in math we learned was what we always need - division!

    If you don't know division, how can you "Divide and Conquor?"
    It doesn't add-up then.

  • Peter C on December 10, 2012 12:26 PM:

    At a very fundamental level, I just donít believe government (or any other societal force) should have anything to say about whether and when I decide to have children. I donít procreate to provide workers to pay into Social Security, or warriors for Christ, or even grandchildren for my parents. Itís not any of Governmentís business; itís not any of the Churchís business; itís not even any of my parentsí business. Itís a matter for me and my wife to decide, exclusively.

    Conservatives always seem to be sniffing around, trying to determine who is having sex and who is having babies. But this is none of their concern. Ross Douthat and the rest of them should MIND THEIR OWN BUSINESS, Dammit!

    We deserve to have the right of privacy about such things. That right should not be set aside because of demographic concerns, much less the puritanical curiosity of religious zealots. Sometimes I think that the Ďprivacyí justification cited in Roe v. Wade was the primary insult that the Right most strongly dislikes; it prevents them from exerting control over the sexuality of others, as it should in any society which grants individuals the dignity of self-determination.