Over the last few months, numerous groups and media outlets have noticed that the world’s population is aging –alarmingly so in the developed world – yet few identified the solution to the problem.
From the business pages of the daily papers to financial advisers, from the International Monetary Fund to the C.D. Howe Institute, alarm bells have been ringing about the rapidly aging populations of Canada, the United States, Japan and Europe. The developing world is also aging, though not as quickly. But all governments face a fiscal crunch in the future due to the rapid and unprecedented demographic shift that began after World War II when birthrates grew, then suddenly dropped after the Baby Boom generation became adults.
American economist Edward Yardeni wrote to clients to warn of the “the realistic and dismal demographic scenario” in which “the number of older people will grow faster than younger ones.” He called this phenomenon “the new Malthusian nightmare.”
In the 1790s, Thomas Malthus warned that population would grow past the capacity of society to feed itself. He was spectacularly wrong. Yardeni is warning that the structure of the global population will be a different demographic bomb, with more elderly and fewer workers to support them.
George Magnus, senior economic advisor with the USB Investment Bank, wrote in the Financial Times that increased life expectancy in “advanced economies is expected to rise from 77 to 83” over the next few decades, “forcing us to think about the unique change in age structure.” The U.S. Census Bureau released figures on July 19 that estimated by 2050, there will be six million centenarians (people 100 years or older). It said that there will be 627,000 centenarians in Japan or about 1 per cent of its population. The U.S. will have more than 600,000 centenarians.
Today, there are a total of 340,000 in the world. In Japan, the median age will rise from 37 in 1990 to 55 by 2050, whereas in the U.S., the median age will grow more slowly, from 33 to 39. Such increases will strain state budgets as they try to pay for pensions, healthcare and other age-related expenditures.
The International Monetary Fund issued its quarterly Global Financial Stability Report, which warned that governments need to develop “exit strategies” from their costly stimulus spending in order to reduce their debts and be better positioned when there is a financial reckoning for aging populations. It estimated that the costs to governments could be 10 times higher than the G-20 tab for dealing with the current recession. The IMF warns that the increased debt load today makes it more difficult to cover the costs of future entitlement spending.
As populations get older, the number of retirees grows and the proportion of workers supporting them (through taxes) decreases. When the number of workers decrease, tax revenues fall, spending increases, deficits and debt grows and both state and individual finances become unstable, imperilled and insufficient.
Magnus wrote in the Financial Times that, “We cannot afford simply to hope that a solution will turn up. We should not believe for a moment that financial engineering or adjustments to pensions, savings and benefits systems will provide an easy fix.” Magnus went on to propose adjustments to retirement ages, including eliminating incentives to early retirement. He also supported more flexible work schedules and environments, so that older employees could remain in the workforce. He wanted people to embrace a longer working life.
Jeffrey Simpson, a Globe and Mail columnist, cast some doubts on the IMF’s cost estimates, but endorsed the notion that governments need to control spending now so that they can pay for an aging population in the near future. He also supported policy changes, including tinkering with the tax, pension and health care system.
What Simpson did not do is mention, let alone propose ideas to rectify, below-replacement-level birthrates. Usually, policy makers look at immigration and playing with the retirement age as panaceas to the demographic bomb facing the developed world.
For the second time in four years, the C.D. Howe Institute, a centrist, Toronto-based economic think tank, issued a report panning the idea that increasing immigration will solve the problem of not having enough working-age people to support Canada’s senior population. In “Faster, Younger, Richer? The Fond Hope and Sobering Reality of Immigration’s Impact on Canada’s Demographic and Economic Future,” Robin Banerjee and William P. Robson stated that for immigration to adequately address the demographic challenges of the near future, annual immigration would have to swell from 225,000 to 600,000.
That is unrealistic, so Banerjee and Robson proposed three strategies: raise the retirement age from 65 to 70, increase the fertility rate from 1.54 to 2.1 (replacement level) and increase worker productivity (output per hour).
However, in their 18-page report, the authors dedicated just one paragraph to “Higher Fertility.” Nowhere did they mention abortion, nor did they suggest specific policies to achieve their goal of reaching a 2.1 fertility rate – the number of children a typical woman will have in her lifetime – within 10 years. In fact, they said “pro-natal policies” are “politically controversial.”
Indeed, they are. In over 20 recent studies, reports and media accounts on the issue of aging societies, only one mentions abortion. London Free Press columnist Rory Leishman wrote “at least one part of the solution is obvious: a major reduction in” abortion. (Leishman expands on this idea in his column in this issue.) He wrote that the slight decline in abortion rates “is encouraging, but hardly sufficient” to address the demographic imbalance.
Robson and Banerjee note that if fertility rates were to recover to replacement level, combined with an increase in the retirement age to 70, much of the future increased costs of an aging population would be covered. Without significant changes in Canada’s demographics and policies, the C.D. Howe Institute estimates that the increased cost of entitlements for those over 65 will be $1.5 trillion over the next 40 years.
An important component of raising fertility rates is recriminalizing abortion. In Canada, there have been more than three million abortions since 1969; that is a lot of missing workers and having them would have maintained the balance between workers and dependent elderly. The missing three million would not reduce the expense of caring for the elderly, but would have helped distribute the costs among a larger taxpayer base.
To help bring back an economically sustainable demographic balance, policy makers and opinion leaders must end abortion on demand. As the growing pile of reports and articles attest, the financial day of reckoning is getting closer and the window of opportunity to deal with the coming demographically driven economic crisis is narrowing.