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Global Demographic Trends and Provisioning for the Future

In: Government Spending on the Elderly

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  • L. Randall Wray
  • Richard Startz

Abstract

The world’s population is aging, with virtually no nation immune to this demographic trend and the challenges it brings for future generations. Relative growth of the elderly population is fueling debate about reform of Social Security programs in the United States and other developed nations. In the United States, the total discounted shortfall of Social Security revenues has been estimated at about $11 trillion, of which nearly two-thirds comes after 2050. However, this chapter argues that those calling for reform have overstated the demographic challenges ahead. The reason that reformers reach the conclusion that aging poses such a serious challenge is because they focus on financial shortfalls. If we focus attention on demographics and on ability to produce real goods and services today and in the future, it becomes clear that the likelihood that Social Security in the United States and developed nations taken as a whole can face a real crisis is highly improbable, for the simple reason that demographic changes are too small relative to the growth of output that will be achieved even with low productivity increases. We will conclude with some policy recommendations that will enhance our ability to care for an aging population in a progressive manner that will not put undue burdens on future workers. Policy formation must distinguish between financial provisioning and real provisioning for the future; only the latter can prepare society as a whole for coming challenges. While individuals can, and should, save in the form of financial assets for their individual retirements, society cannot prepare for waves of future retirees by accumulating financial trust funds. Rather, society prepares for aging by investing to increase future real productivity.

Suggested Citation

  • L. Randall Wray & Richard Startz, 2007. "Global Demographic Trends and Provisioning for the Future," Palgrave Macmillan Books, in: Dimitri B. Papadimitriou (ed.), Government Spending on the Elderly, chapter 3, pages 53-78, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-59144-8_3
    DOI: 10.1057/9780230591448_3
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    References listed on IDEAS

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    1. Robert J. Gordon, 2000. "Does the "New Economy" Measure Up to the Great Inventions of the Past?," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 49-74, Fall.
    2. Dimitri B. Papadimitriou & L. Randall Wray, "undated". "Does Social Security Need Saving? Providing for Retirees throughout the Twenty-first Century," Economics Public Policy Brief Archive ppb_55, Levy Economics Institute.
    3. L. Randall Wray, 2005. "Social Security's 70th Anniversary: Surviving 20 Years of Reform," Economics Policy Note Archive 05-6, Levy Economics Institute.
    4. Mr. Tim Callen & Warwick J. McKibbin & Nicoletta Batini, 2006. "The Global Impact of Demographic Change," IMF Working Papers 2006/009, International Monetary Fund.
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