The economic conundrum of an aging population.

• Author: Ayres, Robert

The shift to a stable population will increase the "dependency ratio" of old to young. While that may stem environmental decline, it could bring economic hardship to the countries that first achieve it. The only real chance of escaping this dilemma is to eliminate the huge economic inequities that now prevail in the world.

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In a large part of the world, old age is an incentive to have many children. That may seem puzzling to Europeans or Americans, for whom old age can be a welcome escape from the burdens of buying kids' clothes or paying for college tuition. Retired people in affluent countries usually have savings or pensions, as well as government-provided retirement income. But in poor countries, where hundreds of millions of people have no such income after they stop working, adult male children are the equivalent of social security. For this reason, there are strong cultural imperatives for children to provide support for their elderly parents, in preference (if a choice is necessary) to their own young. The result is a combination of too many children and too little care for those children--a potent formula for yet another generation of poorly educated and impoverished young people, including more young men whose frustrations make them prime prospects for militias and terrorists, and young women who have few prospects other than to have more children. It's a self-perpetuating cycle, which ironically becomes harder to break as life expectancies increase and the number of old people in poor countries continues to increase.

Aging Populations Have Fewer Children, But ...

The incentives for having fewer children in rich industrialized countries are the mirror image of the reasons for having large families in poor countries. In poor countries, most people live on subsistence farms where child labor is valuable. In rich countries, most people live in cities where children are required by law to go to school. Children are an expensive luxury for people who live in cities and who have jobs outside the home. They must be housed, fed, and schooled. They add nothing to family income. If the mother has a job, she must find (and pay for) a baby-sitter or nanny to look after young children. Urban teenagers are often neglected by working parents, and too many of them--lacking adult guidance--engage in high-risk or costly behavior, from profligate consumption of video games or TV shows exhibiting extreme violence, to unsafe sex, drug-taking, or even crime. If unemployed, children may be an economic burden on parents into their thirties. In Italy, especially, unmarried children have become notoriously inclined to continue to live with their aging parents and enjoy mama's cooking. For that reason, among others, Italy now has one of the lowest birth rates in the world. Some Italians would like to see that trend reversed.

Last fall, The Economist magazine published a story, "Work Longer, Have More Babies." The illustration showed a horrified young woman--presumably in shock over the news that she is expected to stop having fun and start reproducing, for the good of western society. The underlying message, of course, was that as the populations of rich countries get older, with smaller percentages of them of child-bearing age--and as fewer of them care to bear the expense of having kids in any case--the populations of those countries will shrink and their cultures will risk being overrun by others, whose populations are rapidly expanding.

It is true that all of the industrialized countries, including the United States, are aging. The number of old people supported by social security, compared to the number of younger employed people paying into the retirement system, is growing. This "dependency ratio"--the number of people over 65 as a percentage of the number in the 20-24 age group--is a good indicator of the fundamental demographic problem. This ratio is now just over 20 percent for the United States, about 27 percent for the Euro zone, and 28 percent for Japan. However, by 2050, according to the World Bank, the dependency ratio will be close to 46 percent for the United States, 60 percent for Europe, and 70 percent for Japan.

The number of workers supporting each German pensioner today, via the main government "pay-as-you-go" (PAYG) system, is about three. By 2030, if current trends continue, the number of active workers per pensioner will be only 1.5. If each of the active workers earned 100 Euros before the transfer, he (or she) would get to keep 60, and the retiree would also get 60 Euros (1.5 X 100 = 2.5 X 60 = 150)...