A Future in Doubt: A growing national debt as a share of GDP, coupled with an aging population, "threatens to exact a heavy toll on future generations of workers and taxpayers.".

• Author: Jackson, Richard
• Position: ECONOMICS

ON ITS CURRENT demographic and economic trajectory, the U.S. is headed toward a future of permanently slower growth, crushing fiscal burdens, and greatly diminished opportunity. This is not the future that any of today's adults, Democrat or Republican, want to bequeath to their children and grandchildren. Yet, without concerted action, it is almost certainly the future they will inherit.

There are five imperatives for an aging America. The first is to limit the extent of population aging by increasing the fertility rate and net immigration above today's low levels. The second is to offset the demographic drag of population aging on economic growth by encouraging longer work lives and leveraging the productive potential of the elderly. The third is to control the growth in health care spending, which is the main driver of long-term structural budget deficits. The fourth is to stabilize the national debt as a share of GDP, since--modern monetary theorists to the contrary--its continued rise threatens to exact a heavy toll on future generations of workers and taxpayers. The fifth is to resist the rising tide of protectionism, which, if unchecked, will deprive an aging America of the immease benefits that can flow from open global capital markets and labor markets. None of these goals will be easy to achieve, and some may prove to be elusive. Yet, all deserve the serious attention of policymakers.

The aging of the U.S. population is inevitable. Like other developed countries, as well as a growing number of emerging markets, America is passing through the so-called demographic transition, the shift from high fertility and high mortality to low fertility and low mortality that accompanies development and modernization. As the transition progresses, population growth rates slow and age structures shift upwards. The degree of population aging that the U.S. experiences, however, is not inevitable.

Until recently, the U.S. was a demographic outlier among its developed world peers. After dipping well beneath the 2.1 replacement rate needed to maintain a stable population from one generation to the next in the 1970s, the U.S. fertility rate partially recovered as baby boomers finally got around to starting families. From the beginning of the 1990s until the Great Recession of 2008-09, it averaged 2.0, higher than the rate of any other developed country except Iceland, Israel, and New Zealand. Together with substantial net immigration, America's relatively high fertility rate seemed to ensure that it would remain the youngest of the major developed countries. It also seemed to ensure that the U.S. still would have a growing workforce, even as those in other developed countries stagnated or declined. The U.S. outlook was so strikingly different from that in the rest of the developed world that the demographer Nicholas Eberstadt coined the term "demographic exceptionalism" to describe it.

Over the past decade, however, the U.S. has begun to look much more like a typical developed country. The fertility rate has been falling steadily since 2008. Initially, many demographers assumed that the decline was largely a "tempo effect," and that millennials merely were postponing family formation rather than deciding to have fewer children, but as yet there is no clear sign of an uptick in the age-specific fertility rates of women in their early and mid 30s, which one would expect to have seen by now if this were the case--and if that uptick has yet to occur, we should not expect it anytime soon. One of the things that history teaches about pandemics is that they typically depress fertility rates, at least for a while.

To make matters worse, net immigration, which in the near term acts much like a higher fertility rate, also has declined. After rising during the 1990s and plateauing in the early 2000s, net immigration fell in the wake of the Great Recession, recovered again in the mid 2010s, then plunged. As of 2019, on the eve of the pandemic, it stood at barely half the level it had been just five years before. [However, this does not take into account the Biden Administration's open border policy that has allowed untold numbers of migrants into the country.]

These developments, if not reversed, will spell the end of U.S. demographic exceptionalism. To be sure, the decline in the fertility rate over the past decade is not large enough to put America on the ruinous demographic trajectory of Greece, Italy, Spain, Japan, or South Korea, in the last of which by 2050, more people may be turning 90 each year than being born, but unless the fertility rate rebounds, the U.S. will age significantly more than is suggested by current Census Bureau or Social Security Administration projections, which do not fully factor in the recent decline. Rather than stabilizing at around 22% or 23% when the last of the boomers have crossed the threshold of old age, the elderly share of the population would keep rising, eventually approaching 30%. If this happens, economic growth also will slow more and fiscal burdens rise further than currently is projected.

The causes of the recent decline in the U.S. fertility rate are not yet entirely understood. It may be that many millennials simply want smaller families and, to the extent this is the case, there is little that public policy can or should do to encourage more births. However, it also may be true that many millennials would like to have more children than they currently are. We know from cross-country analyses that fertility rates are sensitive...