Sunday, February 10, 2013

How to Postpone the Coming Demographic Disaster.

I saw an interview of Jonathan Last about his book, What to Expect When No One's Expecting: America's Coming Demographic Disaster. Last pointed out that there is a worldwide trend for birth rates to go down and populations to age. Correspondingly, there will be a long time while the portion of old people in the population increases. He explained a number of factors that caused this situation, and was quite convincing that few if any policies could reverse the trends.

He points out that during this period it will not only be the case that the average working person will have to support more retired people than is now the case, but that

  • It is young people who accumulate capital and old people who draw down capital, so that the nations rate of capital accumulation will slow and perhaps be reversed.
  • It is young people who tend to be the inventors and the entrepreneurs so the rate of innovation and creation of new enterprises will go down.
  • As a result there will probably be a long term reduction in the rate of economic growth.
The United States still has a birth rate that is almost sufficient to maintain the current population, and is likely to have a significant immigration rate as it recovers from the current recession (assuming it has a decent immigration policy). Immigrants, especially the Hispanic immigrants, tend to have a higher birth rate so the immigration will help sustain a reasonable age distribution of the population.

(Last also points out that the Latin American countries themselves are seeing birth rates go down and will seek to retain their own citizens to reduce the coming demographic problems, so we can not depend on immigration to permanently avoid the crisis.)

So what can we do and what should we do?
  • We should welcome immigrants, especially young workers and students, and we should do all we can to keep them here.
  • We should be sure that we invest adequately in the education of the young and remove all barriers to their success as innovators and entrepreneurs. Obviously this means that we have to stop wasting the talent in our young Africa Americans and Hispanic Americans. 
  • We should be exploring government policies to make the economy grow faster. I think that means investing in education, research and development, technology innovation, infrastructure, and institutions that allow enterprise formation and success.
  • We should also be exploring ways to serve the aging population that increase the efficiency with which we can provide a given level of services. The increasing costs of health care would be a place to start.

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