[For once, Pollyanna is against the consensus]
COMMENT & ANALYSIS: Age shall not weary them: Horror stories about the dire consequences of demographic changes in western societies are exaggerated
Financial Times, Feb 7, 2001
By MARTIN WOLF
Economics is widely known as the dismal science. It owes this sobriquet to the work of Thomas Malthus, an English economist who lived in the first part of the 19th century. Malthus believed that, in the long run, increases in population would outrun our ability to produce additional food. In this at least, Malthus has been proved utterly wrong.
Nothing daunted, many economists now worry about the exact opposite: that populations are not growing fast enough. The combination of steep declines in birth rates with rising life expectancies is, they argue, creating a crisis of ageing. Happily, these anti-Malthusians are likely to be proved quite as wrong as Malthus himself.
At the global level, this anti-Malthusian story still looks absurd. The growth rate of the world population is slowing but remains positive. According to forecasts from the US Bureau of the Census, the world's population will rise from just over 6bn today to just over 9bn by the middle of this century. But in developed countries, the picture is already different. Population is forecast to rise very slowly, from 1,190m this year to 1,240m in 2030, before falling to 1,220m in 2050.
Behind this prospective decline in the populations of the world's high income countries lie low birth rates. Low birth rates are, in turn, one of the twin explanations for the ageing of societies, the second being rising life expectancies. For the members of the Organisation for Economic Co- operation and Development as a group, the ratio of the number of people aged over 65 to that of people aged between 20 and 64 is expected to double over the next five decades, to reach almost 50 per cent. In Japan and Italy, the ratio is forecast to reach 65 per cent.
This is often presented as a horror story: hordes of wrinkled oldies will suck the lifeblood out of their hapless offspring. I admit to a personal interest: I am 54. But this is, to put it mildly, exaggerated. Indeed, it is worse than exaggerated. It transforms positive changes into negative ones. Ageing of populations is the result of improved health and greater female control over fertility. The former gives longer and more predictable lives. The latter frees women from the tyranny of unwanted childbirth. Change usually brings some disadvantages. But the benefits of these changes greatly outweigh their disadvantages.
That there will be some loss of social and economic dynamism as a result of ageing seems inevitable. Middle-aged countries are likely to be a bit stodgy. People also point to the burden of prospective spending on pensions and care for the elderly in rich countries. Neither of these threats bear close examination.
In a fascinating recent paper**, Ignazio Visco, the chief economist of the OECD, notes that expenditure on healthcare is concentrated on the last few months of life.* Provided elderly people remain healthy longer than in the past, their healthcare may cost only a little more than that for younger people a few decades ago. Mr Visco also reports that long-term care costs, on one estimate, might increase by just half a per cent of gross domestic product.
The share of public spending on pensions is set to increase but only from 10.2 per cent of GDP in the European Union last year, to 13 per cent in 2050. The highest ratio in the latter year would be Spain's 17.7 per cent, up from 9.4 per cent today. Italy, now the highest, with a ratio of 14.2 per cent, is forecast to enjoy a slight decline, to 13.9 per cent by 2050.
Why should such modest increases be worrying? Some people point to the fact that today's young are likely to bear a heavier life-time tax rate than their parents. But they will also enjoy higher living standards. Even if real incomes per head were to rise at only 1 per cent a year, each generation will be more than a third richer than its predecessors. People will be able to pay the higher taxes needed to fund their parents' pensions and enjoy a much higher life-time standard of living.
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*"Paying for Pensions: How Important is Economic Growth?" Mimeo