Economists clash over ageing timebomb fears

The world’s ageing population poses both fiscal and economic growth challenges, according to Richard Jackson, senior fellow at the Center for Strategic and International Studies.

Jackson says improved life expectancy and lower birth rates in the developed world are leading to a permanent upward shift in age structures.

These two forces are driving down the size of countries’ workforces as a share of total population and increasing the proportion of elderly, which may hamper global GDP growth. A bigger retired population means higher pension, healthcare and social security costs and, on average, developed countries spend about 11% of GDP on the elderly, says Jackson. The Organisation for Economic Cooperation and Development predicts that the figure will rise to 18% by 2050, while the CSIS expects the proportion to be even higher, at 23%.

Jackson adds that unless productivity rates rise more than employment rates fall, GDP growth will be at risk. Other threats include asset devaluation and capital flow swings in financial markets.

He says a number of solutions are possible, including scaling back pay-as-you-go retirement benefits and encouraging longer working lives.

With rising tax burdens and widening public sector deficits in a number of developed economies, a solution needs to be found, says Jackson. “The sooner we engage the issue, the better,” he adds.

But Phil Mullan, economist and author of The Imaginary Time Bomb, disagrees. Mullan says: “Some see it as an economic challenge, but it should be seen as a social opportunity.”

Mullan questions society’s anxieties concerning ageing populations, arguing that it should be a good thing that people are living longer. He gives little regard to long-term predictions on the effects of future demographic changes on GDP growth. “It is dangerous and foolish to determine any reforms required from projections 40 or 50 years into the future,” he says.

Not knowing how demographics, economic growth and employment rates are going to change in the next 40 years makes for unreliable predictions, he argues.

While average life expectancy has been increasing for decades, GDP has also grown consistently, explains Mullan. “Economic growth has been the answer for the past 100 years,” he says.