As everyone knows, tens of millions of baby boomers are approaching retirement age. Over the course of the few decades, this enormous segment of the population will stop contributing to Social Security, Medicare, and private investment programs. It will instead be drawing upon these institutions to the tune of trillions of dollars. This will result in enormous dislocations for the economy as a whole, shaking its very foundations.
Well, almost everyone knows this. In a recent editorial entitled “5 Myths About the Bust That Will Follow the Boom(ers),” deputy assistant secretary of the Navy Russell Beland essentially pooh-poohs all the dire warnings of economists. According to Beland, it’s not going to be all that bad:
[D]on’t be too scared. Yes, the baby boom’s retirement will strain the budget. But natural economic forces will take over, and combined with modest revisions in benefits and taxes, they should make it possible to keep those baby boomers grazing and the rest of us going in relative comfort and peace of mind.
If you’re the kind of person who, like Scarlett O’Hara, would prefer to think about unpleasant realities tomorrow rather than today (if at all), you’ll probably be comforted by his assessment. If you’re more realistic, you may be asking, “What the _____?”
We fall into the latter category.
If Beland were merely spouting absurdities, one could safely ignore him, and there would be no reason for me to even mention his article. Unfortunately, though, his arguments sound sensible. They’ve been put forth by many others. It’s worth looking at them in order to be prepared for the next politician who ignores the problem, all the while reassuring us that “there’s nothing to worry about.”
Here are Beland’s main points—and why they’re bogus:
There will still be plenty of people working even though the boomers have retired.
Of course there will still be workers. The whole problem is being caused by the inequality in the size of the different generations. The baby boom was a “boom” because so many babies were born during the two decades following World War II. Then came a “bust” that was caused by many things, among them the invention of the birth control pill. The numbers are already cast in stone. Because we know how many 20, 40, and 60 year olds are alive today, we can predict quite accurately how many 30, 50, and 70 year olds will be alive then years from now.
Retired boomers will still be avid consumers even though they’re not working. Thus, they’ll continue to stimulate the economy.
It’s true that the upcoming bust won’t involve a precipitous drop in consumption (although it may fall somewhat when boomers, as retirees, have lower disposable incomes). The big problem isn’t consumption, but rather the fact that with regard to all sorts of public and private programs, boomers will stop being “givers” and will become “takers.”
The reduction in the size of the workforce will push wages up, thus generating higher income tax revenue that can be used to pay for boomers’ benefits.
Maybe. But real wages have been stagnating or declining for decades due to globalization, the importation of cheap labor from Mexico and other Third World countries, and outsourcing. There’s no sign that these trends are letting up. Besides, Beland contradicts himself here: first he says there will be plenty of workers, and then says that a labor shortage will drive up wages.
Nobody’s really sure of the impact of the boomer’s looming retirement. The economy is just too complex.
Of course, no one can predict the future. But the “macro” factors that are going to determine the solvency of Social Security and Medicare are indeed predictable because they’re based on demographics, which are known.
The bottom line: yes, there is a problem, and no, it’s not going to go away like magic. What we do now will determine what happens further down the road… so it’s time to take our heads out of the sand, and meet the challenge head on while there’s still time.