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Title: The Fiscal Challenge of an Aging Industrial World (Significant Issues Series) by Robert Stowe England, Sylvester J. Schieber ISBN: 0-89206-391-2 Publisher: Center for Strategic and International Studies Pub. Date: 01 January, 2002 Format: Paperback Volumes: 1 List Price(USD): $21.95 |
Average Customer Rating: 5 (1 review)
Rating: 5
Summary: Excellent study on the subject
Comment: Robert England has written several books on the impact of global aging. This is an excellent study on this huge macroeconomic factor that is not resolved by any of the G-7 countries.
Robert England makes a convincing case that all governments from the G-7 group have greatly understated the fiscal pressures that the demographics of aging will impose on their respective government finances over the next 50 years. He contrasts the official figures on this subject with output from the demographic model developed by the Mountain View Research (MVR). In each cases, official estimates way understate demographic pressures of a growing aging population and the associated fiscal costs of supporting government programs earmarked for the elderly.
While governments predict that by 2050, life expectancy at birth will be 80.5 years in the U.S. and 83.0 years in Japan. The private sector MVR forecasts that the median outcome will be 83.2 years in the U.S. and 91.9 years in Japan. Thus, government authorities may have understated life expectancies by 2050 by 2.7 years in the U.S. and by 8.7 years in Japan. These years represent understated longevity gains of 17.9% in years over 65 for the U.S., and an amazing 50% for Japan. This is a serious matter because the addition of 50% more years after age 65 is roughly equivalent to another 50% increase in the cost of providing pensions, medical, and nursing care to elderly people than previously thought.
In my current job, I develop models catered to the financial service industry that are similar to the demographic MVR model. Using a regression analysis model, I was able to exactly replicate MVR median U.S. life expectancy by 2010, 2030, and 2050. My own judgment is that the MVR median figures are slightly overstated. This is because the underlying MVR assumption is that the increase in U.S. life expectancy experienced over the past 20 years, will continue forward at the same pace unabated over the next 50 years. I don't think this is realistic for a median outcome. But, using my same model, and progressively slowing the increase in life expectancy from one decade to the next, I come to the conclusion that the MVR estimates seem much closer to what appears realistic than official figures. In other words, even slowing down dramatically future increase in life expectancy, I come up with figures that are much higher than the official ones, and that are closer to the MVR ones. This smacks of governments manipulating their own analysis to understate the fiscal costs of global aging.
The G-7 countries have greatly underestimated the impact of all other demographic assumptions. Relative to the private sector MVR figures, they underestimated the rise in old age dependency ratios. Officials have done this by overstating fertility rates, inmigration rates, labor force participation. As a result, they have overstated the population of the labor force supporting the elderly population (that they have understated as mentioned in the prior paragraph). Thus, while officials predict that by 2050 the old-age dependency ratio will rise to 0.371 in the U.S., MVR median outcome is 0.393 (this means there will be 39 retirees supported by 100 workers; or there will be only 2.5 workers supporting each retiree). In Japan, the difference is more dramatic. Officials forecast the old-age dependency ratio will reach 0.592 while MVR median outcome is 0.734 (only 1.36 active worker supporting each retiree). These differences have drastic impact on the respective government debt levels these countries will have to issue to support government programs aimed at the elderly.
Robert England mentions that there is no one solution that will allow governments finances to withstand this demographic tidal wave. What is needed is an all out effort on all fronts including: a) a reduction in elderly benefits (especially in Europe where they are way too high to be sustainable); b) a progressive rise in the retirement age which reflects rising life expectancies; and c) government policies to support rising fertility rate and increase inmigration (this is a huge issue in Japan).
Robert England details the experience of Germany and Italy at attempting fiscal reforms (reducing pensions, increasing retirement ages) to address these upcoming fiscal issues associated with the rapid aging of their respective population. Apparently, implementing reforms that will adequately manage these future fiscal costs represent a formidable political challenge. After all, do you know who is one of the most powerful lobbying group in America? The answer is AARP. (American Association of Retired Persons).
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Title: Global Aging and Financial Markets: Hard Landings Ahead (CSIS Significant Issues Series) by Robert Stowe England, Robert Hormats ISBN: 0892063920 Publisher: Center for Strategic and International Studies Pub. Date: 01 May, 2002 List Price(USD): $15.95 |
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Title: The Coming Generational Storm: What You Need to Know about America's Economic Future by Laurence J. Kotlikoff, Scott Burns ISBN: 0262112868 Publisher: MIT Press Pub. Date: 01 March, 2004 List Price(USD): $27.95 |
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Title: Macroeconomic Impact of Global Aging: A New Era of Economic Frailty? by Robert Stowe England, Jr. Shaw. E. Clay, E. Clay, Jr. Shaw ISBN: 0892063939 Publisher: Center for Strategic and International Studies Pub. Date: 01 November, 2002 List Price(USD): $18.95 |
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Title: The Progress Paradox : How Life Gets Better While People Feel Worse by GREGG EASTERBROOK ISBN: 0679463038 Publisher: Random House Pub. Date: 25 November, 2003 List Price(USD): $24.95 |
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Title: The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill by Ron Suskind ISBN: 0743255453 Publisher: Simon & Schuster Pub. Date: 13 January, 2004 List Price(USD): $26.00 |
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