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In the 1990s, the idea of a demographic crisis due to the retirement of baby boomers was widely discussed. Private equity billionaire Peter Peterson’s polemics suggested that a rising ratio of retirees to workers would create a burden on younger labor force members. However, this argument went out of style over time due to the slow recovery from the Great Recession and the fact that healthcare spending is now less than 25.0% of total consumption.
The impending retirement of baby boomers also became less significant as they began to retire in the last decade. By 2020, the oldest baby boomers were already 74, and the youngest were 56, making a substantial portion of the baby boom generation retired. The demographic crisis from retiring baby boomers has resurfaced in recent months, with major news outlets reporting that we are running out of workers and the spread of robots and AI creating mass unemployment.
The aging crisis involves workers having to share a significant portion of their paycheck to cover the expenses of a growing retiree population. This concern is supposed to lead to cuts in Social Security and Medicare benefits and the belief that workers must work later in life. However, no bad idea ever stays dead for long, and the aging crisis continues to be a significant issue in the modern world.
The age at which people are eligible for full Social Security benefits has been gradually raised to 67 for those born after 1960, taking into account people’s increased longevity. However, the gains in life expectancy have not been evenly shared. For people born in 1930, the gap between the top income quintile and the bottom income quintile for men was 5.0 years, and for women it was 3.9 years.
The aging crisis has significantly increased life expectancy for the 1960 cohort, with men experiencing 12.7 years and women experiencing 13.6 years. The hypothetical scenario of raising payroll tax by 4.0 percentage points could make Social Security and Medicare trust funds solvent forever. The current annual wage for a median wage worker is shown in the graph.
If the pay had kept pace with productivity growth over the last half-century, it would be over $79,700 net of payroll taxes. If it were necessary to raise the payroll tax by 4.0 percentage points to deal with the cost of supporting an aging population, the annual wage would fall to $76,500, still more than 70 percent above its current level.
Upward redistribution of income is a significant issue that most workers face, causing them to lose more than they could risk from changing demographics. The aging population poses a risk to the living standards of younger workers, and upward redistribution is a disaster. Inequality is not a result of a natural occurrence, but a result of deliberate policy choices.
In the past, we have redistributed a massive amount of income upward through longer and stronger patent and copyright monopolies and related protections. This has led to a decrease in wages for manufacturing workers and non-college-educated workers. However, we have maintained or increased protections for highly educated professionals, such as doctors and dentists, which have earned twice as much as doctors in other wealthy countries.
To avoid increasing inequality, we could have pursued a course of globalization that focused on reducing barriers that protected highly paid workers. However, these professionals have enough political power to ensure that trade deals do not threaten their livelihoods. The financial sector is a cesspool of waste and corruption, with policies that encourage bloat in this sector, which is the source of many of the biggest fortunes in the country. By addressing these issues, we can work towards a more equitable and sustainable future for all.
The financial industry’s downsizing during the financial crisis was largely due to the lack of market fundamentalists, leading to a lack of action by political leaders. Corporate governance rules have allowed CEOs to profit from their companies, with corporate directors often not seeing this as part of their job description. The bloated pay for CEOs has also distorted the pay structure, with CEOs earning $30 million and third-tier executives earning $2-$3 million. High unemployment has also lowered the pay of the average worker, with the median worker’s pay outpacing inflation only when the unemployment rate is close to or below 4.0 percent. The lack of anti-trust policy in the last four decades may have contributed to the shift from wages to profits.
In summary, policy decisions have led to a massive upward redistribution of income in the last half-century, with the impact of this redistribution on young workers dwarfing demographics. However, news outlets seem to focus more on demographic issues than the causes of inequality. It is essential to invest more in daycare, healthcare, early childhood education, and other areas that benefit the young, but it is not necessarily the issue of the elderly that prevents more spending in these areas.
