As population stabilizes, fiscal consequences call for a new kind of courage.
Boom! Crash! Bomb! Crisis! Words used to describe population often verge on apocalyptic. Call in the superheroes to save the world from population! I like a good superhero, and I really like the idea of a caped, spandex-clad population protector. A decade into the 21st century, world population is on track to stabilize. Stabilization may not sound cataclysmic, but the political, financial and cultural ramifications are potentially disruptive. Can the world fulfill its population destiny gracefully? If so, how?
The demographic shifts resulting from a stabilizing population will alter the underpinnings of public finance and culture, posing serious political challenges. For more information about my home state, I contacted Minnesota state demographer Tom Gillaspy. He highlighted two key facts. First, the percentage of Minnesotans of working age peaks this year. Second, in 2020, the state will have more people over 65 than of school age. Details differ for each state, country and continent—Japan and Europe have already started to see these changes, while Africa will take awhile longer—but the essential problems of population stabilization are similar. Fewer workers will be available to meet the needs of more dependents, both young and old. Populations will be, on average, older than ever before.
The implications of these demographic changes for fiscal policy are huge. Pensions, social security, medical benefits and long-term care are promises societies make to older citizens. All are major drivers of government budget expenditures. The costs of these promises skyrocket as populations age. At the same time, slower workforce growth means relatively fewer taxpayers to keep up with budget demand. It’s the perfect fiscal storm. Even though the transition was forecast by demographers decades ago, most governments have not made the fiscal policy changes needed to weather it.
The necessary policy changes are theoretically simple, but politically volatile: raise taxes and reduce society’s financial promises at the same time. Politicians don’t often campaign on this reality-based version of fiscal responsibility. Greece is a recent example. Fiscal crisis, partially demographically driven, forced the country to raise taxes and lower benefits. Greek citizens did not cheer on their politicians for finally making sound fiscal policy. Instead, they demonstrated in the streets. Policymakers beware: Fiscal responsibility takes serious leadership and public buy-in.
The fiscal impacts of a stabilizing, aging population can be softened. Workers must become either more productive or more abundant. Effective, adequately funded education helps maximize worker productivity, and societies addressing a stabilizing population should prioritize education.
The only way to increase the number of work-aged people in the short term is immigration. Immigration may be politically sensitive, but countries that figure out how to attract hard-working, educated immigrants will transition into a stable population world more easily than those that do not. Societies may also choose to abandon GDP as the sole measure of economic success, instead focusing on measures of public or environmental health, education, equity, or happiness. However, the bottom line remains that governments will need to rebalance what they pay for and how they pay for it in light of shifting demographics.
While changes in public finance resulting from stable population may be difficult, cultural changes could be fun. The world will have smaller families and more elders, catalyzing changes in social support systems. I have a stable-population-sized family. My seven immediate blood relatives (three generations) are important, but I also treasure my “family of choice.” These are the aunts and uncles, not related by blood, who helped raise me, and whom I will help support as they age. We are all richer for it. Society as a whole will be richer because of the offerings of elders: wisdom, experience and time. Older folks will work longer, and many could volunteer, strengthening our communities in the process. Cultures on a smooth demographic transition will create institutional support, both public and private, to take care of children and seniors with fewer relatives, while simultaneously making the most of elders.
World population is on track to stabilize. Cultures that wish to adapt gracefully will need to manage the fiscal reality. After recounting a litany of impending economic crises and fiscal policy challenges, State Demographer Gillaspy commented, “It’s a time for heroes.” The world’s population transition will need superheroes, but their suits won’t be made of spandex. The heroes will be public leaders preaching about demography and economics, politicians bearing the scars of campaigns based on this fiscal reality, and an electorate willing to vote those politicians into office and help them govern.
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Last modified on January 23, 2012