Will America Grow Up Before It Grows Old?

The long gray wave of Baby Boomers retiring could lead to an all-engulfing economic crisis -- unless we balance the budget, rein in senior entitlements, raise retirement ages, and boost individual and pension savings. Yet politicians of both parties say that most of the urgently necessary reforms are "off the table

Part 1: A Nation of Floridas

Aging America

Been to Florida lately? You may not realize it, but you have seen the future -- America's future, about two decades from now. The gray wave of senior citizens that fills the state's streets, beaches, parks, hotels, shopping malls, hospitals, Social Security offices, and senior centers is, of course, an anomaly created by our long tradition of retiring to Florida. Nearly one in five Floridians is over sixty-five. But early in the next century a figure like that won't be exceptional. By 2025 at the latest the proportion of all Americans who are elderly will be the same as the proportion in Florida today. America, in effect, will become a nation of Floridas -- and then keep aging. By 2040 one in four Americans may be over sixty-five.
When we consider the great demographic shift that will shape our national future over the next fifty years, we are speaking not of a mere transition but of a genuine transformation. Just fifteen years from now the first batch of Baby Boomers will hit sixty-five, bringing changes -- economic, political, social, cultural, and ethical -- that will transform American society. This transformation will challenge the very core of our national psyche, which has always been predicated on fresh beginnings, childlike optimism, and aspiring new generations. How we cope with the cultural dimensions of this challenge I will leave to others -- to sociologists, political scientists, historians, and philosophers. I am none of these. I am a businessman who has long participated in public debates over the political economy of rising living standards. What concerns me most about America's coming demographic transformation is simply this: on our present course we won't be able to afford it.

To provide for the largest generation of seniors in history while simultaneously investing in education and opportunity for the youth of the twenty-first century, we must reject the prevailing "entitlement ethic" and return to our former "endowment ethic," which generated America's high savings, high growth, and rising living standards in the past. Endowment implies "stewardship" -- the acceptance of responsibility for the future of an institution. But given our current emphasis on individual self-fulfillment, we must, in addition to endowing the future of our nation and its institutions, endow our individual futures and those of our children, because no one else is going to do it for us. What I am talking about is self-endowment.

"Hope I die before I get old," The Who sang in their classic sixties anthem, "My Generation." That statement, like so many slogans of the Baby Boomers' youth culture, was wishful thinking. The generation that once warned "Don't trust anyone over thirty" is now passing fifty.

The real question is, Will America grow up before it grows old? Will we make the needed transformation early, intelligently, and humanely, or procrastinate until delay exacts a huge price from those least able to afford it -- and confronts us with an economic and political crisis to which there is no longer a win-win solution?

Demographics is Destiny

Within the next fifteen years the huge generation of Baby Boomers, whose parents brought them into the world with such optimism, will begin to retire. As they do, they will expect the munificent array of Entitlements that were guaranteed (again with such optimism) to every retiring American with no anticipation of the ever-growing length of retirement as life expectancy increases or the ever-rising expectations of independence, affluence, health, and comfort of life in retirement. But consider who is expected to pay for this late-in-life consumption: the relatively small "bust" generation in whose productive capacity we have failed to invest. Neither the founders of Social Security sixty years ago nor the founders of Medicare thirty years ago imagined the demographic shape of America that will unfold over the next several decades.

Ponder the following:

  • With 76 million members, the Baby Boom generation is more than half again as large as the previous generation. To get some idea of how much the number of seniors could grow by the time the youngest Baby Boomers turn seventy, think of the entire population of California and the New England states combined. Or think of it this way: the number of Social Security beneficiaries will at least double by the year 2040.
  • In 1900 only one in twenty-five Americans was over sixty-five. The vast majority of these people were completely self-supporting or supported by their families. By 2040 one out of every four or five Americans will be over sixty-five, and the vast majority will be supported to some degree by government entitlements.
  • In 1960 there were 5.1 taxpaying workers to support each Social Security beneficiary. Today there are 3.3. By 2040 there will be no more than 2.0 -- and perhaps as few as 1.6.
  • The number of "young old" (sixty-five to sixty-nine) will roughly double over the next half century, but the number of "old old" (eighty-five and over) is expected to triple or quadruple -- adding the equivalent of an entire New York City of over-eighty-five-year-olds to the population. Nearly three quarters of those over eighty-five will be single, divorced, or widowed -- the groups most likely to need extensive government assistance.
  • In 1970 children under five outnumbered Americans aged eighty-five and over by twelve to one. By 2040 the number of old old will equal the number of preschool children, according to some forecasts.
  • The extraordinary growth of the old old population will add especially to federal health costs. This is because the average annual medical-care bill rises along a steep curve for older age groups. The ratio of Medicare and Medicaid spending on the old old to spending on the young old is about 2.5 to 1.
  • In 2030 only about 15 percent of the over-sixty-five population will be nonwhite. But about 25 percent of younger Americans will be nonwhite. This will create a potentially explosive situation in which largely white senior Boomers will be increasingly reliant on overtaxed minority workers.
  • In order to provide the same average number of years of retirement benefits in 2030 that were contemplated when Social Security was set up, in the 1930s, the retirement age would have to be raised from sixty-five to seventy-four by 2030. But this projection -- daunting as it is -- assumes that future gains in longevity will slow as average life expectancy approaches the supposed "natural limit" to the human life-span. Many experts now question whether such a limit really exists. Summing up research at the National Institute on Aging, the demographer James Vaupel goes so far as to suggest that we are now on the threshold of a "new paradigm of aging," in which the average life expectancy could reach 100 or more.

Of course, the United States is not the only country facing an "age wave." Indeed, the age waves in most industrial countries are approaching faster than ours, and -- to judge by official projections -- could have an even worse impact on their countries' economies and public budgets. But these other countries enjoy long-term defenses that we lack. Unlike the United States, most can actually budget their public spending on health care, and so have much greater control over this potentially explosive dimension of senior dependency. Unlike the United States, most generally tax public benefits as they do any other income. And unlike the United States, most have fairly healthy household savings rates (generally well over 10 percent of disposable income, as compared with about five percent here), and so can absorb public-sector deficits much better than we can.

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