Why is the American economy stuck in low gear?
Among economists, two major culprits get most of the attention. First is anemic productivity growth. Productivity, output per worker hour, has increased at a disappointing average annual rate of 1.3 percent since 2005 compared to the 2.8 percent annual pace recorded in the previous 10 years. The reasons behind the productivity slowdown — especially the economic impact of technological innovations and lower levels of business and public investment — are heavily debated.
But little controversy shadows the second major factor: the demographics of an aging population. The oldest members of the baby boomer generation are filing for Medicare. About 8,000 boomers will celebrate their 65th birthday each day until 2030. Labor force growth is slow in a society with fewer young people and growing numbers of retirees.
To a large extent, of course, demographic forces are inevitable. There isn’t much dispute about the Census Bureau prediction that all baby boomers will be 65 and over in 2029, accounting for more than 20 percent of the total population. The 65 and above age group is projected to become larger than the population 18 and under by 2056.
Compared to forecasting the future pace of productivity growth, demographics are reassuringly predictable. Or are they?
“We observe the world how it is today and make these very simple projections and turn them into a terrible scenario,” said Johannes Koettl, senior economist at the World Bank’s Social Protection and Labor Global Practice. “This approach fails to take into account that the world is changing.”
It is long past time to shed three pernicious myths about the United States economy and aging.
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