Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Do We Have a Medicare Budgetary Problem or an Aging Population Problem?

Politics / Demographics Jul 19, 2011 - 02:05 AM GMT

By: Paul_L_Kasriel


Best Financial Markets Analysis ArticleChart 1 shows what is driving the projections of federal spending (and, implicitly, the national debt) in the upcoming 11 fiscal years - mandatory federal outlays and interest on the debt. What is driving up mandatory outlays is spending on retirees - Medicare and Social Security.

The primary reason Medicare and Social Security expenditures will be rising so rapidly is that our retiree population will be rising rapidly (see Chart 2).The real economic implication of this sharp increase in government spending on retirees is that the U.S. economy will not be able to grow as rapidly in the future as otherwise because of an adverse effect on the productivity of the future labor force. (In addition, as also shown in Chart 2, growth in the labor force is projected to slow.) As more of our finite economic resources are transferred to retirees - a segment of the population no longer producing goods and services, just consuming them - there will be fewer resources left over and available to increase the productivity of the future labor force. That is, there will be fewer resources available to businesses to invest in state-of-the-art capital goods and fewer resources available to provide for a quality education of the future labor force. New capital goods and a quality education are key positive drivers of labor productivity.

Even if we did not have Medicare and Social Security programs, the U.S. economy still would be facing slower growth than otherwise because of our rapidly aging population. Whether paid for by the government or retirees, medical expenditures for retirees will be rising rapidly in the U.S. because of demographics. Large quantities of resources will be used for the health care of retirees regardless of who pays for it. As mentioned above, this will deprive the economy of resources that otherwise could have been used to enhance the productivity of the future labor force.

Slower productivity growth, all else the same, implies a slower rate of increase in an economy's standard of living. The adverse effect on the future growth in the standard of living of U.S. residents could have been avoided or alleviated if we had saved more in the past in preparation for this demographic event. By saving more, we could have grown faster in the past and exported more of this production. In the event, we would then have been in a position to import more goods and services in the future. Some of these imported goods might have been productivity-enhancing capital goods, which would have allowed our future workers to produce more. Some of these imported goods might have been goods consumed by our retirees, thus leaving more of our resources available to provide a quality education for our children and grandchildren. But alas, as shown in Chart 3, our net national saving rate has been trending lower since the early 1980s, with one exception - the second half of the 1990s when our federal budget was moving toward balance. Oh well, we did have fun, didn't we?

Paul Kasriel is the recipient of the 2006 Lawrence R. Klein Award for Blue Chip Forecasting Accuracy

by Paul Kasriel
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Copyright © 2011 Paul Kasriel
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

Paul L. Kasriel Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in