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The Limits of Demography

Here is a piece I wrote for today’s Globe Economy Lab re the Department of Finance report on the costs of an aging society.

The key point is that the mainstream doom and gloom projections of the costs of falling labour force growth  ignore the positive impacts which can be expected as and when we get to a situation of tight labour markets. If we actually get to a low unemployment rate because of fewer labour force new entrants, participation rates of older age groups will rise and we can confidently expect labour productivity growth to increase. Sure, there will be additional social program costs as the population ages, but demographic gloom and doom is overdone to justify cuts today to deal with exaggerated fiscal problems tomorrow.

In a somewhat similar vein, my earlier post for Economy Lab argues that inequality between generations is hugely over-stated and, more specifically, that differences between the economic well-being of young people and their baby boomer parents are greatly overdone.

Now that I have retired from the CLC, I shall be blogging for the Broadbent Institute on a regular basis, but will continue to post here.

I recommend to you the Institute’s just-released paper “Towards a More Equal Canada” and the commentaries which will be published over the next few weeks.

 

 

 

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Comments

Comment from Graham
Time: October 26, 2012, 6:16 am

With the new Globe pay wall, I cannot read your article, Andrew. Maybe it is time to consider other avenues for distribution of such good content.

Comment from Graham
Time: October 26, 2012, 6:23 am

http://www.broadbentinstitute.ca/en/blog/upside-slow-growth-labour-force

http://www.broadbentinstitute.ca/en/blog/are-boomer-kids-really-getting-raw-deal

Here is the links for those articles at the Broadbent Institute.

Comment from Larry Kazdan
Time: October 26, 2012, 10:44 pm

This letter refers to a study of health care, but the idea applies generally to the costs of an aging society:

http://www.calgaryherald.com/news/Health+affordable/7425246/story.html#ixzz2A3t1uR8q

Re: There’s not enough money to pay for baby boomers’ health care needs: researchers, Jamie Komarnicki, Oct. 17
http://www.calgaryherald.com/health/Younger+generation+able+cover+health+baby+boomers+researchers/7404765/story.html

This study conventionally assumes that the Federal government needs tax revenues in order to fund programs such as health care transfers to the provinces. This may have been the case when our country was on the gold standard, but it is not the case now that we have a non-convertible, free floating fiat currency.

For example, when Ben Bernanke, Chairman of the US Federal Reserve was asked where the trillions of dollars came from that was used to support the banking system during the 2007 financial crisis, he replied “It’s not tax money…… to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.”

If a country can create immense amounts of money to bail out banks, it can also always afford to pay for health care. The real issue is whether we will have enough of the the real resources – trained doctors and sufficient hospitals, equipment and medical supplies – to do so. It also requires a political decision on what percentage of real resources we want to devote to caring for the health of Canadians, and what percentage should go to other claimants, such as big corporations and financial institutions that get themselves into trouble and expect to be first in line.

Larry Kazdan,
Vancouver, B.C.

Footnotes:

1. Ben Bernanke, Chairman of the US Federal Reserve was interviewed by Scott Pelley on the program 60 Minutes and asked where the trillions of dollars came from that was used to support the banking system during the 2007 financial crisis:

PELLEY Is that tax money that the Fed is spending?

BERNANKE It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.

2. Does Social Security Need Saving? Providing for Retirees …Dimitri B. Papadimitriou; L. Randall Wray …
http://ideas.repec.org/p/lev/levppb/ppb_55.html

Comment from Myles Rempel
Time: October 27, 2012, 8:34 pm

Thanks for an alternate take on an aging population. As we are going through an extended period of disappointing results on the markets in general, it is nice to consider that one of the many expected headwinds may not be as much of an issue as the media is making it out to be.

Comment from Brian Dell
Time: December 5, 2012, 2:14 pm

A problem with what’s claimed about productivity here is that in the U.S., the labour force participation rate AND productivity have BOTH been in freefall since 1999.

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