The Unpredictable Futurity of The Economic System and Population Density of America

There is great speculation about the uncertain future of the United States and the rest of the world. Socioeconomic and population projections portray a future in which the Social Security system will not have enough workers’ incoming payroll taxes to fund the benefits for the current retirees of the previous generations. Changes in human demography, such as increasing life expectancy and a decreasing fertility rate, imply that current economic policies will not be compatible with future human populations. Others, however, believe that these issues are hyperbolized and obfuscated, posing only a moderate problem. Kotlikoff and Burns, who write about a horrific future in which “walkers outnumber strollers”, budgets are slashed, and taxes are sky high, present a terrifying image of what will happen unless there is swift, impactful change to today’s policies. Krugman, taking the opposition, claims that Kotlikoff and Burns expound erroneous relationships between current issues and hype moderate, preventable problems in delivering their message.

Kotlikoff and Burns argue in The Coming Generational Storm: What You Need to Know About America’s Economic Future that unless policies immediately undergo drastic changes, future generations will pay severely for the haphazard decisions made today. People are living longer lives. The numerous baby boomers are beginning to retire and benefit from Social Security. Social Security is currently funded by the payroll taxes of the working class though, which the two claim is far too small to fund the Social Security. Changes in population dynamics, such as women having fewer children and an increase in life expectancy, imply that the retirement of the baby boomers is going to be a wave that the system cannot handle without great and immediate change. If today’s imprudent policies and actions are not changed in the interest of the coming generations, they warn, the future of the economy will be catastrophic.

On a lighter note, Krugman, in response to Kotlikoff and Burns, states that they misrepresent the problems of rising costs and demographic change by presenting such a strong interrelationship. Although the government has not been making economic decisions structured for a better future, he reasons, the Social Security system has been managed for long-term security and should not be associated with poor economic policy. He says that Kotlikoff and Burns neglect to mention that a decrease in funding does not necessarily imply a deficit, but rather implies that a decrease or total loss of surplus, for which there is a Trust Fund in place. Krugman cites that privatizing the Social Security system is too precarious, citing uncertainty in equity premiums and future expense ratios, the obvious economic risk involved, and the certain fees that will reduce fiscal yield. Concluding his reaction, Krugman addresses the prospect of increasing health care costs by acknowledging that a resolution might be impossible, but prepaying projected costs or allotting a Medicare trust fund might postpone the problem.

Although Kotlikoff and Burns really should have pre-defeated potential counterarguments in their paper (e.g. “At the end, we’ll be close to having only two covered workers per beneficiary, which is projected to exhaust the Trust Fund in 20XX”), I find their argument overwhelmingly persuasive simply because they use reason and eclectic data to support their claims. Krugman attempts his rebuttals without keeping in mind that this book was written with the achievement of “generational balance” (Prologue XV) in mind, so their projections are certainly prudent. For example, where Kotlikoff and Burns present multiple pieces of evidence backing their proposed ideas about demographic change and it’s potential influence on government costs, Krugman shows a single projection of how Medicare, Medicaid, and Social Security spending could look over the next 72 years, which he might well believe has a margin of error of 0%. I have thought about this issue, but it will probably cross my mind more often when I am actively suffering from it in the working class. To assess the conflicting views, I would seek foreign projections of US population growth and costs, as they are less likely to be optimistic than Krugman’s proposals.

Lastly, from Krugman’s response, it seems that Kotlikoff and Burns propose reduced government action in health care. Krugman, however, points out that universal health care is remarkably cheaper to provide and has produced better results in terms of infant mortality and life expectancy. Unfortunately, Krugman cites the VA hospital, which was revealed in 2014 to have been operating under horrible administration since at least 20081. This cannot be necessarily held against Krugman’s 2005 publication, but it shows that his cited examples deserve more scrutiny if his words from 2005 are to be taken into strong account while shaping new policies.

The future of economic policy and demography will have real and almost certainly negative effects for those who inherit the economy we create. Although these authors differ in opinion, they both confess that the image presented by Kotlikoff and Burns is a very possible, very daunting future. Acting on current policies, however, is up to the reader. With prudent policy comes a heavy burden for the current generation of workers. Leisure, however, could result in anything from an economic nightmare to better conditions. An undeniably unwanted financial situation exists now though, and acting now to change policy will show in the future.