Do the generations following the baby boomers have the spending power to continue to support our economy?
Do the generations following the baby boomers have the spending power to continue to support our economy?
With the Baby Boomers retiring and moving to fixed incomes and the younger generations (of which I am one) laden with debt and faced with looming tax increases will we be able to sustain the US’s consumer driven economy?
Best answer:
Answer by parochial school graduate
I feel bad for you and me. Our crazy Government puts everything of until tomorrow. If the country lived with in it’s means and had not borrowed from social security we would have it made. Just dumb , greedy self serving reprobates ruining everything.
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You are asking the wrong question.
1. The problem with the aging U.S. population is much less severe than for other developed countries.
http://en.wikipedia.org/wiki/Aging_of_Japan
http://en.wikipedia.org/wiki/Aging_of_Europe
Thanks to immigration, the population of the U.S. is still growing.
http://en.wikipedia.org/wiki/List_of_countries_by_population_growth_rate
2. Debt is not a problem. With interest rates so low these days, even the larger than usual public debt is not going to cost all that much.
http://krugman.blogs.nytimes.com/2010/03/05/debt-is-a-political-issue/
http://krugman.blogs.nytimes.com/2009/08/28/the-burden-of-debt/
Besides, most of the U.S. debt is held inside the country. When you pay interest on the debt, most of the money stays in the country and is still part of aggregate demand.
http://en.wikipedia.org/wiki/File:Estimated_ownership_of_US_Treasury_securities_by_category_0608.jpg
3. Taxes are not a problem. What counts for the economy is aggregate demand. Money the government takes in taxes is spent just like money that isn’t taken in taxes.
http://en.wikipedia.org/wiki/Aggregate_demand
The real problem is the percentage of the population in the workforce. As the baby boomers retire, a smaller percentage of the population will be working. As the total output still gets divvied up among the entire population, the workers will see a lower standard of living.
In the extreme case, suppose productivity per worker is constant, the population is constant, and you have 66% of the population working. Then if X is the output of each worker, the worker gets to keep (on average) 2/3 X for herself while the remaining 1/3 X is given to people wo aren’t working – there are two workers for each non-worker.
Now suppose only half the population is working. Then:
- For each worker there is one non-worker to support – on average, a worker only gets half of what she produces.
- The total quantity of goods produced has gone down because of the fewer workers, but the goods are still split up among the same population.
There is no reason to expect things to get quite this bad:
- As noted, the population is still growing
- There is reason to expect that productivity (output per worker) will continue to increase
But standards of living will definitely be affected. Of course, if you can get all those retirees to leave the country for somewhere cheaper:
http://washingtonindependent.com/88218/video-should-we-pay-retirees-to-leave-the-country
(Note that this has nothing to do with government policies: they can affect how the goods that do get produced get split up, but they don’t have much impact on how much gets produced. This is not a social security or medicare question.)