Book Excerpt: Origins of the False “Aging Population” Scare

In continuing to try and contextualize the great wave of United State’s birth dearth alarmism in early 2013, we were reminded of a section of Derek Hoff’s excellent book, The State and The Stork: The Population Debate and Policy Making in US History (Univ. Chicago Press Books, 2012). Professor Hoff agreed to allow a short excerpt. Hoff’s book traces the political and ideological (rather than demographic) origins of the so-called aging crisis. This particular section really honed in on some interesting dynamics around the urge towards welfare state retrenchment, among others.

And, for future reference, here is the book’s dedicated website: http://stateandthestork.com/

Rethinking the “Aging Crisis”
(excerpt)

…Economist Robert Clark, for example, put the problem [an increasing average age of the population] this way:

“All of our projections indicate that the movement toward zero population

growth will require even greater transfers of income to support the

elderly, with the Social Security system being forced to bear much of the

burden.”107 Leading demographer Nathan Keyfitz worried that older, less

free- spending consumers might act as a drag on economic growth, but he

observed that the empirical links between aging and economic performance

were tenuous.108 Keyfitz was also concerned that a stagnant population

would stunt individuals’ labor mobility as older workers clung to

their jobs, but he concluded that the system could adjust, with workers

becoming “more concerned with pay and the goods they can buy than

with rank and title.”109 Several economists emphasized that the fiscal consequences

of an increasing old- age dependency ratio would be offset by a

reduction in social spending on the young.110 William Reddaway, the British

Stable Population Keynesian who gained prominence in the 1930s, declared

that “one should dismiss the increased pensions bogey as quantitatively

negligible, so far as it rests on demographic factors.”111 A notable

exception to the prevailing view was conservative Harvard economist

Martin Feldstein, who later chaired President Reagan’s Council of Economic

Advisers; in the mid 1970s, he unambiguously identified a “social

security crisis.”112 Feldstein also claimed that Social Security reduced savings

and stunted capital accumulation.113

In the short term, the new anxiety only modestly affected policy.114 The

1977 Social Security amendments addressed the deficit by raising taxes

slightly and lowering benefi ts but kept intact the expansionary trajectory

of the program.115 At the end of the 1970s, the Carter administration incorporated

a warning about population aging into its budget projections,

estimating that current demographic trends augured an increase in the

total tax burden from 33 percent of GDP in 1980 to 50 percent in 2030.116

Moreover, the 1970s had exposed a fundamental weakness of Social Security:

its tax structure left it vulnerable to economic downturns. And after

skyrocketing interest rates and inflation, and two recessions, in the early

1980s, demographers adopted a more urgent tone. In 1980, for example,

Keyfitz compared Social Security to a chain letter that would inevitably

fail.117

 

The Republican victory in the 1980 election helped turned a simmer

into a boil, as the accompanying attacks on the social contract and

Keynesian progressive fiscal policy reinforced the preoccupation with

the budget- busting threat of an aging population. In 1981, President Reagan

declared a Social Security crisis.118 That year also saw the creation of

the bipartisan National Commission on Social Security Reform, often referred

to as the Greenspan Commission after its chair, future Federal Reserve

head Alan Greenspan. The commission’s recommendations, issued

in early 1983 and brokered by Senators Robert Dole (R-Kan.) and Daniel

Patrick Moynihan (D-N.Y.), were the basis for that year’s Social Security

amendments,119 which increased coverage (a clever way to augment

revenue in the short term), delayed cost- of-living increases, imposed taxes

on the Social Security benefits of better- off recipients, raised the Social

Security payroll tax rate, created what we know as the Social Security

Trust Fund, and instituted a gradual increase in the age for full benefits

from 65 to 67.120 The committee was optimistic that it had solved the

problem for at least seventy- five years, with Greenspan reporting that it

would take “a very adverse economic scenario” to jeopardize retirement

benefits.121

 

Yet Reagan’s (and Feldstein’s) crisis tag stuck.

The early 1980s recession,

which occurred when the American birthrate was only beginning

its recovery, shored up the notion that an aging workforce would exacerbate

macroeconomic malaise. In other words, the graying of the American

population was seen as not only worrisome for the future of Social Security

but also contributive to the current economic doldrums. Less tied

to the immediate business cycle, however, belief that there was an aging

crisis also reflected growing antipathy to the state among policy makers

and the general public; it was inextricably linked to and helped consolidate

the anti- welfare state agenda of a conservative movement rejuvenated

by Reagan’s election. Put another way, the current fiscal crisis

in America, and the fact that balancing the budget without deep cuts in

Medicare, Medicaid, and Social Security now seems next to impossible,

has masked the contingency and ideological origins of the aging issue.

 

Three decades ago, the potentially significant problems associated with

the Baby Boomers still resided in the distant future, but the immediate

politics of a splintering Democratic coalition and a rising conservative critique

of the New Deal loomed large. Yes, liberals and conservatives alike

expressed concerns about aging, but it was primarily conservatives who

deployed demographic trends as a powerful tool in their larger project of

welfare state retrenchment. An emphasis on demography allowed opponents

of the welfare state to point to fiscal forces seemingly out of their

control as they called for retrenchment rather than stating their ideological

preferences unambiguously. Engaged in a larger critique of escalating

social welfare spending, many conservatives prematurely claimed

that Social Security was a fiscal house of cards and proposed that the system

become entirely voluntary. In the words of economist Phil Mullan,

“Ageing is used as a neutral, non- ideological, apolitical pretext for legitimising

reductions in public and especially, welfare spending. The assumption

of ‘too many old people’ impresses the need and urgency for welfare

reform.”122

 

Put in the simplest terms possible, the aging of America moved from

policy challenge to crisis because taxing the wealthy to fund the welfare

state, or sustaining large deficits (at least politically popular ones) were

both taken off the table in the United States in the 1970s and 1980s. Moreover,

the waning of Keynesianism and the concomitant embrace of the

new classical economics buttressed the theoretical conception of an aging

crisis. First, the erosion of the Keynesian consensus weakened a basic

counterpoint to the fiscal anxieties surrounding the graying of America,

namely that the US could simply borrow the money to finance the Baby

Boomers’ retirement and then pay off the debt when the Boomers had

died and been replaced by the smaller cohorts born after them. A society

can choose to redistribute resources from one group to any other in any

way it sees fit. (Some experts in these years indeed worried that public

spending was skewing too heavily toward the elderly at the cost of children.)123

 

But in an era of declining top tax rates and anti- tax sentiment,

the idea of increasing taxes on the rich to cushion the pension system became

a non- starter. Second, the supply-siders’ emphasis on investment,

as opposed to the Keynesian emphasis on consumption and aggregate

demand, further promoted the aging preoccupation. During the middle

of the twentieth century, proponents of population growth, following

Keynes, opined that an aging population was problematic because the

elderly consumed less than the young. In the 1970s, however, experts who

promoted population growth to help counteract population aging flipped

assumptions about savings and consumption around. Following the lead

of supply-side economists who downplayed the importance of consumption

in determining future investment, these pro- population growth in-

dividuals now lamented that the elderly over- consumed (and dis- saved),

and thus that an increasing elderly dependency ratio stifled investment.124

Belief that there was an aging crisis also meshed with broader pro-

population growth economic doctrine.125 British sociologist Frank Furedi

notes, “Concern with the greying of society is often linked to a preoccupation

with apprehensions about declining fertility rates.”126

 

Indeed, most aging doomsayers wished for a new Baby Boom to counteract the fiscal

dilemmas of population aging and found much common ground with

market- knows- best demographers such as Julian Simon, who proposed

that the nation double immigration levels and return to its 1957 fertility

in order to support the elderly.127 Even moderate participants in the

aging discussion discredited Malthusian ideas and sardonically dismissed

the zero population growth movement for peaking just before birthrates

reached their nadir.128 Today, even some theorists who dismiss the notion

of an aging crisis are populationists, noting that fertility rates have fluctuated

wildly and suggesting hopefully that the US may return to high fertility

of the 1950s and early 1960s.129 Above and beyond questions related to

the age pyramid and social spending, the larger community of intellectuals

who drove the new classical economics in the 1970s was prone to identifying

the economic benefits of population growth.

 

The fear of aging fit well with conservative cultural views, as well.

Since the decline of the eugenics movement in the middle of the twentieth

century, Malthusians had often come under fire for allegedly keeping

eugenic discrimination alive by focusing on the fertility patterns of the

poor and minorities. Recently, however, it has been anti- Malthusians who

link demographic change to supposed ethnic and cultural decline. Pat Buchanan

and other conservative commentators claim that Western culture

will diminish as industrialized countries age and developing nations continue

to enjoy rapid population growth. These accounts generally lump

the United States with Italy and Japan and downplay the fact that the US

has the highest rate of population growth in the industrialized world.130

 

Despite diametrically opposed conclusions, the aging panic echoes

Malthusianism in one other significant way. Richard Easterlin, whose fertility

theories helped defuse the population bomb during its heyday, wrote

in his wonderful summary of growth in the twentieth century that those

focused on aging are guilty of using rhetoric as exaggerated as that of late

1960s Malthusians. After dismissing the macroeconomic and dependency ratio

arguments of the aging pessimists, Easterlin observes, “Perhaps too

there are policy implications that have attracted some to the alarmist view

of aging just as some have been attracted to the alarmist view of rapid

population growth. Malthusianism has been a bulwark of opposition to

reform from Malthus’s First Essay through contemporary attacks on poverty

programs. The dependency burden analysis provides rationalization

for assault on yet another pillar of the welfare state-social security.”131

Easterlin’s theory that fertility fluctuates with generations has often been

crudely distilled as “demography is destiny.” But as he suggests here, demography

is not fiscal destiny.

 

During the 1970s, traditional population- resources questions were left

unaddressed as the aging issue rose to the surface. The two developments

were intimately related. The rise of pro- population growth thought, reinforced

by new concerns about economic and demographic stagnation,

fused with a burgeoning anti-statism to create a lasting political economy

of population centered on the problem of aging. Although to this day a

major overhaul of Social Security has proven impossible politically, the

aging paradigm has dominated Americans policy makers’ discussions of

demography ever since.132