Declining Population and Private Saving  

Over at the XX Factor blog, Amanda Marcotte says David Brooks’ hand-wringing about low birthrates is just another manifestation of the endless campaign to control women’s sex lives. Rachael Larrimore says, no, it’s a legitimate policy issue for the sustainability of the social insurance state.

I think it’s worth emphasizing that the problems exist independently of the organization of public retirement programs. Let’s think about Singapore, which has both low birthrates and a semi-privatized retirement system organized around forced savings. How is it that today’s Singaporeans are able to stockpile resources for the future when tomorrow’s Singapore may be a shrinking society? Well the answer is that Singapore is small, and the Central Provident Fund is able to invest in foreign resources. This is one reason why countries like Japan and Germany run such large persistent budget surpluses. Normally people save for the future by (indirectly) channeling present income into the construction of big long-lasting physical structures that will be usable in the future. But the projected decline in Japanese population implies extremely low returns in making investments in Japanese structures. So you want to invest outside of Japan, which means that Japan needs to export more goods and services than it imports. This is all fine as far as it goes but if we talk about an entire world of declining population then you run up against the old adding-up constraint. No matter how many times Angela Merkel implies otherwise, we can’t all be net exporters. The same problem impacting Social Security impacts a private system. Another, perhaps less exotic, way to think about it is to ponder Medicare and just ignore the accounting issues. Retired people are going to want to see doctors, and working doctors are by definition not retired. So either a growing share of non-retirees need to be doctors (health care spending is growing out of control!) or else elderly people won’t be able to see the doctor (rationing!), a dilemma that has nothing in particular to do with how you structure the program.