America's Demographic Cliff: The Real Issue In The Coming, And All Future Presidential Elections

Tyler Durden's picture

In four months the debate over America's Fiscal cliff will come to a crescendo, and if Goldman is correct (and in this case it likely is), it will probably be resolved in some sort of compromise, but not before the market swoons in a replica of the August 2011 pre- and post-debt ceiling fiasco: after all politicians only act when they (and their more influential, read richer, voters and lobbyists) see one or two 0's in their 401(k)s get chopped off. But while the Fiscal cliff is unlikely to be a key point of contention far past December, another cliff is only starting to be appreciated, let alone priced in: America's Demographic cliff, which in a decade or two will put Japan's ongoing demographic crunch to shame, and with barely 2 US workers for every retired person in 2035, we can see why both presidential candidates are doing their darnedest to skirt around the key issue that is at stake not only now, be every day hence.

Sadly, the market which due to central-planner meddling, has long lost its discounting capabilities, and is now merely a reactive mechanism, will ignore this biggest threat to the US financial system until it is far too late. After all it is the unsustainability of America's $100+ trillion in underfunded welfare liabilities that is the biggest danger to preserving the American way of life, and will be the sticking point in the presidential election in 80 days. However, don't expect either candidate to have a resolution to the demographic catastrophe into which America is headed for one simple reason. There is none. 

The problem in a nutshell: the first wave of Baby Boomers, born between the years of 1946 and 1964, officially reached retirement age in 2011. There are a whole lot of Baby Boomers - just under 76 million, to be exact - that will depend on new money flowing into the system to help keep the entitlements coming. According to the latest Social Security and Medicare Board of Trustees 2012 Annual Reports Social Security now pays out more than it takes in, and is expected to do so for the next 75 years. 

And while the market, and its "discounting" may now be largely irrelevant, those who care to be educated about the facts behind America's Demographic Cliff, here is ConvergEx and "Talkin' 'bout your generation"

According to the Census Bureau’s Current Population Survey, about 40.2 million people – 13% of the entire US population – are 65 years or older and eligible to receive government entitlements such as Medicare and Social Security. At current levels, spending on these entitlements make up about 8.7% of GDP – about $1.3 trillion. While this may sound sustainable over the short term, in coming years the amount of entitlement outlays necessary to keep up with retiring Baby Boomers is going to send spending through the roof. By 2030, for example, a full 19.3% of the population will be claiming SSI and Medicare benefits, based on the Census Bureau’s population projections (the CB uses an adjustment factor for the age cohorts based on mortality rates, foreign-born immigration, and life expectancy). For simplicity’s sake, here’s a decade-by-decade look at where the aging population – and expenditures – will be in the years to come, courtesy of the Census Bureau and the Congressional Budget Office (CBO):

  • In 1900, 4.1% of the US population was 65+. By 1950, this number had almost doubled to 8.1%. As the chart following the text shows, the Baby Boomers (now ages 48-66) represent the most significant population wave in US history. According to the CBO, the population aged 65 and over will increase by 87% over the next 25 years as Baby Boomers enter retirement, compared to an increase of only 12% in those aged 20-64.
  • This year, 13% of the US population is 65+ and entitlement spending accounts for 8.7% of GDP. And that number only includes SSI and Medicare, not Medicaid and future Obamacare subsidies which add to these outlays.
  • In 10 years (2022): 16.1% of the population will be 65+, entitlement spending estimated at 9.6% ($1.5 trillion, based on 2011 US GDP)
  • 2037 (25 years on): 20 % of the US population will be 65+, entitlement spending estimated at 12.2% of GDP ($2.0 trillion)
  • Not surprisingly, there will be far more women than men in the 65+ population. Women currently live about five years longer than their male peers, on average. Accordingly, the Census Bureau estimates that in 2030, there will be about 8 million more women than men that are 65 and older by 2030: 27.8 million versus 35.7 million.

It’s a pretty tough picture, to say the least; as the population ages, we’re looking at more and more money dedicated to retirement benefits with a smaller workforce to fund the spending. We’re not the only ones, either: Japan is in worse shape than the US, with 23.1% of the population already over 65. In 2050, government statistics forecast that number to be 39.6%. Europe’s in the same boat: 17.4% of the population in EU countries was 65+ in 2010, and it’s expected to be about 30% by 2060. The developed world, essentially, is facing a demographic “Fiscal cliff” with no clear-cut strategies for how to fund the liabilities inherent in an entirely predictably aging population

Are there any social positives that might mitigate this plethora of indisputable financial concerns?  The math is the math, as quants are fond of saying, so I don’t expect that there are overwhelming offsets to the problem of an aging population.  But there are some notable “Positives” which don’t get the attention they deserve because they offer such a lightweight counterbalance to the challenges I outlined above.  Still, here are a few thoughts:

  1. Stronger voter turnout/greater engagement in the political process. The 65+ age group has beaten out every other age cohort in voter turnout in every Presidential and Congressional election since 1980. In the latest presidential election, 68.1% of those aged 65+ went to the polls, versus and average of 51.2% for the rest of the voting-age population. The reason for this differential is straightforward: it easier for retired persons to vote given fewer time restrictions, allowing the higher turnout rate. But given an average turnout of 58.2% overall in 2008 for Obama’s election, compared to an average of 70-80% in other developed countries (Japan, Germany, Canada, Spain), the growing 65+ population will certainly help the U.S. come closer to its developed country peers on this metric.

    The stronger turnout of these voters, and their sheer numbers, are also likely to have an important impact on US political races in the years to come. They’re going to be the biggest voting bloc in American history, if patterns hold: 68% of them is almost 52 million, larger than the entire Black/African American voter population, for example. And like other older generations, according to a study by the Pew Research Center done in late 2011, Boomers have become slightly more conservative as they’ve aged, and slightly more of them (45% vs. 51%) intend to vote for Governor Romney in the upcoming election. However, given that one of their main concerns is the maintenance of entitlement spending, it seems unlikely that Boomers will continue to support a party that recommends reducing the deficit by cutting entitlements. All candidates, then, and especially the GOP, will need to take a hard look at the wants and needs of the Boomers. The 2012 Presidential election – and many others afterwards - will quite literally depend on their votes. 

  2. Lower crime rates. The younger population is by far the more crime-prone age cohort, according to the Department of Justice and the FBI Uniform Crime report. The DOJ publishes an annual report on arrests by age, the first occurring in 1980 and the latest in 2009. Over these years, the number of total arrests has increased by 30.9% for the entire population; for the 65+ population, it’s gone up 0.3%. Moreover, the Baby Boomer generation (in 2009, ages 45-53) accounted for only about 7% of all crimes. What were their most “Popular” crimes? Drunkeness and DUI. Violent crimes are almost exclusively the MO of the 18-29 cohort, who account for almost half (44%) of all arrests. It’s not too far of a stretch, then, to think that as our population ages, we can expect less and less violent crime across the country – though you may want to be careful on the roads.
  3. Lower resource consumption. The older population tends to cut down on resource consumption after retirement, particularly in the case of gasoline. Once they no longer need to commute to work and move into smaller, more affordable houses, the amount of fuel needed for transportation and heating/cooling should drop, perhaps significantly.

    Take motor gasoline usage as a benchmark. Just under 60 million Baby Boomers consider themselves a part of the labor force, according to BLS data. 85% of all Americans drive to work, according to a late 2010 Gallup poll, with an average commute of 30 miles round-trip – about 45 minutes – and an average of 20mpg (courtesy of the Bureau of Transportation Statistics). Using these estimates, we can calculate that the average Baby Boomer commuter uses about 33 gallons of gas each month; assuming that 85% of them drive every day, that’s about 1.7 billion gallons of gas being used per month.  As they retire, there are actually fewer new entrants into the workforce to replace them, meaning fewer drivers and less fuel consumption.

  4. Growing domestic service economy. An older population becomes more and more dependent on services as they age, particularly in the realms of healthcare and transportation. More and more people will be needed to fill the void in these service areas as the Boomers retire. Luckily for the US workforce, these are jobs that can’t be outsourced: healthcare especially depends on on-site care and personal service.

    In fact, as the population has begun to age, the US has already seen some steady growth in service-related positions. The BLS’s Occupational Employment data logs the number of occupations across the US in major industry sectors as well as almost 800 detailed occupations. According to the survey, the US has seen a -3.3% drop in job growth overall. Healthcare and “Personal Care”, however, have grown 13% and 11% each since that year. Occupations such as physician’s assistants, pharmacy technicians, and home health aides are in high demand, and will most likely continue to be so as the population ages and begins to rely more heavily on these services.

  5. Declining unemployment and increased labor force participation for this segment of the workforce. One of the most unique aspects of today’s aging population is their continued presence in the workforce. According to the BLS, 23.4% of Americans age 65+ were in the labor force as of June 2012, making up a full 4.5% of the total civilian labor force. They also had a below-average unemployment rate of 6.9%. If this trend continues, we’re likely to see more productivity from the upper end of the age spectrum in years to come as Boomers delay retirement in favor of working.

    On the flip side, as more of the aging population retires and leaves the workforce, more job opportunities will open up for those who are currently unemployed. The youngest members of the workforce, ages 18-24, will be the biggest beneficiaries of this shift, as they typically seek the same kind of jobs that the older population currently occupies. When these positions are vacated by the older group, then, and refilled by the younger groups, we may see a decline in youth unemployment rates.

    The older workforce also opens an interesting opportunity for some employers. The younger half of the Baby Boomer generation is tech-savvy, experienced, and definitely needs the money. This set of skills won’t go unnoticed in the labor market.

Unfortunately, these societal “benefits” are only a thin silver lining on a very, very dark cloud. Social Security and Medicare spending are projected to grow exponentially as healthcare costs explode and the biggest population wave in the history of the US starts to enter retirement. The Congressional Budget Office expects spending to increase by 150% over the next 25 years, which is hardly sustainable with barely 2 workers for every retired person in 2035... there’s a storm a comin’

Sources here:

http://www.cbo.gov/sites/default/files/cbofiles/attachments/06-05-Long-Term_Budget_Outlook.pdf
http://www.census.gov/prod/2010pubs/p25-1138.pdf
http://www.census.gov/compendia/statab/cats/elections/voting-age_population_and_voter_participation.html
http://www.eia.gov/dnav/pet/pet_cons_wpsup_k_w.htm
http://www.bls.gov/emp/ep_table_304.htm
http://www.bts.gov/publications/national_transportation_statistics/html/table_04_23.html
http://www.openleft.com/diary/13242/the-future-of-the-electorate-age-and-party-id
http://www.people-press.org/files/legacy-pdf/11-3-11%20Generations%20Release.pdf
http://www.bjs.gov/index.cfm?ty=datool&surl=/arrests/index.cfm#

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Dr. Sandi's picture

All time highs? Hell, Kimberly-Clark is CLEANING UP.

PiratePawpaw's picture

Or we could propose a really crappy healthcare system which would help them to die off faster......Wait we did that already.

macholatte's picture

 

I saw a chart somewhere that showed not only the increase in population from boomers but also the decrease after the boomers die-off, something that is rarely discussed. Obamacare care seeks to accelerate the die-off and therefore retards the cash outlays. Nevertheless, if the current global economic ponzi continues for another 2 years then it will likely continue for another 20 -30 -50 years.

 

Go as far as you can see; when you get there, you'll be able to see farther.
J. P. Morgan

Seer's picture

I'll sidestep the obvious political pokes and point it at what is REALLY the issue: The food system!  The "health care" industry is for propping up the food system: control the food and you control the people...

FeralSerf's picture

It's the greatest symbiotic relationship ever -- Big Ag and Big Pharma.  Win-win, unless you happen to be one of the livestock.

FreedomGuy's picture

Yeah, you have to worry about a system where it is in the government's fiscal interest to have you die when you turn 65. They will have no payouts to you and if you are successful they will take another half of what you protected from the IRS your whole life in the death tax. Collectivism has so many wonderful facets.

PiratePawpaw's picture

During its decline, Rome relied heavily on foreign mercenaries to fill its ranks. While not as loyal as citizens, they were more effective than geriatric legions.

yrbmegr's picture

Not to worry.  Republicans will resolve the underlying imbalance of the demographic cliff.

XF's picture

Well the dimcrat marxist sure as fuck aren't going to.

XF's picture

Typical selfish attitude.   Gimme, gimme, gimme and fuck the rest.    You old farts collect far more than you ever paid in.

Machination's picture

By that time SKYNET will be online, no need to worry on that front

TIMBEEER's picture

Umm.. but that is easily solved. See, we in the European Union lure hard working immigrants from Maghreb, Arabia, Persia and all around Africa. It's working pretty well (cough), yes, it is!

jwoop66's picture

You Europeans have always been smarter than us.  I can't wait till we're just like you.

Winston of Oceania's picture

We just have our dick-tater decree that mexicans are americans after all so we have the same thing going on here. BTW have you folks eaten your golden goose yet, it's the next course over here...

Precious's picture

The NINCs --- no income, no car.

710x's picture

The NINCOMPOOPs --- no income, no car, owes mortgages, probably out of pot

New_Meat's picture

I'm a'stealing this, no attribution, but a greenie towards ya! - Ned

Precious's picture

 (no attribution version) NINCOMPOOPNA

Irelevant's picture

Old presidents in the future thats for sure! The retirees will vote other retirees and keep the slaves working so pensions can be paid!

Gully Foyle's picture

It always bothers me that no one ever mentions the ageing world population. This post touches on it, but never examines the horror to come.

Not only an ageing world population but also a severe decline in birth rates in industrial nations.

Those two factors do not bode well for the coming future.

Another overlooked aspect is the ageing prison population. Lots of money spent for care.

But as long as we keep being distracted by the money no one will bother to see the wave about to crash on them.

 

 

Dr. Sandi's picture

THe monkeys have it right. The old will not only be allowed to die, there will also be plenty of government 'assistance.'

DosZap's picture

Gulley,

The worlds aging population, does not include ethnic minorities, and Islamic countries.

Last rumor/word I heard Hispanics will make Caucasoids in the USA  a minority by 2020.Cauc birthrates have barely been replacing the parents, if not less, while the minorities are doing a 4-8 ratio,for parents.

Check Muslims in Western Europe,like Fance, and the U.K.

FeralSerf's picture

The "useless eaters" are being, and will continue to be in increasing numbers, culled through various mechanisms not the least of which is Medicare and food stamps.   Soon those "useless eaters" will have their retirement savings and other property like real estate, shares, bonds and CDs confiscated through various mechanisms (see what happened at MF Grobal for a preview), and they will be forced into abject poverty, starvation and death.

The real cliff is the one America's elderly will fall off of into their demise.   Their votes after they are dead will mostly be cast by the Chicago and New York Kosher Nostra.

FeralSerf's picture

I see we have at least 4 ADL volunteers monitoring the board at this time.

slewie the pi-rat's picture

as long as we continue to accept ever-more-freaking-worthless paper as money while raising taxes on the utes of amerika and especially the poor (get the safety-net payments back faster with less movement thru the economy thru value-added and sales taxes) i don't see any problems that can't be fixed by seasonal and birth/death adjustments...

...and more lying

why should these actuaries not be able to do as the accountants do? 

if we need better numbers here, we need better numbers, so let's go!  japan may be out-tweaking us, already! 

booboo's picture

I have instructed my children to strap me on a raft surrounded by dry tinder and 5 gallon gas cans, they can shoot flaming arrows at me as I drift out to sea. Sitting is a shit filled diaper watching old re-runs of "Breaking Bad" and eating water soaked Kibbles and Bits just ain't gonna work out for me.

Though if they keep pushing our buttons I can see The Grey Panthers catching on. They say dying ain't no way to make a living but at that age making a living is less important than dying for something.

papaswamp's picture

Don't forget to have them send you with a sword and Meade for the party in Vahalla.

FeralSerf's picture

When you get that age and your health is failing fast, you don't have that much to lose.  Movies have been made about heroes (and on the other side insane terrorists) in the wars on suicide missions.  I wonder if there might be another Divine Wind.

Manthong's picture

As you get older you need to keep your mind sharp and do things like crossword puzzles..

and load calculations and ballistic tables.

boogerbently's picture

Would we do that for the traitorous children that threw us under the bus?

FeralSerf's picture

Some might even do that just to get even.  The last scenes of the last episode of last season's Breaking Bad with the old drug smuggler in wheel chair was interesting.

papaswamp's picture

So that means the other 44 million on NILF are of work age. So 12 million on unemployment, 6.1 million part time that want full time and ~44 million workable NILF......let's be conservative and call it 60 million for 3.8 million job openings (JOLTS.... assuming all are living wage (ha!)). Yea, I think we are already in our demographic crisis....just no one wants to say it.

jwoop66's picture

NILF?  Nanna's I'd like to fuck?

jwoop66's picture

oh... I thought I might have found a support group

homme's picture

+1!

Have you considered a NNTP usenet group? alt.binaries.erotica.senior-citizens perhaps.

sessinpo's picture

I see nothing that includes SSDI, Social Security Disability Insurance (SSDI). Various reports state that as much as 10m people have joined SSDI since Obama became president. SSDI is funded through the same mechanism as SS, through the SS taxes workers, employers and self employed pay. Thus this number should be included.

 

That 40.2m might be 50m and thus the percentage to the population might be over 16%.

Dr. Sandi's picture

SSDI doesn't go to seniors, it goes to working age people. Therefore it's not actually part of the demographic issue outlined above.

sessinpo's picture

As I said, SSDI is funded through the same mechanism as SS. Thus the money needed is effected. The article was all about the money needed to cover retirement benefits. Well if the SS fund is being drained further by SSDI, that should be included.

 

Let me put it another way for you. I'll use made up numbers to keep it simple for you. Let's say the government collects 100m in SS taxes each year. Then the government pays out 100m to seniors. No problem.

But SSDI also is from that same fund (SSI is different and is from the general fund). So that extra 10m of recipients of SSDI also take from that 100m that also funds SS seniors and that puts that account in the red.

 

As it stands right now, SS is already paying out more then it collects, so to not include SSDI is not good because it has even bigger impact on a fund that is already in the red.

 

sessinpo's picture

Two more cowards. Shall we go for 3 or more. Probably liberals that can't defend logic and facts.

FeralSerf's picture

You won't find many over 65 retiree types in the Social Security offices anymore.  Most of the people there are the ones that have learned that SSDI is the new lifetime welfare.  There's a whole legal industry that specializes in getting obese, drug and alcohol addicted, and other somewhat disabled people on SSDI.  This trend is very expensive and unfair to the people that depend on the trust fund for retirement income.

disabledvet's picture

actually this isn't nearly dramatic enough. You see unlike Japan and Europe "the USA moves." Since we are well on our way to another speculative "blow off" (cuz there's never a shortage of fortune making in the US economy) the question becomes...where. And of course front and center is the Upper mid-west. Bismark has a 2 percent unemployment rate with growth rates soon to surpass China...if they haven't already. Already there is a massive property boom underway in the State (if your town turns into an actual ghost town for a couple decades then it's not hard to have that boom btwhttp://en.wikipedia.org/wiki/Fortuna,_North_Dakota don't who the 22 were who claimed to be living there actually )...hence as the Fed move away from the "wet blanket approach" of hammering the long end and let's yields and market returns rise "a beautiful bubble will form which will attract capital from all over the world in yet another frenzy"...including the human variant of course.http://money.cnn.com/2011/10/25/pf/America_boomtown_strippers/index.htm Wisconsin is well into surplushttp://host.madison.com/wsj/news/local/govt-and-politics/walker-projects... sounds like a good place to do business then. not saying i'm ready to pick up stakes just yet but if you want to know "how may people can you fit in a particularly small piece of real estate" ye olde adage "you'd be suprised" comes to mind.http://en.wikipedia.org/wiki/Bank_of_North_Dakota hmmm. "they have their own Federal Reserve." that's interesting. and here's the Boston Fed looking at creating one for the State of Massachusetts: http://www.bos.frb.org/economic/neppc/researchreports/2011/rr1102.htm
interestingly it's considered "prohibitively expensive." ah, bailouts. "cost free?" that's a good one! good video...i recommend listening to it.

Offthebeach's picture

Beware the Boston Fed. That's were Redlining came out under Styron and his boone friend, Bwarny Fwank. You know, people with no jobs, no skills, no fathers couldn't get mortgages for houses the couldn't afford on account of the greedy trickster banks be racist and all.

jplotinus's picture

The essence of the article consists in its references to Social Security and Medicare as "welfare". With that mindset, it follows that the writer would conclude that more people of whatever demographic was chosen would vote for Romney.

The analytic of the article is useless, the assumptions hopelessly limited and the time frame under consideration too remote to be of any usefulness at all.

True, it's August, but surely someone could be found to write something better than what was offered up.

Oh, by the way, might not the current love/hate relationship with new immigrants tend more towards the love side as a remedy for the demographic curve? I think that could happen.

Binko's picture

The main issue is that people are not just getting older, they are getting sicker.

Look around you at all the people you see who are hugely fat, waddling along with walkers or riding on carts, the mottled, bloated, saggy grey skinned, sickly looking ones. For the most part they aren't old grey-hairs. They are generally in their 40s and 50s. The really old people grew up with real food and some decent personal values. But the 40 year olds grew up with fast food and a single value, "me!".

So, if Medicare costs double what we can afford now, in ten years it will cost ten times what we can afford or more.

Sadly, I don't see ANY viable solution for the USA. Germany or Japan may find a solution to their demographic problem because they are close knit societies. We are not. We are a highly fragmented, well-armed society of religious freaks and semi-literate buffoons.

 

BurningFuld's picture

"Religious Freaks" Amen Brother.