Understanding the economics of the baby boomer demographic will be crucial in fiscal negotiations because they represent such a large-scale change in the American population, according to an article from the New York Times.
As program spending cuts are set to occur January 1 under what has been termed the “fiscal cliff,” boomers’ aging will undoubtedly change views toward economic policy in two respects: How much the government should spend, and how much unemployment can be reduced.
The New York Times writes:
The main reason expenditures are rising this decade is that spending on Social Security, Medicare and Medicaid is increasing by a whopping 3.7 percent of G.D.P. as the baby boomers age and retire. This demographic fact has also been driving increases in disability insurance payments as more knees give way and backs give out.
This disciple, however, is being overwhelmed by demographic reality. We need to accept the fact that we simply cannot revert to historical norms in government spending and keep faith with commitments made to millions of aging workers.
With more than 200,000 boomers exiting the labor force each month through retirement, the rule of thumb that the economy needs to add 140,000 jobs per month to keep up with population growth no longer holds. The new normal is 100,000, which is why 150,000 new jobs a month has brought the unemployment rate from 9.5 percent to 7.9 percent over the last two years.
Over the coming weeks, big fiscal policy choices will be made, and many will be looking backward for a guide on how to move forward. But just as the generation that once proclaimed “don’t trust anyone over 30” has had to face the reality of gray hair and grandkids, the new economics of the baby boom dictate that we must deal with the country and economy we have today—not the one in the history books.
Written by Jason Oliva