Excessive government spending in combination with an aging population may cause an economic disaster in the United States within the next 25 years.
How Is This Article Useful to Practitioners?
As reported by the US Congressional Budget Office in September 2012, the costs of the Obamacare, Medicaid, Medicare, and Social Security programs are expected to increase significantly when the tens of millions of Baby Boomers reach retirement age. In the most optimistic scenario, the federal debt will grow to 100% of annual economic output by 2038, compared with the current 73%. But a more realistic scenario is a growth in federal debt to 190% of annual economic output.
By 2038, the number of US residents who are age 65 and older will have almost doubled to 79.1 million. But the working-age population will grow at a much slower rate, resulting in a dependency ratio of 2.7 working-age people to support each retiree, significantly fewer than 4.4 people in 2013. The issue will become particularly pressing starting around the mid-2020s, when the number of US residents over the age of 65 will reach critical mass.
The fact that the current US administration has significantly reduced the deficit is hardly sufficient, and it is even less significant considering the deficit was at an all-time high at the start of Obama’s presidency. Instead of arguing over passing the federal budget and increasing the debt ceiling, the US government should instead turn its attention to addressing the Baby Boomer issue before yearly deficits become so large that debt grows faster than the economy’s ability to pay for it.
Although the article is US focused, changing demographics is a concern throughout the Western world. Equally, given the size of the US economy, any significant crisis will have an impact on the global economy and is likely to affect other geographical areas.