Fear of an ageing population? That one never gets old

In the depths of the Great Depression in 1935, acting Commonwealth treasurer Richard Casey released a 19-page report about Australia’s “Vital Drift” in population structure.

What I find interesting about looking at historical reports like this is how economic debates have remained essentially unchanged despite nearly a century of experience.

Ageing is one of those fears that circulate endlessly in our collective conscience. It’s a concern that just feels right (like concerns about the federal debt).

I too have been sucked in at times. But I now see it is no big deal, like most such fears.

You call that ageing?

Imagine if just 6.5% of the population was over 65. How quaint.

Today it is 16%. Across the European Union, it is 21%. In Japan, it is 30%.

Concerns about ageing don’t seem to be related to the age of the population. It was a problem at 6.5%. It seems a problem at 17%. It’s the same problem at 30%.

The symmetry of the old and young

I remember reading years ago that declining youth dependency was the “opposing blade of the ageing scissors”. And I remember feeling stupid for not realising this obvious fact before.

Yet we usually ignore in ageing debates that both the old and the young are non-working dependents that need to be allocated resources from workers.

What was interesting in 1935 is that although there was a decline in the proportion of school-aged children, because public spending was used to build up new facilities for a relatively new idea of broad public schooling, the cost of schooling had been growing.

A correct diagnosis ignored

What puzzles me is that ageing is as much a product of advancements in economic activity, medical science and other forms of progress as it is a product of birth rates.

Are these amazing life-extending achievements actually economic negatives?

If ageing was really costly, the easiest thing to do would be to let people die younger. But we don’t. Because we know that ageing is good and we all want to do it.

Back in 1935, the fact that life expectancy had increased by 15 years was a major part of the story.

The fact that economic productivity and technology improvements have so much more of an effect on the productive capacity of the nation than the age of its people is also noted but strangely ignored.

An interesting point is that birth rates in the 1930s had fallen to 1.5 per father. The modern measure is 1.7 per woman. I don’t know why birth rates seem to trend towards this ballpark, but I wonder if it happens throughout history or whether it is a product of modern longevity.

Population concentration in cities

Agglomeration effects are as real today as they have ever been. These are the efficiency benefits of co-locating many production and consumption activities.

In most countries, we see cities grow and rural towns decline. Any time market forces are unleashed we see the efficiency gains result in growing cities and declining rural areas.

Just like a new mine nowadays attracts many people temporarily to a region, the conversion of land to farming did the same a century ago. But after the land is prepared, efficiencies continue to improve, reducing the labour needed. As transport speeds improve, people can live closer to where they need to go regularly (shops, schools, medical, etc) instead of occasionally (to the farm for harvest).

Some people see the rise of cities and the decline of regions as a bad outcome. But it is also true that larger regional towns soak up activity from smaller ones and that the collective result is overall improved economic efficiency.

Population growth grows markets

One of my critiques of the “Get a Big Australia Fast” approach to immigration policy is that it is a lazy approach business owners love of growing their market via population rather than by competition.

In the 1930s, this point was laid out clearly: we needed a growing world population for our primary production exports.

Pensions and transfers

Public pension fund transfers happen via a public agency. But funds and resource transfers to children happen within a household. That non-workers benefit from the incomes of workers is unavoidable in any society.

We heavily focus on the old because pension transfers are measured and recorded. But most transfers happen within households to children and spouses and hence leave no records, so one cares whether they are sustainable or not.

Fear of the cost of transfer payments is another one of those ideas that feel right, but that unravels when you realise the same argument applies to sharing resources within households.

I’m also intrigued by the final comment in Casey’s report describing the age pension system and the approach to welfare in general.

In such ways are the fortunate seeking to remedy the lot of the unfortunate — and it is right that it should be so. It represents a practical instead of avisionary socialism.

Balancing the budget

Another debate that doesn’t seem out of place today is about balancing the budget and identifying what spending should be cut. After the boost in taxation by the Commonwealth government to fund World War I, the concern was about how to return to the past levels of taxation.

Lines we hear today were trotted out about more taxes meaning more slush fund spending.

It is said by the cynically minded, and by those who have not adequately examined the facts, that the Commonwealth government has expended its expenditure programmes to absorb the increased revenues. This is not the case.

I am cynically minded, so I do think this can be the case at times. But my general view is that no politician really cares about the budget itself, so a tight budget doesn’t constrain the most wasteful spending anyway.

It is interesting that a commentary on the budget is packaged in a report on ageing and the pension system. Rather than celebrate the success of the pension system and the way taxes were raised to fund it, the whole thing reads as if it is trying to reverse this successful system.

Just like today, the thought-bubble vibe of this report is “If only there was a way to not tax our mates but also have poor people be looked after by their own families. I know. More babies and immigrants.”

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This was republished with permission from “Fresh Economic Thinking” by Cameron Murray.