Economy: Viva La Longevity

People live longer and they stay healthy for more years. A reason to cheer? Not so for a large group of pessimists. Very often you could read about problems allegedly caused by the "aging" population. Some alarmists are warning of a "demographic time-bomb" which is defined as a "potential crisis situation in most countries caused by an increasing number of older people dependent on pension schemes a direct result of demographic transition" (cnn.com). They claim, that "the income of the working segment (comprising of a declining number of younger people) of a population comes under increasing pressure to provide support for the non-working (older and growing) segment" (cnn.com).

The British credit rating agency Fitch laments about an alleged "age bomb" in developed countries, including the United States, which "will impede long-term fiscal recovery" (wallstcheatsheet.com). Those pessimists further allege that "the aging populations will aggravate government indebtedness and could hurt credit ratings unless labor and pension reforms are enacted" (wallstcheatsheet.com).

Those statements remind me a bit of Pete Townshend`s infamous song line "I hope I die before I get old" (1965, "My Generation" wikipedia). This guy is still around and enjoys his reputation and royalties. I am every morning very happy to awake, to be able to experience another day and to learn new skills.

I reckon that the fears are overblown. The alarmists ignore that human beings are learning organism. They don`t get it that people are continuously adapting to new challenges and that they are getting better in what they do by accumulating knowledge and skills.

The growing longevity doesn´t necessarily lead to a shrinking workforce. Seniors like the Dalai Lama, the Pope and the Rolling Stones are still working in their old age. They don´t complain. And whole economies can adapt to the longer lifespan of their population. For instance Germany raised last year the pension age for males from 65 to 67. It makes sense to retire later when people live longer and stay healthy for more years. The whole society would benefit from the experience and knowledge of the old agers.

And even if the number of retired persons rises in relation to the "working segment" there is a solution: The continuously rising productivity. Since the industrial revolution at the begin of the 19th century the productivity - defined as output (goods & services) produced in 1 working hour - has been climbing. In the last 40 years the productivity of US workers advanced on average 1.9% per year (ritholtz.com). This means you could raise the production yearly by 1.9% without hiring new workers or increasing labor time. Otherwise you reduce the number of workers (or labor time) per year by 1.9% and get the same output. The result: People don´t have to work 7 days and more than 60 hours a week (as they did in the early 19th century) anymore - though the earn much higher incomes. 

I believe that we are now experiencing a new technology boom (money.msn.com). Rapid advances in software & internet (including cloud computing), robotics and other technologies will raise the productivity of the companies significantly. In the coming years robots will overtake many jobs or at least assist as labor-saving tools. Bloomberg reports that even farms are getting automatized: "Older tractors were replaced with models that cultivate more ground and serve as miniature offices, complete with global positioning systems that allow them to steer themselves" (bloomberg).

These efficiency gains should lead to rising company profits and benefits for the whole economy as they did in the past via rising salaries, climbing stock prices and higher dividend payments. Those achievements should translate into higher tax revenues for the governments and climbing incomes for pension funds and other public institutions. And many individuals could finance their retirement by investing now into the stock market.