While many of us learned arithmetic in third grade, apparently there are not enough people who retained this knowledge for the NYT to staff its opinion page. Hence they have Thomas Friedman warning us that the retirement of the baby boom cohort is going to devastate the country.
Now, if Friedman could do arithmetic he could turn to the Social Security trustees report and see that they project the ratio of workers to retirees to fall from 2.8 in 2012 to 2.0 in 2035. Is that scary?
Here’s where Mr. Arithmetic can help us. Let’s assume that retirees on average consume 75 percent as much as the working age population. That’s not their Social Security benefit (SS benefits are less than 40 percent of the average wage), this is their total consumption. Remember, they don’t have to travel to and from work every day, they don’t need to arrange child care, or incur other work related expenses.
If workers are taxed or in some other way have their consumption reduced to support retirees, then they currently get to keep 78.9 percent of what they make. The rising number of retirees will reduce this to 72.7 percent by 2035. This means that if nothing else changes workers would see a 7.8 percent decline in their take home pay as a result of this demographic change.
Fortunately, something else will change. It is called “productivity growth.” Currently productivity growth, adjusted for some index issues, is about 1.5 percent annually. Over the next 23 years this rate of productivity growth would imply an increase in average wages of 40.8 percent, more than five times the loss due to demographics.
What’s more, 2035 is a low point on demographic spectrum. The ratio of workers to retirees is projected to be pretty much stable over the next three decades. Each decade productivity growth should raise wages by another 16.1 percent if we maintain the current growth rate. In other words, there is no reason to think that demographics will cause workers to see declining living standards in the future.
There are important issues here about future living standards. Because of our broken health care system an ever larger portion of compensation is being diverted to health care. This is a drag on living standards, but the problem is our health care system, not demographics.
There is also the problem of inequality. Most workers have seen few gains from productivity over the last three decades because such a large share of income has been shifted to those at the top. If this trend continues it also threatens the living standards of workers in the future.
But Thomas Friedman apparently doesn’t understand these facts. Instead he is trying to get readers to focus on something that is not a problem, the aging of the population.
Dean Baker is co-director of the Center for Economy and Policy Research. He also writes a regular blog, Beat the Press, where this post original appeared.




18 Comments

friedman is just a tool of the motu; he has nothing relevant to say. I wouldn’t waste my time on him. Unfortunately, since he is in the nyt, he is considered a vsp, so those inside the beltway can reaffirm their actions as they reaffirm his outlook. A really nice circle of self-affirmation.
Can you say “class interest”?
I don’t bother reading Friedman or Brook’s columns anymore. Although sometimes I will tune in to their readers’ comments, which generally point out the illogic of the authors’ thinking.
Sometimes I wonder why the Times continues to publish their columns when the readers disagree so vehemently with them. Unfortunately the readers’ comments aren’t in the print edition.
Sure, that’s fine.
Plausible deniability. Papers make money off of antagonism, but Friedman advances their agenda.
It’s all about pushing the views of the one percent.
Friedman sounds very much like Peter G. Peterson who, in his book Running on Empty, blames the generation about to retire for not having enough children to support them in retirement.
Thomas Friedman, like many of these others at the NYT or WaPo, loves to bend over backwards to show HIS specialized training makes him smarter than everyone else in the room. Unfortunately, his frequent misapplication of even the most rudimentary of economic principles makes him seem more like Sarah Palin than Milton Friedman.
Whose to say if he snoozed the day macro-economics were taught or if he blew the course work off to wax his surfboard or Corvette. All I know is that he (along with many others in the media) seem to really lack an understanding of macro-economics to the point where they accidentally (I’ll assume no evil intent) engage in right-wing mis-information campaigns.
Where’s FDR and his fire-side chats when you really need them……
I can never get all the way through any that any thing that that Friedman dote writes! He is always spouting shit that Uncle Milton Friedman & the Chicago School of Economics would espouse… Which means that that Ayn Rand crap is the best process for the economy and we all know how Uncle Milty’s crap went in South America and Eastern Europe after the Fall of the Ruskies!! The rich stole all the assets and the 99% got screwed… Just Read The Shock Doctrine the Rise of Disaster Capitalism by Naomi Klein!! She sure spells it out in her book and the Current crop of Right Wingnuts are trying to foist the same policies upon all of us.. Each and everyone of them deserve to be tried for Treason for what they have been systematically doing to our country!!! But of course we have a bunch of Cowards leading our nation… I am not seeing any other recourse but rebellion against the current system..
This is the sort of things that discredits the economics profession. Two problems: 1) Productivity growth will not continue at the same rate indefinitely. Already it is breaking down due to physical constraints. 2) There is literally NO evidence that productivity growth translates into wage growth. In fact it has not for at least 30 years.
Dean,
Thank you for taking the time to read these self serving jerks who have a NYT megaphone. Completely in keeping with the NYT’s agenda to support the 1% and their world view and pass it off as the fact and reality pill we all must swallow.
I gave up on the time when the internet turned on and there were thinkers like Glenn Greenwald. Jane Hamsher, Sibel Edmonds, Chris Hedges, Richard Wolf, Dean Baker and so forth a click of the mouse away… and free without the propaganda about lifestyle of the 1%.
Someone one has to take these jerks to the cleaners… Too bad they don’t get to read the take downs. It wouldn’t change a thing but they would know they are not fooling everyone.
According to the Federal Reserve, family income has been decreasing.
But now it’s going to increase!
Hot doggy. Who knew.
So Dean that training program isn’t really working for little tommy but thanks for bring up the childs madness of facts never get in my way
The NYT keeps them on as carnival attractions of the moment, and may at some point have to let them go mindful of the ever shrinking bottom line.
Krugman is the only one worth reading there.
“. . .HIS specialized training . . .” et al.
———–
That was the case with Frank Rich, too, for awhile. Entertainment critic reformed to learned economist, philosopher, sociologist, military strategist, foreign policy expert, etc., etc. (I’m not certain the last two were tapped, but suspect so).
Then they wisely let him go.
Your point #2 doesn’t refute the criticism of Friedman. There has been productivity growth, yet practically none of it landed in wages; almost all went to the very richest segment of our population. This thing that actually happened does not trouble Friedman in the least. However, in the future, there will probably be productivity growth, and some (far from almost all) must go to the oldest segment of the population. This has Friedman very worried.
I agree on point #1 with respect to resource limits; however, we are also very wasteful, and we can obtain productivity growth for many decades yet through improved efficiency. Just for example, if we could deliver healthcare as efficiently as the rest of the OECD, we’d save at least 4% of our GDP, perhaps as much as 7%.
Ah, but that’s the thing, isn’t it? That is not the fault of the demographics. It is the rich stealing from the rest of us. Therefore it cannot be used as a argument for cutting SS and Medicare. To put it another way: we may see a 7.8 decline due to demographics, but this decline pales when compared to the decline due to the growing wealth gap.
Capitalism is a fraud.