The Aging World and the Coming Storm

Despite the complaints about health care, the reality is that people over the last century have gotten healthier not just wealthier. We are living longer just as the rise of the middle class and women entering the workforce in mass, have led fertility rates to decline. The resulting sustantial increase in the  number of elderly people will create serious problems in coming years as a growing number of them will rely on a smaller labor pool (generally referred to an increase in the old-age dependency ratio). As the chart atop shows by 2050 Japan and major European countries could have a dependency ratio close or above 50% meaning that about 2 workers will have to bear the high cost of supporting social services for the elderly. This will be impossible unless payroll taxes rise to punitive levels or benefits are significantly reduced which may not be politically viable given the large share of the elderly voting in democracies. Although China and the United States are in slightly better shape, the trend is evident worldwide and as emerging countries become richer, the dependency ratio for the world is on the track to more than double to over 25% by 2050. Today it is popular to bash business for the bursting of the financial bubble but when citizens will discover that their highly indebted governments have overpromised benefits that cannot be delivered they may turn on democratic politicians and political parties which thrives on promising gullible voters utopian visions of prosperity for the purpose of gaining power. If you though pandemic flu and economic crisis were enough just wait for the coming storm that may threaten the core of world’s democracies.