More on global demographic time-bombs, this time from Deutsche Bank, which has stumbled upon a potential answer: mass migration from the developing to the developed world.
Writing in the latest edition of Deutsche’s Long-Term Asset Study, Jim Reid says that moves to push up retirement ages by a year or two won’t do enough to ease the problem facing public finances in the developed world.
Migration could help, although the subject is something of a political minefield given current high rates of unemployment.
Still, as Reid says, we can’t continue to collectively bury our heads in the sand as to the extent and scale of the problem. Or perhaps we can, given the tough choices that need to be taken, according to Reid:
The simplest way of dealing with the World’s demographic problems would be a radical shake up of retirement and pension/healthcare entitlement around the World. Current policy is a legacy from an era where life expectancy and the cost of aging was significantly lower. There are moves to do this but politically it is certainly not a vote winner, especially as the benefits of such moves are beyond most electoral cycles
2010’s global austerity drive has seen the retirement age pushed up across many countries. However the move has pushed the pensionable age up by between one and three years across most of those countries that have so far acted. These changes are also tiered to come in over several decades. Given the themes discussed in this chapter so far, it does seem that an increase in the retirement age of a year or two spread over a few decades will not be enough to ease the problems highlighted.
However going forward, a more dramatic move cannot be ruled out across the Globe. This would leave people working (and investing) for longer and also leave less dependants in the economy than current forecasts suggest. If this does happen, it’s likely to only take place in an emergency situation. It’s unlikely that any elected Government will have the ability to be radical on this topic, preferring to slowly adjust retirement age. So the themes discussed above are likely to put pressure on public finances and financial markets prior to their being a more aggressive policy response and potential solution.
In addition to changes in the retirement age, we could see political moves to change immigration and birth policies. Both can change the future demography of a country and help (or hinder) the situation. However immigration is a zero sum game. What we really need is mass migration from the Developing World to the Developed World over the next few years. However this would be a political minefield. The real the danger is that the Developed World is becoming more anti-migration in the higher unemployment aftermath of the post credit crisis World.
See, there are no easy answers. We are all ostriches now.
More in the usual place.
Related links:
Kill the old – FT Alphaville
Kill the old, deflation edition – FT Alphaville
More reasons to kill the old – FT Alphaville
Baby boomers of the world, stand proud – FT