Irrational gloom, or Alex cheers me up

Alex remains worried about our future, but let us look more closely at his concerns. His biggest fear is our future demographic structure:

…the Bush policies are not the major problem. The major problem is that we are about to be hit by a tidal wave of old people (contra Tyler demographics are the problem not the solution).

Hey, I hope to be part of that wave, the problem will be if I am not!

Let’s redo Alex’s doctor example. In my version, the doctor suddenly tells Alex that he will live to the ripe old age of two hundred, most of those years in reasonable health. This is reason to celebrate, even though Alex would have to restructure his retirement plans. Something like this, albeit in less extreme form, is going on in America: a large baby boom cohort can be expected to live to older ages. Bravo, I say. Count up those extra years, including the implicit value of leisure, at their full economic value, and our “intergenerational accounts” will look much better. Note also that the elderly have a higher quality of life than ever before, for reasons ranging from cheap eye surgery to bypass operations to new drugs.

Two other issues:

First, contrary to what Alex suggests, “g>r” would solve the problem. Growing debt, which is a transfer, doesn’t change the fact that the intertemporal budget constraint has melted away, provided we can shift real resources into the present (if you’re not an economics nerd, the point would take too long to explain in non-technical language, read the link if you must).

Second, I am not convinced that Alex has put his money where his mouth is. He is conspicuously silent about whether he has gone short in bonds. Plus I bet he would have taken a tenured professorship, bought a house, and bought an internationally diversified portfolio anyway, I certainly did all of these and I am an optimist.

The bottom line? A growing population, combined with a bulge of old people, requires planning wisdom and creates some costly expenditure pressures. But overall longer lives are cause for rejoicing, not our economic doom. Love and time are what we are ultimately seeking to economize, and longer lives contribute toward both ends.