Voodoo demographics

SEVERAL years ago, ``voodoo economics'' was the name given by George Bush to the notion that federal deficits could be narrowed while cutting taxes and increasing defense spending. The result was the opposite -- record high deficits. Today, ``voodoo demographics'' is being used to justify equally shortsighted policies. By presenting selected data, practitioners of voodoo demography purport to demonstrate a growing crisis. They conclude that there will not be enough workers to support the obligations of America's social security programs when the huge baby-boom generation retires in the next century. That conclusion, in turn, is used to justify proposals to radically restrict social security and medicare.

The ``voodoo demographers'' begin by citing population trends with which no one disagrees:

An elderly population that is growing.

A ``very old population'' 85 and over with extensive long-term care needs.

A ``working population,'' 18 to 64, that is becoming smaller in relation to the elderly population.

Their analysis falters, however, when they reach the plausible but incorrect conclusion that these trends signal impending financial disaster.

Their pessimism is based on crude demographic statistics and no economic analysis. They focus primarily on something called the ``aged dependency ratio,'' a measure that compares the number of people aged 65 and over with those aged 18 to 64 (prime working age).

The aged dependency ratio is a flawed measure that shows only part of the so-called ``dependency'' burden.

A more accurate measure includes both the elderly and children (people under 18) in the ``dependent'' part of the ratio. Younger dependents also make large demands, appropriately, on both public and private income: for the necessities of living, health care, juvenile social welfare expenses, and especially for education. Last year on education alone we spent over $220 billion.

The aged ratio is projected to increase from its current level of 19 elderly people per 100 people aged 18 to 64 to 37 elderly in the year 2030. But simultaneously, the proportion of the population under 18 will be declining rapidly. The net result is that the overall dependency ratio will not match the peak reached in the mid-1960s (83 per 100) at any point in the next 85 years! Even in 2030, the height of the baby boom's retirement, the projected overall ratio of about 75 will be less than the ratio for the 1960s.

The closing of schools in various communities is evidence of the declining school-age population around the country. With fewer children to provide for than in previous decades, families in years to come will typically have more income available to spend on other needs, including providing retirement income.

The second major problem with dependency ratios is the fact that they ignore the effect economic growth will have on the nation's future ability to support social security and other programs. William Crown, a Brandeis University economist, has calculated that if the real rate of growth in the United States economy averages 2 percent a year, the real costs of supporting each ``dependent'' person -- after accounting for inflation -- can be five to six times as great as in 1960 without increasing the economic burden on society.

And third, both the ``aged'' and the ``overall'' dependency ratios typically cited assume that all people over 64 do not contribute to the economy.

That is simply not the case. At present, there are more than 3 million age-65-plus workers in the labor force. And, given changing social security provisions that will raise the eligibility age and encourage more work, the proportion of elderly in the labor force after age 65 may even increase.

The phenomenon of an aging society is basically an outcome of our prior decisions and economic achievements. It has resulted from our investing resources to promote future growth and our expansion of education and other opportunties for women. It is also a product of our efforts in public health and biomedical research and the success of a variety of social welfare policies. These actions have all resulted in a lower birthrate and people's living longer.

Just as past and present generations have helped determine the shape of society today, investments made over the next several decades can determine our society's ability to respond to the future aging of our population. We need not be held hostage by demographic trends, for tomorrow can and will be shaped in large part by the choices we make today.

James H. Schulz is professor of welfare economics and Kirstein professor of aging policy at the Policy Center on Aging, Brandeis University.