The Pension Debate is About Much More Than Pensions

Edward Ring

Director, Water and Energy Policy

Edward Ring
December 18, 2012

The Pension Debate is About Much More Than Pensions

“I wish it need not have happened in my time,” said Frodo. “So do I,” said Gandalf, “and so do all who live to see such times. But that is not for them to decide. All we have to decide is what to do with the time that is given us.”

J.R.R. Tolkien, Lord of the Rings

How might one place the challenge of providing adequate health and retirement security to all workers in context? It would not be a stretch to consider J.R.R. Tolkien’s imaginary world of civilizations in conflict, replete with magic and fantasy, great good and slavering evil, passing out of one great age into an unknown future. Because our society has changed in ways unimaginable a century ago, yet what has happened so far will be dramatically overshadowed by what is coming in the next few decades. Never in human history has “what to do with the time that is given us” had more urgency.

Nearly everywhere on earth, human populations are aging. As birthrates fall and lifespans lengthen, the ratio of workers to retirees edges closer and closer to 1-to-1. The phenomenon of falling birthrates is the result of several factors – increasing opportunities for women, increasing per-capita prosperity, and declining infant mortality. Birthrates began to decline in Western Europe and Japan in the 1960’s, closely followed by the United States and the rest of the industrialized world. In the late 1970’s China’s “one child” policy was implemented, and in recent years, with surprising speed, birthrates have declined precipitously throughout the Middle East and Latin America. At this point, the only regions in the world where lower than replacement birthrates aren’t either a long-standing reality or imminent are pockets of Central and Southeast Asia, and sub-Saharan Africa.

The consequences of declining birthrates, occurring faster than anyone thought possible, go beyond requiring new formulas whereby current workers deliver sufficient productivity to adequately support a larger proportion of retirees. It means that the “population bomb” that was supposedly going to explode has fizzled. It means that the prevailing challenge of the 21st century is not how to avoid a Malthusian collapse of resources, but rather is how to continue to generate robust global economic growth in a world where the human population is declining. The magnitude of this challenge cannot be understated. It has never been done.

There’s more. As technology delivers increasingly improved and diverse medical treatment options, the healthcare sector will become a much larger segment of the economy. As a source of new economic activity, this is a good thing. But how will this translate into universal elder care? Who will receive expensive, individualized genetic therapies that cure cancer, repair nervous systems, rebuild internal organs, preserve youth, extend life? To the extent these fantasies become reality, the term “managed care” will become more draconian than ever.

This is the historic, epoch shifting context in which the American debate over retirement healthcare, social security and public sector pensions takes place. America has the world’s largest and most diverse economy, is blessed with abundant natural resources, still leads the world in innovation, possesses the world’s preeminent military, and enjoys domestic stability and security unique among large nations. America’s population, while aging, is nonetheless younger than any other developed nation, thanks both to higher than average birthrates combined with ongoing net immigration.

For these reasons, America – diverse, stable, democratic, and mighty – is the only nation on earth that can possibly hope to midwife a peaceful and prosperous global transition to an aging and declining population. How will nations grow economically when their societies are in demographic decline? How will nations maintain domestic stability when an aging, connected population clamors for access to life-extension treatments that will initially only be affordable to an elite few? How will America’s innate optimism, inclusive democracy, and unparalleled capacity for innovation answer this call?

And in the context of this epochal transition, the debate over how to improve social security and how to make pensions sustainable could define whether or not America will exercise the global leadership that is needed now more than ever. Will pensions be reduced for current and retired workers so that they can be extended, with reduced but common formulas, to all new workers, public and private? Will Americans create a uniform system where everyone earns retirement security and health security under the same taxpayer funded formula, and must rely on their own initiative and savings to earn whatever may exceed those common benefits, or will they continue to live in a three tier society comprised of the super rich, the public sector elite, and everyone else?

The stark question Gandalf posed to Frodo, what to do with the time we have, is indeed applicable today. And Tolkien’s middle earth, wondrous and perilous, is not nearly as far removed from the world that we are creating in the 21st century as it was back in the 1930’s when Tolkien created his masterpiece. How will America’s powerful political factions reformulate how to equitably and sustainably deliver health and retirement security to an aging population in an era of expanding possibilities yet finite economic resources?

Will America’s public sector unions, and the workers they represent, remember they are public servants, and work cooperatively to ensure the American people set an example to the world? Or will they perpetuate the three tier society they have created, partnering with the super rich to protect themselves while at the same time denying comparable health and retirement security to everyone else? Or as Frodo might wonder, will they act like elves, or orcs?

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