In yesterday’s Washington Post, Robert Samuelson reminded us that most developed nations will have a growing proportion of senior citizens. Comparing 2005 and 2030, for Greece, the 65 and older group will increase from 18% to 25%, for Spain, from 17% to 25%. According to 2000 US census projections, between 2010 and 2030, the 65 and older population will pop from 12.97% to 19.3%.
Calling it a “welfare state death spiral,” Samuelson believes that this simultaneous aging across borders eliminates the chance that one nation can extricate itself from a “bind” through help from a healthier country. Because, he says, of everyone’s unemployment insurance, health insurance, and old age assistance, governments will have excessive expenses that will be difficult to fund.
The Economic Lesson
Also, the causes relate to opportunity cost. Let’s assume that a politician can vote for or against an old age benefit. Therefore, the opportunity cost would be the best alternative that was not selected: choosing means refusing. One benefit of voting “yes” is reelection. Another benefit is giving money to a very needy person. By contrast, the benefits of voting “no” could include creating less debt for grandchildren and slowing economic growth. Each alternative has a high opportunity cost.