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AEI's Andrew Biggs draws our attention to these projections from the Social Security Administration: for the foreseeable future (as in the rest of most of our lifetimes), the growth of the labor force will be about a third of the rate that we have been used to for the past generation.
That is, we have enjoyed growth rates of about 1.5% in recent decades and were up in the 2s and 3s in the 1970s, but we are slowing to about .5% and will be there well into the future.
He raises this point to question Pawlenty's 5% growth target, which is laudable in an aspirational sense but highly unlikely given the stubborn facts of our aging population and slower-growing labor force. Take a look at the third column from the left in the above link. It's pretty sobering, but it's our reality, barring an unexpected baby boom or a highly aggressive immigration policy.
Biggs says getting a simple policy framework in place is more important than setting a percentage growth policy. His basic rules of thumb for such a framework are good:
My shorthand is that to support an aging population you want policy to encourage individuals to:
—Work more: Meaning more hours of the day and more weeks of the year;
—Save more: Meaning more participation in employer pension plans and higher contributions into them; and
—Retire later: which means not claiming Social Security at 62 like many people do today, but at 65, 66, or beyond.
This context makes clearer why I oppose relying too much on taxes to fix entitlements and the budget. Higher taxes mean that people will:
—Work less: Since they’ll receive less for each hour of work;
—Save less: Since they’ll have less money to save and less reason to save, since those taxes will support more generous entitlement programs; and
—Retire earlier: Since Social Security and Medicare benefits will look more generous relative to their after-tax pay when working.
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