Predicting the future is at best an educated guess. The one trend that can be reasonably reliable, absent some significant external shock, is that of age demographics.
In the year 2050, experts predict more than 80 million Americans will be over the age of 65, or double current levels. In the same timeframe, the number of “working age” Americans – those between 18 and 64 – will rise just 17%.
In other words, the problem we have today of too few workers trying to support too many retirees is going to get worse – much worse – in the decades ahead.
This, of course, is not a problem only in the United States, but throughout the west and even much of the rest of the world. When I think about the ultimate victory of the laws of economics, it is to this issue that I lean.
However, the problem is much more significant than that of “working age” vs. those “over the age of 65.”
How many of working age are on some form of government support? How many of working age are employed by the government? How many of working age are employed in industries (such as banking or military contractors) that exist in their current form only due to government support? How many are in the 1% solely due to personal and corporate proximity to the Fed and the Treasury?
In other words, how many of working age are working in areas that are not valued by the market – either in whole or to a large degree? And more important, are these numbers growing or shrinking relative to the past?
These are the dependent. It isn’t just retirees that must be supported. In every way they are being supported by the independent – those who produce goods and services that are valued in a relatively free market in quantities supported by a relatively free market.
There are only two solutions to this (and one of these two isn’t much of a solution for the independent):
One possibility is a step function increase in productivity unlike any seen in the industrial age or the communication boom. Of course, this “solution” will not bring much solace to the independent. Any such gains will be siphoned off to the dependent – both at the top and the bottom of the income scale; both to the 1% in near proximity to the Fed and Treasury and to the stereotypical welfare mom.
This is precisely what has happened in the last 30 years. In the midst of the greatest boon in technological progress since the industrial revolution, the standard of living for the average worker has remained more or less stagnant. Almost all of the gains have been siphoned off by the 1% closest to the seats of power; the crumbs have been tossed to the lower half in order to keep things calm. (The middle class gets crumbs as well; believing these are valuable without counting the cost of stagnation.)
So a new, step-function improvement in technology might help relieve the situation, but it won’t help the large majority much, if at all.
The second possibility is default – and default in many forms. Most importantly will be default on promises: retirement benefits, medical benefits, etc. This will include private retirement and medical plans – after all, these can only earn real returns by leaning on the (shrinking number of) dependent.
There will be default through a continued and ongoing push at inflation, in hopes of further chipping away at the problem.
There will also be real, no kidding defaults. Debts will be written off and restructured.
My guess is that the second possibility will prevail. After this, any gains in productivity due to whatever is the next technological boom will accrue somewhat more to the independent, productive class.