Economics

Economics Introduction The nation is about to experience an enormous demographic shock. Between 2010 and 2030, the over-65 population will rise by 70 percent while the labor force will rise by a little over 3 percent. The Congressional Budget Office (CBO) projects that Social Security benefits will be absorbing 3 percentage points more of the GDP by 2040 while Medicare and Medicaid will be absorbing an additional 6 percentage points. The Implications of Doing Nothing The economic burdens estimated above assume that labor productivity continues to grow in the long run at a rate slightly above that of the last twenty years. This is in the face of massive waves of retirement among the most experienced members of the labor force. Moreover, the remaining laborers will probably have less capital to work with, because there will be large withdrawals from private pension funds, and public deficits will rise if promised benefits are paid without raising taxes. In addition, we are unlikely to be able to borrow as much from foreigners as we do currently, because all developed nations will be facing similar problems. The CBO has described a disaster scenario in which rising Federal deficits reduce capital formation, thus slowing growth.1 The slow growth raises accounts, individual, equities, fund, trust, system, social, security, saving, benefits, less, bonds, because, retirement, rate, plan, investments, plans, income, premium, increase, equity, effect, return, much, mandated, likely, however, growth, future, current, way, voluntary, traditional, taxes, tax