The G-20 Summit Missed the Mark
By MICHAEL HODIN,
Posted: November 12, 2010
Trade imbalances and currency wars were the key take-aways this week as President Obama ended his tour of Asia at the G-20 meeting. He promoted what he calls a “balanced growth” framework, which he says will bolster the global economy through simple economics: surplus countries like China should boost domestic demand so that deficit countries like the U.S. can focus on savings and investment. I suppose basic economic principles teach us this is a logical solution. Of course, that’s not how China sees it.
When G-20 countries start thinking long-term and begin to assess the huge cost burdens that will result from growing aging populations, there could well develop an additional political tension as each seeks benefit over the other. The Standard & Poor’ s 2010 Global Aging Report, initially available in October, has analyzed 50 countries and what they face economically as their populations age.
President Obama will be especially interested in the U.S. where the report characterizes “…a huge problem brewing [since] the U.S. government is not collecting enough money to pay the bills [and may become] worse off-- especially because of its rapidly escalating health care costs.”
By contrast, the Chinese are actually going to fare pretty well because the government currently pays much less in pension and health care costs compared to other advanced economies. Along with the U.S. and most developed nations, Japan is aging especially fast causing public finances to suffer. For Japan, as with South Korea over the next decade, the growth in the aging population will increase demand for publicly provided health, long term care services, and state pensions at rates their relatively smaller working age group can’t support. The Japanese are already in trouble because they lack a permanent revenue source for the fiscal 2009 increase of its contribution to the pension system.
Globally, a path for sustainable economic solutions is to focus surpluses and deficits in terms of long-term security. And, to do that, the G-20 should itself begin to face the fact that aging hits all of its members. Based on demographics and current systems, no country will escape the economic impact of this demographic imbalance.
Michael W. Hodin, PhD, Adjunct Senior Fellow at the Council on Foreign Relations and Executive Director of the Global Coalition on Aging