Just days ago, European leaders finally agreed on their “comprehensive” deal that would slash Greece’s debt and preserve the Euro – and already there seem to be doubts. Initial market euphoria has given way to second thoughts. As essential as the deal was, it’s still only short-term crisis management. As the Economist has pointed out, the deal will only “buy time before the next round of panic. At worst, it may push the euro zone into catastrophe.”
It’s a good point, but there’s a more important one: Where are the policies that will produce growth? Managing the financial meltdown seems to have precluded leaders from also addressing the longer-term underlying structural drivers of demographic change and the dependency models we now have for aging populations.
It’s time to turn this dependence into economic participation. A huge and growing demographic slice of all G-20 nations cannot be economically ignored. Though the financial markets felt assured at least for a day by the agreements last week, the long-term outlook remains the same. If the Europeans can’t create mechanisms to integrate aging populations into their economic life, then the positive effects of this latest deal will evaporate like the others. The same is true for us here in the U.S., as highlighted by the Fed’s November 2 assessment that we have entered a new “non-growth” period.
We shouldn’t be surprised when an acute financial crisis masks underlying structural economic misalignment and lulls leaders into thinking that dealing with the acute challenge is sufficient. Consider Japan’s “lost decade" of the 90s, now turning 20. The country made a series of bad economic decisions, which led to persistent stagflation. But its most serious failure (and the one from which Europeans on the brink can learn) was to leave untouched the growth opportunity in its aging population.
Japan’s over-65 population is living off its savings. But as the working segment of that population decreases (fertility being far below replacement for decades now); and as this group lives for many years beyond what its parents did; and as the ratio of retirees to workers becomes further imbalanced (exceeding a staggering one third of the overall population) – this state of affairs becomes simply unsustainable. And it’s the demographic state of affairs that Europe has now entered. While Europeans get this at some level – 2012 is their year of “Healthy and Active Aging,” after all – connecting the lofty social agenda with on-the-ground economic and fiscal policies would enable a reasonable percentage of older populations to be active and productive.
It may not be so coincidental that the Japanese lost decades – let’s finally tell the truth. And like that country, the crises in Europe have been driven by a massive misalignment between mid 20th-century social and economic policies for people over 65, as well as the realities of current demographics. Fiscal sustainability is only feasible if a new social contract is based on a model of active and productive 75-year-olds.
This is critical in the U.S. as well, as we grapple with an entitlements culture and acute jobs issues. We, too, are vulnerable to a “lost decade” malaise. But it does not have to be so, if we can be innovative about growth when it comes to those between 55 and 75. This is the game-changer for our 21st century.