Friday, February 28, 2014

Population trends and the Federal Budget. One captures the other by the tail.

Demographics---I harp on this a lot, I know.  My prior posting HERE you can see a graph that gives me hope regarding the economic future. Started me thinking about the present and the bind our politicians have put us in, in terms of how we view the Federal budget and entitlements.  I think it is important to consider when we talk about Federal Budget priorities and resource allocation in the US.

The first graph shows in index form, the change in the general population in the US  (RED LINE) and the percentage change in a subset of the whole population---the 25 to 55 age group (BLUE LINE). This age group is considered to be the heart of the labor force in terms of productivity and consumption of consumer goods.  (To calculate the percent take whatever the current Index is at any point on a line and subtract 100. That will give you the percentage change from 1990).

You can see in about the middle of 2003 we had a break in terms of this age group trending with the rest of the population.   The divergence is remarkable.  The general population continued to grow at a steady rate but the 25 to 55 age group pretty much stagnated and even declined.

Where did the other folks go?

Oh, I found them! The got older.  A few years prior to 2003 you can see (GREEN LINE) the percentage of people 55 and older increased at a rate higher than the the general population and the subgroup of 25 to 55 year old's.

In terms of the changing mix of spending the Federal Government does can you see how we moved from "doing things" to a system that predominately is a "check writer" for transfer payments?

Not that there is anything wrong with that but it does create, on a large scale, a different allocation of societal resources.  This is assuming a relatively fixed amount of government spending relative to national income. Spend more on one, spend less on the other (less "physical infrastructure" and more health spending on Medicare, for instance). In terms of the way politicians and policymakers perceive money and the budget this is not going to change any time soon.

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