Generational Economics in a Changing World

Abstract

Human hunter-gatherers evolved a life strategy that involved extensive sharing of food and support within and across generations, social behaviors that coevolved with the cognitive and emotional mental apparatus needed to sustain such sophisticated sociality. Adults at all ages produced surplus food which was transferred downwards to children, to support their prolonged period of nutritional dependency, until around age 20. Over a long period of economic development, and a shorter period of demographic transition, generational relations interacted with the changing environment, including changing population age distributions, life cycle behavior, technologies, and institutional arrangements. Similar patterns may have held during land abundant subsistence agriculture, but in intensive agriculture, perhaps due to their property rights in land, the elderly became net consumers in a stage of partial retirement, when they were sustained in part by food transfers from their adult children. At the same time, assets in general became more important – land, buildings, property of all sorts. These assets provided an alternative means for the elderly to support themselves in retirement. These trends continued as agriculture gave way to industry, with retirement earlier and more complete. The growth of a public sector reinforced the pattern of downward transfers with public education and health care for children. However, as states industrialized and the welfare state grew, transfers to the elderly for pensions and health care became increasingly important, with a fiscal effect exacerbated by population aging. At the same time, the growth of capital and financial institutions provided new forms of asset accumulation along with private pensions. These two trends reduced the role of the family in providing for the elderly. Our evolved sociality and ethic of sharing and fairness is now expressed through welfare state redistributive programs, and continuing and intensifying public and private investment in children. But now population aging, interacting with the public programs for the elderly, has led to a reversal in the direction of resource flows across age, from downward (old to young) to upward (young to old). We are currently able both to invest in the young and care for the newly dependent elderly. However, the old age dependency ratio is projected to double or triple in coming decades in the rich industrial countries. The public costs of the elderly may increasingly compete with investments in children through the public sector budget constraint. It remains to be seen whether the elderly, in the context of new public policies, will opt to work until substantially older ages, and whether the rapid growth of health care expenditures will be restrained.

Keywords: population aging, demographic transition, intergenerational transfers, national transfer accounts, old age support, public transfers, private transfers, family

JEL Classification: J1, H00