Alan Greenspan: A Long-Term Perspective
Prior to the emergence of COVID-19, as I have previously indicated, the defining characteristic of the 21st century was the inexorable aging of its population. Almost a fifth of the population of the industrialized countries of
the world were age 65 and older. In earlier centuries, the vast proportion of the population worked until they died. Retirement as we know it today was a rare outcome. As a political consequence, retirement benefits, especially Social Security and healthcare, escalated significantly and are now projected to expand materially further in the decades ahead.
As a consequence, pension funds and individual investors nearing retirement have been seeking means to sustain secure income further into the future, and thus the demand for safe long-term assets has risen significantly. For example, the yield on the 30-year US Treasury bond has declined by well over 1000 basis points since the early 1980s as demand for the security has increased.
For the United States, over the last half century, the sum of gross domestic savings and government social benefits payments (as a percent of gross domestic product) has remained a remarkably stable 30%. What has changed is the makeup of that sum—we can see from the data that the increase in social benefit payments has coincided with a nearly dollar for dollar decrease in gross domestic savings. Thus we infer that added spending on entitlement programs is crowding out gross domestic savings. For Britain and the rest of Europe, the relationships are similar. Most unexpectedly, they are for China as well.
COVID-19 is obviously a once-in-a-century force that has gripped the global economy. The unfortunate truth of the matter is we know virtually nothing for certain and all the “experts” are expressing not much more than informed
guesses on where we will end up.