But for most people, they’ll have to cut back as they retire. In a world with a large number of politically active pensioners, though, retirees can continue to maintain a high level of consumption if they can use the power of the state to subsidize their standard of living.
So, we find that a declining population is not necessarily an economic problem — but it is a big political problem. The crisis we’re facing now is not a result of some built-in demographic phenomenon. It is, rather, a problem with government pensions, entitlements, and transfers from productive workers to non-productive retirees.