Trade and budget deficits; now life cycle deficit

opinion September 25, 2012 00:00

By Achara Deboonme

6,071 Viewed

In dictionaries, "deficit" refers to a "shortfall", often in the monetary sense.

Deficit is used as part of several macro-economic terms, like trade deficit, current account deficit and budget deficit – with the connotation that a nation carrying such deficits is running into trouble.

As such, it is interesting to learn that some academics are applying the word in a project involving the ageing issue. You know what the life cycle is. But do you know what “life cycle deficit” means? 
Attending a seminar last Friday, I learnt about this for the first time. Dubbed by academics as LCD, it clearly does not connote something as fascinating as liquid crystal display – the last decade’s technology that brought us greater visual quality. Indeed, it is about something much more subtle – periods of our life in which we are the least productive.
There are two periods that this refers to: the time we have to depend on our parents for basic needs and education, up to to the day we enter the labour market, and the time when we are retired, to live on our own savings, with financial help from our children or with government support. To the economists, we are the least productive during these periods; we still consume. Without enough income to fully support that consumption, we are living in deficit. 
The term “life cycle deficit” was invented as part of a research project, called “National Transfer Accounts”. Involved in this project were the Centre for the Economics and Demography of Ageing, the University of California at Berkeley and the Population and Health Studies Programme, East-West Centre. The project was initiated in 2003 when the world was becoming worried about the fact that a sizeable number of people are now 60 or older, which puts them into the “ageing population” category. There are concerns that particular countries with a large ageing population will witness economic decline. While Japan is now ranked first in this category, many other countries particularly in the West, will soon follow suit, thanks mainly to longer life expectancy and lower fertility rates. 
After years of research, one of two key findings is that the growing size of the ageing population need not mean slower economic growth. According to Andrew Mason, one of two co-principal investigators, economic security and economic growth can work together if the elderly have saved enough during their prime working years. When they get older and cannot work, those savings turn to precious capital that can boost the economy. “They don’t provide work, but capital.”
Another key finding is that despite lower fertility rates, a country’s productivity can increase. With fewer children, people can spend more on education and health for their children. Those children in the future become better-educated and healthier workers. Though the number of workers falls, a country can expect better output from quality workers.
That could close the life cycle deficit gap. But in many countries the deficit can widen because of other human forces.Human trafficking is part of the problem. This has been documented well in movies and, recently in Bangkok, through a dance show by Baltic Dance Theatre from Poland. This issue demands closer attention from authorities from around the world. I was particularly enthralled by the dance show, as the choreographer brilliantly incorporated this very heavy social issue. Many young girls are illegally forced into “modern-day slavery”, and the show depicted young girls brutalised. They tried to fight, only to be killed at the end. In the final act, in just dance panties and bras, they didn’t look “over-exposed” given the brutality. Such victims haven’t yet accumulated wealth. Through their life cycle, they live on the deficit side.
Mason’s findings remind me of the Pheu Thai Party’s policy – “from womb to tomb” – which sets out to extend financial support to children and the elderly. Under the 11th national economic and social development plan, all children are entitled to better nutrition and education. The government also hands out monthly allowances to the elderly. It seems the government wants to get on the right track in narrowing the deficits.
But just as the euro crisis lingers on, it remains questionable how much governments can do to narrow the life cycle deficit. All countries want to be as generous to citizens as countries in Scandinavia, for example. But how many can raise enough revenue to finance that goal? Greece is in dire financial trouble partly because of such generosity. 
This teaches us a lesson: we should not be too overwhelmed by the desire to narrow the life cycle deficit that we ignore the fact that such action can lead to a budget deficit. As we should learn from the euro zone, a massive budget deficit can lead to many other deficits that affect all citizens, not just children and the elderly.