Yet pensions are not the only public costs that rise as populations age. Public-health benefits could turn out to be an even bigger burden. Not only are health costs rising faster than GDP, but the elderly consume three to five times more health-care services per capita than younger people. Moreover, the older people are, the more they consume, and it is precisely the population of the oldest of the old that will be growing most quickly. By 2050, in 13 countries people aged 80 and over will comprise at least 10 percent of the population. In Italy, the share will be 14 percent. By way of comparison, the world leader today is Sweden, with a mere five percent. This "aging of the aged" adds an extra multiplier to the burden of global aging, since virtually every measure of dependence and health-care expense rises with increasing age: not just more doctor and hospital visits, but more home health aides and nursing home beds.

It is of course possible that tomorrow's elderly will be stronger and freer from disease than today's elderly. Aging experts who take this view argue that we can expect health spans to lengthen along with life spans and that, eventually, we may see the ills of old age relegated to a brief and relatively inexpensive period of declining vigor at the very end of life. Other experts, however, assert that the main effect of ongoing medical advances, especially among the very old, is to postpone death without restoring people to full health. According to what is sometimes called the "failure of success" hypothesis, lengthening life spans will be accompanied by a rising incidence of disease, from diabetes and hypertension to arteriosclerosis and Alzheimer's.

Whichever medical model proves correct, the cost of at least one type of health care--long-term care--is sure to rise at least as fast as the number of the very old. Over the next few decades, the number of family "caregivers" available to help each dependent elder will decline steadily, increasing the time and money burden on mature adults and putting extra pressure on governments to pick up the slack. Today's midlife adults are typically able to share the task of taking care of aging parents with their siblings. But when they, in turn, grow old, they will be much more likely than today's elders to have had only one child or no children--or to have been widowed, divorced, or never married. What happens to families will thus have an enormous impact on health-care costs a generation from now.

Stir these multipliers together, and the likely cost trend is explosive. If health-care spending per capita grows just one percent faster per year than the average wage--a conservative assumption--public health benefits will rise by six percent of the typical developed country's GDP between 1995 and 2030. All told, the cost of public retirement benefits--pensions and health care--is on track to rise by between nine and 16 percent of GDP in most of the developed countries. This vast increase is three to five times what the United States currently spends on national defense and the equivalent of 25 to 40 percent of workers' taxable wages.

The massive challenge of global aging leaves the developed world no easy options. Deficit financing will not work. Government borrowing to pay for projected pension deficits alone would consume all the savings of the developed world by the 2030s. Cutting other public spending will not work. So great is the projected growth in retirement benefits that many governments could eliminate all nonbenefit spending (from defense and infrastructure to police and schools) and still run deficits by the 2020s. Raising taxes will not work. Most developed countries are now at or beyond their threshold of efficient taxation, and many European leaders warn that higher tax rates will slow the economy more than they will raise new revenue.

A New Paradigm of Aging

The developed countries must move toward a new paradigm of aging, one that is every bit as revolutionary as the demographic transformation they are facing. The objective of this paradigm is to make aging both more secure for older generations and less burdensome for younger generations. It can be implemented through policy reforms that fall into six basic strategies, each promising significant fiscal and economic payoffs.

First, reduce elder dependency by encouraging later retirement, longer working lives, and lower barriers to elder employment. Governments everywhere, especially in continental Europe, could generate enormous savings, without lowering elder living standards, by raising the eligibility age for public pensions.

Second, increase the size of today's economy and tax base by encouraging more work from the nonelderly--either by getting more working-age citizens to work or to work more, or by increasing the inflow of working-age immigrants. Nations with low immigration and relatively few women in the labor force (e.g., Japan) or with high labor costs and high unemployment (e.g., Germany) would be well advised to consider this "American" strategy.

Third, increase the size of tomorrow's economy and tax base by raising more productive children so that the cost burden is spread over a larger and more affluent rising generation. The Scandinavian and French tradition of generous public funding for pronatal incentives and investment in children is likely to spread to other countries, in part as a response to worries about population decline.

Fourth, reduce the fiscal cost of elder dependency by stressing filial obligation--that is, increase the willingness of tomorrow's grown children, however numerous or productive they are, to support their own elderly parents through informal and familial channels. Societies in which the extended family is weakest, elder poverty is highest, and long-term care costs are rising the fastest (e.g., the United States) have much to learn from countries such as Japan, where most elders still live with their adult children.

Fifth, reduce the fiscal cost of elder dependency by targeting benefits on the basis of financial need. Though Australia is now the only developed country where all public pension benefits are means-tested, many other countries may eventually return to this "floor of protection" strategy.

Sixth, reduce the fiscal and economic cost of elder dependency by requiring people to provide in advance for their own old-age dependency--by saving and investing more of their income earned while they are active in the work force. Britain, Australia, Chile, and Singapore are showing the developed world that there are many different ways to move toward this kind of funded retirement saving.