The Week of July 6, 2026: Good news on demographic change, defense, climate, Social Security, and much more.
The Week of July 6, 2026: Good news on demographic change, defense, climate, Social Security, and much more.
Humans have a gift for adaptation. As I argued in a recent article for National Review, we can — if depopulation panic does not get in the way — manage our (continuing) transition to an older and ultimately smaller population without resorting to illusory “solutions” such as mass immigration.
The timing of the coming decline in the number of Americans is hotly debated and influenced by countless variables. But there can be no doubt that the population is aging. Our median age was 33 in 1990. It’s now about 39.
There are, however, some grounds for thinking that this transition may (economically anyway) may be somewhat more manageable than some fear.
For example, as The Economist related recently, healthcare costs (not an irrelevant topic in this context) have been growing by less than expected:
David Cutler and Lev Klarnet, both of Harvard University, observe that in 2024 America spent $1trn less on health care than official forecasts from 2010.
What’s going on?
The Brookings Institution summarized the duo’s findings earlier this year:
The growth of health care spending in the United States seems to have permanently slowed thanks in part to technological advances making medical treatments cheaper and more effective, according to a paper discussed at the Brookings Papers on Economic Activity (BPEA) conference on March 27.
The United States spent more than $5 trillion on medical care in 2024, or 18% of its gross domestic product (GDP). That’s up a bit from 17.2% of GDP in 2010, but far below the 21.2% share of GDP—nearly $1 trillion less—forecast by government actuaries in 2010.
Growth in health-care costs has “permanently” slowed? Let’s hope.
What accounts for the slowdown?
Price declines in some areas, such as for medical imaging and the shift to generic drugs from brand-name drugs, explains some of the slower growth. Also, the use of some medical technologies (such as advanced imaging and new drugs) has stopped increasing.
In particular, the authors highlight a shift in the impact of technological change. In the past, new technologies usually increased costs (for example, a new kind of chemotherapy to treat cancer) and were often of limited efficacy. But, as technology improves to make treatments better and cause fewer side effects, it not only improves health, it also lowers costs. Examples of cost-saving technological change include a shift to outpatient surgery from inpatient surgery and the wider diffusion of drugs that prevent costly illnesses, such as statins to reduce cholesterol.
That last is worth noting in the age of Ozempic and its friends. The upfront cost of such drugs may be high (for a while), but they can ultimately reduce costs.
Cutler and Klarnet don’t depict the U.S. as a medical utopia. The 18 percent of U.S. GDP spent on healthcare is much higher than in other advanced economies (around 12 percent), a difference not justified by the difference in outcomes. But some of this excess spending arises from areas such as administrative costs, where improvements ought to be within reach.
The Economist also refers to another paper also indicating grounds for, if not optimism, then reduced pessimism about healthcare costs, in this instance Medicare’s. This was written by Stanford’s Liran Einav and MIT’s Amy Finkelstein:
Using a survey of users of Medicare, America’s system of health insurance for the old, they find that, whereas expected lifetime spending on Social Security (ie, pensions) rose by 14% between 1993 and 2017, the expected cost of Medicare increased by only 6%. That is partly because elderly Americans have been collecting their pensions for longer but spending less time seriously ill.
Einav and Finkelstein:
The slower growth of elderly lifetime health care spending than annuity spending reflects two features of how longevity has increased: the additional 2.4 years of remaining life expectancy were entirely healthy – free of physical or cognitive limitations – while the expected amount of time spent with severe health limitations fell by about 30%, reducing expected lifetime nursing-home and home-health use.
This matters. The gap between life expectancy and Health-Adjusted Life Expectancy (HALE, a cumbersome way of saying how many years people can live in good health) will be key to the evolution of Medicare and Social Security’s finances. Americans are not known for looking after themselves. So, while U.S. life expectancy has increased, HALE has not, raising the not-quite-specter of the not-quite dead lingering expensively over their blue plates. But dig deeper, and the picture brightens. HALE is calculated as from birth, but Americans who make it to 60 can probably enjoy another 17 to 18 years in which they are in respectable shape, relatively close to the “sad day”, to borrow my late father’s phrase, when (statistically) they might be expected to die.
Einav and Finkelstein start with an even sturdier group, those who have made it to 66. Between 1993 and 2017, they saw their life expectancy increase by the extra 2.4 years mentioned above (to about another twenty years), 2.4 years in which they remained healthy. “Moreover,” they add:
Expected time spent in the worst of the five morbidity states, in which individuals have severe physical or cognitive limitations, actually declined by 0.6 years (about 30%).
That decline ought to be enough to outweigh the increase in spending on nursing homes or home-health care that accompanies increased longevity.
Wait, there’s more. Remarkable pharmaceutical advances, including but not confined to GLP-1s (the Ozempic family), should boost HALE.
It also appears that the incidence of Alzheimer’s may be falling, even as, due to the aging of the population, the absolute number of cases grows, at least for now. But that increase may be trimmed by GLP-1s (preventively anyway) and, it seems, shingles shots.
Lengthening HALE can help offset mounting Social Security costs. Healthier older people are more likely to carry on working. Labor participation rates among American over-65s are rising and exceed the OECD average, but could be higher. About a third of seniors between the ages of 65 and 69 already toil on, as do one in five of those between 70 and 74.
Something else might come into play too. In a new MIT paper by Daron Acemoglu (the winner of the 2024 Nobel economics prize), David Autor, Keelan Beirne and Andrew Scott raise the possibility that longer lifespans “may spur institutional changes, policies, and additional human capital investments” that complement those additional years and “may counteract any negative effects of aging and population declines.”
We’ll see. In any event, the healthier older people become, the stronger the argument for raising the “standard” retirement age to 70 from 67 (the latter age is only two years above its Depression-era starting point of 65). This would need some phasing in and other tweaks, but could make a significant dent over time in the Social Security deficit, even more so if additional hikes are tied, as they should be, to improvements in HALE.
Sadly, the fiscal effect of increasing the retirement age would be back-end loaded. It would not stave off the crunch due early in the next decade. Nevertheless, lower estimates of future costs could ease the restructuring and reimagining of social security, a process which will be as complex and bad-tempered as it is necessary. Wishing ugly numbers away will not do the trick, but nor will taking a tack akin to breaking up a (supposed) intergenerational heist.
Overcoming the country’s fiscal woes will be a lot easier if the United States is prospering. So long as it pursues the correct policies (spoiler: free markets are involved), there is, despite widespread fears to the contrary, no convincing reason why a technologically advanced society should not continue to grow even as its population ages or shrinks.
As I wrote last month:
There is a lot more to a nation’s economy than the number of its inhabitants. Improvements in productivity, many of them attributable to technological innovation, will weaken the links between population size and prosperity, growth, and well-being. As automation accelerates further, those links will continue to fray. So long as that acceleration does not outpace our impressively adaptable species’ ability to keep up, that will be all to the good . . .
The U.S. should rely on both automation and . . . making better use of the people it has. The latter will include fostering higher and more prolonged participation in the workforce, a process that, if successful, would yield social as well as economic rewards. To the extent that automation cannot remedy any labor shortages, this ought to lead to higher pay and greater investment in employees’ skills, with those in the shortest supply (probably younger workers) gaining the most.
Advanced automation is well underway over here. East Asia, Japan, South Korea and China all provide examples of how far this can go.
To repeat myself, again (!):
If (a demanding if ) automation souped up by AI can, without triggering carnage in the labor market, increase productivity and generate more wealth, it will do a great deal to smooth the demographic transition. Thus China, facing an unusually treacherous decline in its numbers, has adopted a policy cheerily known as jiqi huanren (“replacing humans with machines”). That country leads the world in AI-assisted “dark factories,” facilities so automated that they barely need any lighting, and is, like many others, investing heavily in robotics. To take one application, the use of robots to help the elderly weather the trials of old age, pioneered by Japan for obvious reasons, is spreading beyond East Asia.
Acemoglu and his colleagues analyzed adaptation to “the secular decline in birth rates across the globe over the past seven decades,” or, more precisely, from 1950 to 2020.
How did it go? Pretty well:
Our findings challenge the prevailing pessimism: lower birth rates, and the aging and shrinking populations they have produced, have raised rather than lowered GDP per “worker” (our shorthand for GDP per working-age adult) during these decades. The gain in GDP per worker has been large enough to fully offset the negative effect of population decline, leaving aggregate GDP broadly unaffected.
This was achieved by “workers and companies” turning to “technology to augment a reduced labor force, raising the productivity of each worker.” As humans tend to do, they adapted to scarcity. And not for the first time in history. The result was better than what preceded it: “across countries, a one percentage point lower birth rate is associated with 26.8% higher GDP per worker.”
To oversimplify, if country A had a one percentage point lower birth rate than country B, all other things being equal, its GDP per worker would cumulatively have increased by 26.8 percent more by 2020. The Acemoglu team’s analysis, however, draws on data from many countries (not just country A vs. country B ). They also analyzed different “commuting zones” (regional labor markets) in the U.S. They found the same phenomenon here too, only on a considerably smaller scale, as a result of “local” factors, including, it seems, the ease of internal migration within the U.S.
The authors of the paper refer to earlier (2010) work by Acemoglu “showing that labor scarcity triggers the adoption of labor-saving technologies that can lead to increases in GDP per worker and (my emphasis added) even aggregate GDP,” and noted that their own “evidence supports this interpretation.”
And so, in its perverse way, does the British experience. The U.K. has been bedeviled by low labor productivity, but instead of trying to fix that failing by greater investment in workers, the equipment they used and/or automation, its employers relied, with the tacit or explicit backing of successive governments, on “cheap” labor from abroad. It is no coincidence that on a GDP per capita basis, the British economy has been more or less stagnant since 2007/08.
Tellingly, Acemoglu and his team found that “despite declining or slower-growing populations, aggregate incomes” do not fall, another piece of the puzzle that fits.
In their efforts to understand whether the improved productivity they had identified owed more to adapting to the population’s aging or to its decline, Acemoglu and his co-authors turned to the aftermath of World War II. This allowed them:
to distinguish civilian deaths, which primarily reduce population without changing the age structure, from military deaths [which are disproportionally of younger people], which both reduce population and raise the average age of the workforce.
They discovered that “total war deaths” were “associated with lower future GDP per worker, while military deaths predict[ed] higher GDP per worker, suggesting that it is the scarcity of younger workers” that set in motion the changes which led to improved productivity, which arose out of adopting “labor-saving technologies.” As another example of adaptation, they cite research showing that “reduced supplies of young and less-educated workers (coming from immigration restrictions) induce the adoption of more mechanized agricultural technologies.”
Oh.
The general principle they derive from the historical record is that it is the “technological response that produces the positive relationship between baby busts and subsequent growth booms.”
Yes, the historical record: Acemoglu and his co-authors remind readers that their “findings describe the past; whether they provide a reliable guide to the economic consequences of coming demographic transitions is not yet established.”
This “reliability” is going to be put to a tough test:
There will be much faster aging and larger population declines across many countries in the decades ahead, particularly in China. Changes this rapid are outside the support of the historical evidence, and could theoretically yield different adjustment dynamics from those we document.
In other warnings against over-reliance on their interpretation of the past, the paper’s authors note that there is only indirect evidence that the technological response to declining birth rates accounts for the link to higher economic growth. They also draw attention to the fact that the technological, commercial or investment response to demographic changes is not set in stone. It can change with the times.
Forecasting the impact of demographic change means making assumptions about an immense range of unknowns. The message Acemoglu and his team are sending about placing too much weight on the past is a good one. That said, they are mainly focused on the years between 1950 and 2020, a period not so remote from our own, a period during which the demographic transition has been underway. There are limits to its irrelevance.
The authors do not claim to predict the future and, indeed, specifically single out the speed and scale of the likely transformation in China as, so to speak, off their charts. However, the evidence they have gathered is consistent with humanity’s record of adaptability and the idea that we react to shortages by searching for new ways to end them is hardly outlandish. Nor is the notion that, in doing so, we come up with something that leaves us better off than before.
The paper has only recently been published; plenty of scrutiny doubtless lies ahead. But if its authors’ underlying thesis about the past holds up (and intuitively it makes sense), its implicit depiction of the economics of our changing demographics is reassuring. It reinforces the argument that, assuming sensible economic policies and an absence of catastrophe, GDP growth should hold up. If growth is accelerated by AI and other technologies so much the better.
One key caveat: If AI creates mass unemployment, even if only “temporarily,” particularly among the educated class — typically the most dangerous class to antagonize — the problem will not be too few people but too many. The political turmoil that ensues could easily eclipse any benefits of demographic change, but that is another story.
The Capital Record: Sound & Vision
We released the latest in our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which is hosted by financier David L. Bahnsen, makes use of another two formats to deliver Capital Matters’ defense of free markets. The original podcast continues, but if you want to watch David talk, please click on the YouTube link.
Setting the Record Straight on Alexander Hamilton (Podcast/YouTube)
Vice President JD Vance stated last week in a now-infamous interview that the right needs less Milton Friedman and an economic approach more like Alexander Hamilton’s. One can hope the VP simply doesn’t understand Milton Friedman, but more than likely this “new right” mentality is trying to draw a line against the laissez-faire to the economy favored by Friedman. But when various 21st-century voices claim Alexander Hamilton as one of their own in seeking larger government control over the economy, do they actually understand Hamilton correctly? In this Capital Record episode, David is happy to defend Milton Friedman, but also happy to defend Alexander Hamilton, too — against a revisionism that not only gets its economics wrong, but its history, too.
Alan Greenspan’s Legacy (Podcast/YouTube)
David is joined by Dr. Alexander Salter for a refreshing, nuanced, honest, and candid assessment of the good, the bad, and the mysterious in Alan Greenspan’s legacy as the chairman of the Federal Reserve.
The Capital Matters week that was . . .
Lawfare
For a snapshot of what has gone wrong in Europe, look no further than Amsterdam, where Greenpeace International sued the American pipeline company Energy Transfer last year.
Filed on the eve of a North Dakota jury trial that would culminate in a headline-grabbing nine-figure verdict against Greenpeace, the lawsuit encapsulates Europe’s defining pathologies: regulatory overreach, hostility toward energy development, and a growing willingness to weaponize the legal system against political opponents . . .
Defense
With characteristic subtlety, Moscow has launched another attack on Kyiv just ahead of the NATO summit. At the time of writing, seven people had been pronounced dead. Once again Moscow had launched drones, cruise missiles, and harder-to-stop ballistic missiles at the Ukrainian capital. This followed another major attack last week, which left 31 dead.
It’s likely that some of the missiles will have been jet-powered drones, a new addition, as the Daily Telegraph recently reported, to Russia’s arsenal. Typical drones travel (relatively) slowly. These do not. Powered by jet engines rather than the propellers of their Iranian ancestors, they can reach speeds of 300 mph . . .
America is on the path to spend the smallest share of GDP on defense since 1937, a year when the country was trapped in the Depression and wholly unprepared for the coming world war. Over the next five years, the White House and Congress propose spending annually 2.7 percent of GDP on defense. Its real purchasing power of the military may drop to 1.7 percent of GDP, as debt service further squeezes the Pentagon budget . . .
Russia’s mass air attacks on Ukrainian cities have recently been carried out by a mix of drones, cruise missiles, and ballistic missiles. To shoot down ballistic missiles takes interceptors, mainly those launched from Patriot surface-to-air systems. Ukraine has enough Patriot systems but has far too few PAC-3 interceptors, and this is taking a toll . . .
The Budget
The Justice Department announced the 2026 National Health Care Fraud Takedown, which resulted in charges against 455 defendants in connection to over $6.5 billion in health-care fraud. It is encouraging that law enforcement uncovered one of the largest health-care fraud schemes in American history. But it is simultaneously alarming because it raises an obvious question: How much more fraud has not been uncovered?
The answer is a lot more than most Americans realize. The federal government officially reported that it erroneously gave out at least $184 billion in improper payments last year. That amounts to roughly $1,400 per household — more than eight weeks of gas and grocery expenses for a typical American family. Yet even that staggering figure includes only a few billion dollars in “confirmed fraud” . . .
Climate Policy
The Chinese Communist Party is trying to subvert American power by weaponizing our own institutions against us. Nowhere is this dynamic more visible than in climate policy, where influential organizations are unwittingly delivering strategic advantages to our adversary.
A new State Armor report, “ELI and Communist China: How the Environmental Law Institute Threatens American Energy and Advances Chinese Interests,” examines one prominent Washington nonprofit at the center of this effort . . .
Artificial Intelligence
China’s recent progress in artificial intelligence and high-performance computing should not cause panic in Washington, but it should remind Congress that America’s technological lead is no longer so overwhelming that it can afford self-inflicted policy mistakes . . .
Social Security
June 2026 was a busy month for the Social Security program. On June 9, Social Security’s Trustees released their annual report, which showed a 16 percent increase in Social Security’s long-term deficit and estimated that the retirement trust fund would be exhausted in 2032. These figures send a clear and sobering message: We badly need bipartisan Social Security reform . . .
Vance vs. Friedman
Vance’s characterization of Friedman appears similarly shallow. This seems tragic in that while some of Vance’s disagreements derive from a legitimate difference of opinion, others stem from Vance’s ignorance of Friedman, his ideas, and perhaps even economics.
Friedman, surely free-market in his general outlook, does not as easily fit into an ideological box as Vance imagines. As much as “libertarian” describes Friedman, “pragmatic” does, too . . .
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