10 A particularly worrying feature of these demographic trends is that, with few exceptions, governments have typically found it extremely difficult to introduce the reforms that are needed to ensure longer-term financial sustainability. Social programs such as guaranteed pensions were introduced decades ago at a time when life expectancy was much lower and the working-age population was growing.<sup>10</sup> In time, they have come to be accepted as permanent features of the social landscape, entitlements the value of which must be preserved at all costs or, preferably, increased. With a rise in average life expectancy at birth between 1960 and 2011 from 52 to 71 years—a 37 percent jump which is nothing short of miraculous—the long-term fiscal positions of many developed countries have been overwhelmed. To make matters worse, governments from time to time have not hesitated to expand the sphere of unfunded benefits available. For instance, the United States government in 2003 introduced a Drug Benefit Program, an extremely costly initiative with an actuarial deficit of 75 percent of GDP.

Furthermore, the political economy of reforms works in a way that rewards governments that manifest a nearly exclusive concern with the short-term. As noted by Heller (2004, p. 157) “the temptation is strong to leave tomorrow’s problems for tomorrow’s policymakers to solve, since it is they who will have to answer to tomorrow’s voters.” Or, as was once put by a senior finance official from Sweden: “the future has no lobbyists.” This, in turns, explains why only a minority of countries frame their budgets in a medium-term perspective, looking at the next 3-5 years, though future budgetary resources are precommitted to an extent likely to severely reduce in the future the room for maneuver for government fiscal policies. It requires a high degree of political maturity, the right incentive structure, and no small amounts of administrative capacity to give adequate attention to problems the full impact of which will not be felt for another decade or two. Indeed, the more serious the short-term challenges faced by governments—let us think of the 2008-2009 global financial crisis and the intimidating series of onerous problems it created for governments virtually everywhere—the less attention given to longer-term issues, such as the fiscal implications of population aging.

The increases in public debt which the response to the crisis precipitated have only worsened the nature of the longer-term fiscal challenges we face, because of the additional claims on public resources, many of them in the nature of contingent liabilities arising from various guarantees and central bank support operations. Governments provided guarantees for a broad spectrum of financial sector liabilities, from bank deposits, to interbank loans and bonds; for some countries these are huge: close to 200 percent of GDP in the case of Ireland, 50 percent of GDP in the case of the United Kingdom, to name two of the more serious cases. The aggregate amount comes to close to US$4 trillion.

One additional worrying implication of the global financial crisis pertains to pension fund losses associated with the collapse of equity prices. According to an IMF study released in 2009, 16 of 46 countries for which data are available had pension fund investments in

> 10 When pensions were introduced in Australia in 1909 the age of eligibility for men was 65 years, well above the average life expectancy.