have been in the absence of population aging. the large improvement in the estimated living standards of future generations arises because of the extra capital bequeathed to them by virtue of the current generation ’ s assumed higher rate of saving. these numbers shouldn ’ t be taken literally but the basic lesson is surely right - that the decisions that we make over the next few decades will matter greatly for the living standards of our children and grandchildren. if we don ’ t begin soon to provide for the coming demographic transition, the relative burden on future generations may be significantly greater than it otherwise could have been. 2 at the heart of the choices our elected representatives will have to make regarding the distribution of these costs across generations will be an issue of fairness : what responsibility do we, who are alive today, have to future generations? what will constitute ethical and fair treatment of those generations, see sheiner, sichel, and slifman ( 2006 ) and elmendorf and sheiner ( 2000 ) for discussions of the basic approach. another approach for gauging the potential impact of demographic change on future generations is the generational accounting framework developed by auerbach, gokhale, and kotlikoff ( 1992 ). this framework begins with the assumption that, for people living today, tax rates will not be increased and benefits will not be cut. on that assumption, one can calculate the taxes ( net of transfers received ) that future generations will have to pay to achieve long - term balance in the government budget. according to recent estimates using this approach, to achieve long - term budget balance the net tax rate on future generations will have to be about double the tax rate on current taxpayers ( gokhale and kotlikoff, 2001 ). this approach looks at the intergenerational issue through the prism of fiscal policy rather than taking the broader economic perspective i have emphasized today, and its underlying assumptions are somewhat different. however, the basic message - that failure by the current generation to address the economic implications of aging will impose significant costs on future generations - is the same. who are not present today to speak for themselves? if current trends continue, the typical u. s. worker will be considerably more productive several decades from now. thus, one might argue that letting future generations bear the burden of population aging is appropriate, as they will likely be richer than we are even taking that burden into account. on the other hand, i suspect that many people would agree that a fair outcome should involve the current

the overall population is assumed to remain at its current level over time and per capita consumption grows with productivity. now in reality, as i have noted, an aging population will reduce labor force participation, so the likely future trajectory of per capita consumption over time lies below that implied by the baseline scenario that assumes away the demographic change. the shape of the actual consumption trajectory depends, however, on the saving behavior of the current generation. if today ’ s saving rate is low, then the current generation can enjoy consumption close to what it would have been if the aging issue did not exist. however, in this case, the burden on future generations will be relatively great. alternatively, the current generation could consume less and save more, which would allow the consumption of future generations to be closer to what it would have been in the absence of population aging. how big are these effects? to assess magnitudes, the board economists first examined the case in which the nation saves at its current rate for the next twenty years, thereby largely insulating the babyboom generation from the effects of the coming demographic transition. after that, they assumed, consumption falls and saving rates rise, with all future generations experiencing the same percentage reduction in consumption relative to the baseline in which no population aging occurs. their rough calculations suggest that, in this case, the per capita consumption of future generations would be about 14 percent less than what it would have been in the absence of demographic change. for comparison, they next considered the case in which the burden of demographic change is shared more equally among current and future generations. they considered a case in which the national saving rate, instead of staying at its current level for the next twenty years, rises immediately. further, they asked by how much today ’ s saving rate would have to increase to lead to equal burden - sharing among current and future generations. ( " equal burden - sharing " is interpreted to mean that the current generation and all future generations experience the same percentage reduction in per capita consumption relative to the baseline scenario without population aging. ) they found that equal burden - sharing across generations could be achieved by an immediate reduction in per capita consumption on the order of 4 percent ( or, since consumption is about two - thirds of output, by an increase in national saving of about 3 percentage points. ) this case obviously involves greater sacrifice by the current generation, but the payoff is that all future generations enjoy per capita consumption that is only 4 percent, rather than 14 percent, below what it would