AEI held its annual policy conference on December 3-5 at its headquarters in Washington, D.C. The title of the conference was "Which Bridges to What Future?" Few issues in America's future loom larger than the status of entitlement programs, which consume an ever-increasing portion of the federal budget. There is a growing belief that entitlements cannot be maintained in their current forms in the coming decades. What then? With this question in mind, the second day of the policy conference was devoted to panels on entitlements and the difficulties they pose for the future.

Demography Is Destiny. The first discussion explored the broad trends in the growth and age of America's population and their consequences for entitlement programs. Karl Zinsmeister, editor in chief of The American Enterprise, reported that in the year of his birth, 1959, the labor force contained approximately six workers for every retiree on Social Security. By the time those born in 1959 retire, the ratio will have plummeted to less than two to one. Because the largest entitlement programs are funded on a pay-as-you-go basis, inevitably as fewer and fewer workers are paying into the system to support each retiree, programs such as Social Security and Medicare must be scaled down in some manner. Government downsizing is coming, like it or not, regardless of who controls Congress. Demographic trends, not political principles, will force reform.

Samuel H. Preston, head of the Center for Population Studies at the University of Pennsylvania, explained that the populations of most developed nations are aging because of low birth rates and increases in life expectancy.

The proportion of American voters over fifty-five years of age--net beneficiaries of entitlements--will increase steadily until it reaches 50 percent in 2030. The same demographic trends will simultaneously intensify the need for entitlement reform and increase resistance to it.

Mr. Preston pointed to another dilemma: the best of the few options for coping with the problem of an aging population is an increased birth rate. In fact, America already has the highest birth rate among western nations, due in large part to high illegitimacy rates. If we could eliminate out-of-wedlock births, our birth rates would fall far below replacement levels.

Stanford University economist Michael Boskin added to Mr. Preston's statistics the worrisome news that the fastest-growing age cohort is the very old, those eighty-five and older. Mr. Boskin reminded the audience that, in the not-too-distant past, scientists debated whether there was an upper asymptote to life expectancy. Although many analysts had argued that eighty-five might be that level, this belief has long been abandoned by most of its adherents.

There is a widespread belief that the great size of the baby-boom generation is at the root of these future problems. Senior Fellow Ben J. Wattenberg argued that the real problem is not that there are so many baby boomers but that the boomers have typically chosen to have small families or not to have children at all. He exhorted politicians to consider policies that would increase the size of the future working population, namely, pronatal policies and immigration.

Social Security. The second panel dealt with preserving Social Security. AEI Resident Scholar Carolyn Weaver displayed a series of charts indicating that the Social Security system will begin to produce deficits by 2012 and will deplete its reserves by 2029, according to the extrapolations of its trustees.

The Social Security Advisory Council--of which Ms. Weaver is a member--has been working on a proposal for reforming the program. She favors a decentralized, private system in which individuals control their own retirement savings. "Workers have never been in a better position to make sound investment decisions," she said, "nor have financial markets ever been better prepared to handle workers' investments."

Ms. Weaver's presentation was followed by remarks from Senators Judd Gregg (R-N.H.) and Chuck Robb (D-Va.). Sen. Gregg argued that although the Social Security system faces grave problems that ought to be addressed now, the system is not yet in a crisis. In his view, it will be difficult to get a consensus for the bold action that is needed without a "forcing event."

Moving the system toward actuarial solvency is one of the principal aims of a bill sponsored by the New Hampshire senator. He proposes to eliminate the $60 billion annual surplus in the Social Security Trust Fund, which is being used to fund other current needs in the budget. The plan would cut the Social Security tax by the amount needed to eliminate the surplus but would not change the amounts withheld from workers' paychecks. The amount of the withholding that has been contributing to the surplus would be controlled by individual workers but would have to be invested for retirement.

This plan would also ease one of the problems mentioned by Sen. Robb. Despite increased public awareness of how the Social Security system works, a significant percentage of citizens still believe that they have been paying into something like a savings account. These people view benefits simply as an earned right and do not realize that their contributions are not set aside for them.

Both senators agreed that adjusting the consumer price index downward would not only reflect price changes more accurately but go a long way toward restoring Social Security to financial health. Sen. Robb declared that embracing the recommendation of Mr. Boskin and the Congressional Advisory Commission on the consumer price index "would be a more significant help for Social Security than any other single step we could take in the near term."