Daily Factoid: The sky is falling! Are dependency ratios alarming? That depends.

There's been a lot of talk about dependency ratios, which are at the root of Social Security alarmism. Part of this generally dismal talk is based on a strict definition of dependency: Anyone over 65 is defined as 'old-age dependent' and anyone under 20 is defined as 'youth dependent'. In case you're wondering, they're dependent on the so-called working population of people 20-65.

By this measure, about 67% of the population was dependent in 2010. That figure will rise steeply, to 83% in 2030. I.E., the dependency ratio will rise about 1% per year with each passing year for the next two decades.

Here @BrandROI, we're not convinced that a simplistic definition of dependency is that useful. First of all, we've learned that in countries like Pakistan, children as young as 8 make great factory workers. 

OK, I'm kidding. But seriously, we agree with researchers like Dr. Neal Cutler, a financial gerontologist, who spends a lot of time reminding doomsayers that simple demographic population ratios fail to reflect the fact that not everyone of working age is economically productive, nor is everyone over 65 economically dependent.

So, some people (OK, lotsa' people) say the sky is falling; I say, don't worry so much. Who should you believe? Me, and here's why: I took the U.S. Census Bureau's latest available figures for dependency ratios by state. They vary widely, from Utah at just over 68% to Alaska at around 51%. Then, I looked at the Bureau of Economic Analysis' figures for state-by-state economic growth.

Here's what I found: The economies of the five states with the highest dependency ratios (UT, AZ, FL, ID, SD) averaged 1.8% growth in GDP. The economies of the five states with the lowest dependency ratios (AK, VT, CO, MA, NH) averaged 1.4%. The high-dependency states' economies grew about 20% more than the low-dependency states' economies.

Clearly, the alarmists' view that high dependency=bad, low dependency=good is simplistic. 

I have to admit that even I was surprised by this finding. Obviously, states like Utah, with high rates of youth dependency have, by definition, lots of young parents in what are typically thought of as their years of peak productivity.

So I went back into the raw data and built a spreadsheet comparing economic growth to old-agedependency on a state-by-state basis. Predictably, this list was led by Florida, a retirement haven, and includes Arizona and heavily rural states like West Virginia.

In total there are 34 states with rates of old-age dependency higher than the U.S. average. Obviously, that means there are 16 states with rates of old-age dependency below the average. In 2012, the "old" states' economies—which if you believe the alarmists were being dragged down by all those horrible, unproductive people over 65—grew an average of 2.1%.

Meanwhile, the "young" states—presumably supercharged by the high proportion of productive young people—grew a stunning... 2.2%. Yes, the difference was 0.1%. 

If a larger proportion of residents over 65 was really a massive drag on the economy, wouldn't you expect a more pronounced differential? Again, I hope Dr. Cutler won't mind if I paraphrase the conclusion that he reached in his own independent research, which is that old age and dependency are not synonymous.