Demography is destiny, again

From: http://www.bigquestionsonline.com/columns/phillip-longman/demography-and-economic-destiny

"One day in 1999, I went to visit the billionaire financier Peter G. Peterson in his office high above Park Avenue. In those days, Peterson surveyed a city booming with leveraged deals and paper profits that hourly added to his wealth. Yet he was worried about the future. He warned of a world going gray and predicted that the aging population of the industrial world, particularly in Europe, would tank the era of prosperity then being called “the long boom.”

As I quoted him back then in a cover story for U.S. News and World Report: “The scenario I see is that one or more developed countries . . . is going to decide that the political cost of reforming their pension systems is just too high.” When that happens, Peterson continued, “they will try running high deficits — much higher than the limits set by the European Union’s monetary authorities — in an attempt to finance their way out of the problem. When the financial markets wake up to this news, there will be a broad realization that we have a global aging crisis that is going to be unrelenting in its economic consequences.”

At first, the global recession that began in 2008 seemed to have nothing to do with changing demographics. Economists and politicians pointed instead to the excesses of unregulated capitalism. Many thought that the prophesied demographic-driven entitlements crisis was still years away. But today it is becoming more apparent that Peterson was right: Europe’s demographic problems are not only forcing startling cutbacks in the welfare state but also are damaging the Continent’s prospects for sustained growth and economic recovery. Worse, Europe's today is the rest of the world's tomorrow.

We have now entered a radically new phase in human affairs. Due primarily to the global decline in birthrates, such population growth as remains is mostly in the form of increasing numbers of old people. The absolute supply of children is already in steep decline, not only in Europe but even in once highly fertile places like Russia, China, Mexico, and Iran.

Over the next 40 years, according to the UN, world population will grow from 6.9 billion to 9.1 billion, which may sound like more of the same robust growth that we saw throughout the 20th century. But this will be a very different kind of population growth from anything humankind has seen before. The rate of growth is perpetually diminishing toward zero, and more than half of the remaining increase in population (56 percent) will be among people over 60 — among people, that is, who have already been born.

This may seem impossible, but when calculating population growth, declining death rates are just as important as rising birthrates. Today's children are more likely than their parents to live to advanced ages. Even without any new children being born, this decline in mortality by itself would add to the number of people on the planet. Today's population explosion among those over 60 will be echoed in twenty years by a population explosion among those over 80. Most of the predicted 2.2 billion in world population growth between now and 2050 will not come from children. Indeed, over that period, the population of young children (0 to 4) is expected to fall by 49 million.

Perhaps there is an economic system that can preserve prosperity even in the face of an aging, stagnating population, but it has not yet been devised. It is no coincidence that modern industrial capitalism emerged amid the population explosion of late 18th-century England or that it flourished most in the rapidly growing United States. A young, growing population creates more demand for products and a larger supply of labor. By encouraging people to look for more efficient ways to provide food, energy, and other essentials, it also spurs innovation and entrepreneurism.

In every country of the world, regardless of its stage of economic development, form of government, or age structure, the highest rates of entrepreneurial activity are found among those who are age 25 to 34. The rate of new business ownership in Japan today is just 1.3 percent, the lowest in the world, followed by France at 1.4 percent and Belgium at 1.6. In China, by contrast, with its (for now) oversized population of young adults, the rate is 11.8 percent.

There are many possible reasons for this iron law. One, of course, is that aging workers and investors tend to be less flexible and more risk-averse, having more to lose and less time to recover than do their younger counterparts. Both common sense and a vast literature in finance and psychology support the claim that as we travel toward old age, we become more reluctant to take risks with our careers and more set in our ways.

Falling birthrates do not instantly damage an economy. Indeed, at first, they often do just the opposite. A first-order effect of a society's producing fewer children is that a rising share of the population occupies the prime productive years of young adulthood. Also, with fewer children around to demand attention, vast reserves of female labor are freed up, and there are more resources available to invest in each remaining child, so that, for example, literacy rates improve. Japan experienced this demographic "sweet spot” in the 1960s and 1970s, and China is experiencing it today.

But China's working-age population will soon be shrinking dramatically, even as the ranks of Chinese elders explode. This sets up China for an even worse old-age crisis than the one experienced by Japan beginning in the 1ate 1980s. And after China will come a parade of other countries on the same demographic course, including many, such as Mexico, that never had a chance to get rich before they got old.

In light of these trends, it is easier to see why so much energy has gone into expanding consumer finance in recent decades. In advanced industrial economies with declining rates of population growth, there is no other way to prop up consumer demand. Fewer young adults mean fewer people who need new homes, new appliances, and the like. The middle-aged and retired have a lifetime of accumulation behind them and so are comparatively sated in their needs for everything except healthcare. Expanding consumer credit saves the day for a while by getting people to consume more than they otherwise would (bigger houses and cars, more meals at restaurants), but as we all should know by now, there are stark financial limits to using easy credit as a substitute for population growth.

The financing of the welfare state also depends critically on population growth. So long as there are rising numbers of younger workers, each new generation of retirees can get back far more in pensions and health-care benefits than they ever paid in, and they can do so without creating a financial encumbrance on the future. As the Nobel Prize-winning economist Paul Samuelson once proclaimed, in defense of America’s Social Security system, “a growing nation is the greatest Ponzi scheme ever contrived. And that is a fact, not a paradox.” But Samuelson was writing in 1967, when it looked as if the Baby Boom would go on forever.

What is the way forward? The future belongs to whatever form of human organization manages to produce enough children to avoid both population decline and environmental ruin. Government programs designed to smooth the tensions between work and family, such as paid maternity leave and baby bonuses, are being tried around the world, with increasing urgency but little success. And in countries both rich and poor, we see a rise in religious fundamentalism and patriarchy, which are the old-fashioned (and proven) means of keeping birthrates above replacement rates. The fate of 21st-century civilization will pivot on which of these two alternatives the mass of humanity decides to follow."

 

Yep. Capitalism isn't the problem, it's that we've instituted policies which discourage reproduction. We should discontinue such policies, and discontinue the en mass 3rd world immigration.