Tuesday, February 5, 2013

"Demographic Winter"

This past week saw several articles providing snapshots of the fast approaching demographic winter facing the world. The first two articles I posted briefly about last Friday, but I wanted to discuss certain issues from each in more detail. Also, this weekend, I watched a documentary entitled "Demographic Winter" which is probably the best overview of the issue I've seen, if you have a couple of hours to spare. (If you have a Roku, the documentary can be found on the BYU channel).

First, the Diplomat reports on Japan's continued population decline. The author writes:
Last August, I wrote an article for The Diplomat that discussed some of the issues Japan is facing in relation to population decline. As I noted, the population has dropped for three years in a row. Recently, the Japanese government announced that the population decrease for 2012 is expected to be 212,000—a new record—while the number of births is expected to have fallen by 18,000 to 1,033,000—also a record low. Projections by the Japanese government indicate that if the current trend continues, the population of Japan will decline from its current 127.5 million to 116.6 million in 2030, and 97 million in 2050. This is truly astonishing and puts Japan at the forefront of uncharted demographic territory; but it is territory that many other industrial countries also are beginning to enter as well.
As to why the decline in fertility:
Various studies of demographic change in Japan have linked declining fertility to other changing social factors such as increased education, delayed marriage age, more economic opportunities for women, and the expense of raising children in modern, urban societies. All of these have played a role in reducing fertility over the past few decades. In addition, beyond delayed marriage many Japanese have chosen not to marry and, as a result, not have children. According to the 2010 census, 30% of all households in Japan were single, representing the largest category of household composition in the country. A significant portion of these households were widows over the age of 65. At the same time, a not insignificant portion were women and men in both early adulthood and middle-age who have simply chosen to not get married. In a society like Japan where child-birth out of wedlock is stigmatized, the decision not to marry also normally means that one has chosen not to have children.

Indeed, there are many women in Japan today in their forties and fifties who have opted for a career over marriage and child-rearing. In Japan, social pressures make it difficult for women to manage a career while also raising a family. Furthermore, recent trends suggest that both men and women are increasingly uncertain about the value of marriage and having a family. A government survey of people between the ages of 18 and 34 in 2011 showed that over 61% of unmarried men among those surveyed lacked a girlfriend and 49.5% unmarried women had no boyfriend, the latter being a new record. Forty percent of respondents indicated that there was no need to marry and 45% of men showed no interest in "dating the opposite sex." These results, which represented significant increases over the same type of survey conducted in previous years, have raised concerns that the population problem Japan is facing will not change in the foreseeable future.
The article raises only two possible solutions: (1) increased use of technology (particularly robotics) to make up for the shortfall in workers; and/or (2) allowing increased immigration. Having lived in Japan, I sincerely doubt that the Japanese will ever willingly agree to large scale immigration.

Next up is an article from the Christian Science Monitor examining whether part of the reason for America's declining fertility is student loan debt. That article notes:
American women of childbearing age are having babies at a rate of 63 per 1,000 women – nearly half the peak rate of the baby boom era of the 1950s, the Pew Research Center reported at the end of 2012.

No surprise, recessions typically coincide with a birthrate dip, as financial uncertainty prompts couples to postpone adding new mouths to feed. But the economy is recovering, and there's no sign yet that the birthrate is rebounding. Some analysts now wonder if the unprecedented scale of early indebtedness stemming from student loans, affecting nearly one-quarter of the overall US populace of childbearing age, has become a permanent deterrent to parenthood.
The article goes on to note:
Of course, many factors are at work when it comes to a lower birthrate: delayed marriage, the advent of contraception, education and career options for women, economic stability, and so forth. It's not yet clear how much of a deterrent exorbitant and widespread student debt poses to family formation, because the phenomenon is relatively new.

"There are not a lot of hard numbers yet," says Tamika Butler, director of the California office of the Young Invincibles, a youth advocacy group that has focused on the student debt issue since 2009, conducting studies and making policy recommendations to Washington. A 2012 Rutgers University study, "Chasing the American Dream: Recent College Graduates and the Great Recession," shows that 4 in 10 graduates from a four-year college program said debt has delayed major decisions such as buying a house or starting a family. And there is plenty of anecdotal evidence that student debt is delaying childbearing.
... This new burden on decisionmaking stemming from student loan debt comes on top of other trends – some long-term, some short-term – that also work against childbearing. For one, more than 1 in 5 young adults ages 18 to 34 have delayed having a child because of the economic slowdown, approximately the same proportion that postponed marriage, a 2012 Pew survey found.

For another, the share of young adults ages 18 to 29 who are married fell from 59 percent in 1960 to 20 percent by 2010. The age at which men and women marry has also been creeping up, reaching an all-time high of 26.5 for women and 28.7 for men, according to Pew Research.

Big changes in the dynamics between men and women are also affecting marriage and childbearing, says psychologist and marriage counselor Wendy Walsh, author of the forthcoming book "The 30-Day Love Detox." For the first time in America's history, women outnumber men in higher education. As women gain more education and financial independence, they tend to marry less and later – and have fewer children, she notes.

Shifting sexual mores and the increased prevalence of cohabitation have only accelerated this trend, she adds. "More and more couples are [having children] without marrying at all," says Ms. Walsh, noting the attention lavished on celebrities who do likewise.

The third article is from the Wall Street Journal, and also discusses the problems with declining birth rates in the United States. It states:
For more than three decades, Chinese women have been subjected to their country's brutal one-child policy. Those who try to have more children have been subjected to fines and forced abortions. Their houses have been razed and their husbands fired from their jobs. As a result, Chinese women have a fertility rate of 1.54. Here in America, white, college-educated women—a good proxy for the middle class—have a fertility rate of 1.6. America has its very own one-child policy. And we have chosen it for ourselves.

Forget the debt ceiling. Forget the fiscal cliff, the sequestration cliff and the entitlement cliff. Those are all just symptoms. What America really faces is a demographic cliff: The root cause of most of our problems is our declining fertility rate.

The fertility rate is the number of children an average woman bears over the course of her life. The replacement rate is 2.1. If the average woman has more children than that, population grows. Fewer, and it contracts. Today, America's total fertility rate is 1.93, according to the latest figures from the Centers for Disease Control and Prevention; it hasn't been above the replacement rate in a sustained way since the early 1970s.

The nation's falling fertility rate underlies many of our most difficult problems. Once a country's fertility rate falls consistently below replacement, its age profile begins to shift. You get more old people than young people. And eventually, as the bloated cohort of old people dies off, population begins to contract. This dual problem—a population that is disproportionately old and shrinking overall—has enormous economic, political and cultural consequences.
For two generations we've been lectured about the dangers of overpopulation. But the conventional wisdom on this issue is wrong, twice. First, global population growth is slowing to a halt and will begin to shrink within 60 years. Second, as the work of economists Esther Boserups and Julian Simon demonstrated, growing populations lead to increased innovation and conservation. Think about it: Since 1970, commodity prices have continued to fall and America's environment has become much cleaner and more sustainable—even though our population has increased by more than 50%. Human ingenuity, it turns out, is the most precious resource.

Low-fertility societies don't innovate because their incentives for consumption tilt overwhelmingly toward health care. They don't invest aggressively because, with the average age skewing higher, capital shifts to preserving and extending life and then begins drawing down. They cannot sustain social-security programs because they don't have enough workers to pay for the retirees. They cannot project power because they lack the money to pay for defense and the military-age manpower to serve in their armed forces.

There has been a great deal of political talk in recent years about whether America, once regarded as the shining city on a hill, is in decline. But decline isn't about whether Democrats or Republicans hold power; it isn't about political ideology at all. At its most basic, it's about the sustainability of human capital. ...
... There's a constellation of reasons for this decline: Middle-class wages began a long period of stagnation. College became a universal experience for most Americans, which not only pushed people into marrying later but made having children more expensive. Women began attending college in equal (and then greater) numbers than men. More important, women began branching out into careers beyond teaching and nursing. And the combination of the birth-control pill and the rise of cohabitation broke the iron triangle linking sex, marriage and childbearing.

... If you want to see what happens to a country once it hurls itself off the demographic cliff, look at Japan, with a fertility rate of 1.3. In the 1980s, everyone assumed the Japanese were on a path to owning the world. But the country's robust economic facade concealed a crumbling demographic structure.

The Japanese fertility rate began dipping beneath the replacement rate in 1960 for a number of complicated reasons (including a postwar push by the West to lower Japan's fertility rate, the soaring cost of having children and an overall decline in the marriage rate). By the 1980s, it was already clear that the country would eventually undergo a population contraction. In 1984, demographer Naohiro Ogawa warned that, "Owing to a decrease in the growth rate of the labor force…Japan's economy is likely to slow down." He predicted annual growth rates of 1% or even 0% in the first quarter of the 2000s.
From 1950 to 1973, Japan's total-factor productivity—a good measure of economic dynamism—increased by an average of 5.4% per year. From 1990 to 2006, it increased by just 0.63% per year. Since 1991, Japan's rate of GDP growth has exceeded 2.5% in only four years; its annual rate of growth has averaged 1.03%. Because of its dismal fertility rate, Japan's population peaked in 2008; it has already shrunk by a million since then.
The WSJ article notes that financial or child rearing incentives--such as tax brakes or subsidized child care--will probably not reverse the trend. Such programs have been carried out in Europe with very little or no impact on declining birthrates. Both the CSM and WSJ articles also note that while immigration has made up the difference in past decades, it probably won't continue to due so for the simple fact that the Mexico and other Latin American countries, from which the U.S. draws most of its immigrants, also have declining birth rates.

The WSJ article discusses some of the reasons for declining birth rates and some possible solutions:
In the face of this decline, the only thing that will preserve America's place in the world is if all Americans—Democrats, Republicans, Hispanics, blacks, whites, Jews, Christians and atheists—decide to have more babies.

The problem is that, while making babies is fun, raising them isn't. A raft of research shows that if you take two people who are identical in every way except for childbearing status, the parent will be on average about six percentage points less likely to be "very happy" than the nonparent. (That's just for one child. Knock off two more points for each additional bundle of joy.)

But then, parenting has probably never been a barrel of laughs. There have been lots of changes in American life over the last 40 years that have nudged our fertility rate downward. High on the list is the idea that "happiness" is the lodestar of a life well-lived. If we're going to reverse this decline, we'll need to reintroduce into American culture the notion that human flourishing ranges wider and deeper than calculations of mere happiness.

We'll need smart pronatalist policies, too. The government cannot persuade Americans to have children they do not want, but it can help them to have the children they do want.
 The author goes on to suggest tax breaks for parents, such as exempting them from paying Social Security and FICA taxes while raising kids, increasing credits for each child they have, and so on. The author suggests that something needs to be done to reform higher education and get costs under control, perhaps even turning credentialing over to companies or independent agencies based on exams, rather than being awarded by schools. Finally, the author suggests that something needs to be done about the costs of homes and transportation for those with families, such as encouraging telecommuting. 

"Demographic Winter," the documentary I mentioned earlier, obviously discusses many of the same issues, but from a greater number of viewpoints (i.e., many different experts) and in more detail. The basic issue is that falling birthrates portend falling GDP. The documentary points out that GDP is, at its essence, a product of population and productivity. Fertility rates, for the most part, show the change in population. Productivity is a combination of technology (i.e., automation) and what is referred to as human capital--largely education and productive skills. A large and highly educated/skilled workforce produces a greater GDP than a smaller and/or less skilled workforce.

It is fairly obvious that a decline in fertility will result in a smaller workforce, and a stagnant economy, as exemplified by what has already happened to Japan. It is also obvious that pay-as-you-go retirement and medical care schemes (such as Social Security and Medicare) are in trouble because there will be fewer workers supporting a larger number of retirees. According to "Demographic Winter," although world population will peak around 2065, the working population will actually peak a couple decades earlier. However, the current ratio of approximately 3:1 between workers and retirees will drop to 2:1 much earlier--especially given the number of people dropping out of the work force and obtaining Social Security disability. The result is that we can expect that taxes will increase to cover the costs of these retirees.

There are less obvious consequences as well. Once the population begins to decline, it will do so precipitously. As "Demographic Winter" notes, the same factors that led to exponential growth in populations will lead to exponential declines in populations. This might be delayed somewhat by increasing life spans, but that will simply exacerbate the underlying issue of too few workers supporting too many retirees.

During the same period, the wealth of most families will decline for the simple reason that property/home prices will stagnate or decline. That is, as the baby boomers get older and downscale their homes, the demand for houses will decline driving down prices. In "Demographic Winter," it was suggested that the drop in housing prices we saw in 2008 is merely the beginning of an overall, sustained drop in home values. Of course, this will place increasing pressure on local governments which rely on property tax revenues. Similar to payroll taxes, we can expect to see property taxes increase to make up for the projected shortfall.

There are other subtle issues as well. Although briefly touched on in the articles above, "Demographic Winter" went into detail in examining the causes of declining birthrates, and found that most of the factors boil down to declining need, support of, and desire for families. In short, married couples produce children, but economic and social factors, such as "women's liberation,"the "sexual revolution," "individualism" (what I think is more accurately described as the "me generation"), changes in divorce law, have all attacked the family. Why is this important? Because intact families, as whole (one can always find individualized exceptions, which is why looking at the statistics are important), produce better adjusted, better educated, more motivated kids, than kids coming from divorced families, cohabitating families, or, worst of all, single parent households. It is these factors--better adjusted, better educated, more motivated--that result in higher human capital. In other words, the same factors that are breaking apart the family are also driving down human capital.

"Demographic Winter" does not have an easy solution to the problem, other than something needs to be done to reduce the breakdown of families. Like the WSJ article above, the documentary noted that financial incentives in other countries have not helped increase birth rates. It suggests that what is needed is a cultural shift from viewing large families "negatively," as has been the case for a substantial time, needs to be reversed. However, one of the experts interviewed, who made a specific point that he was an atheist, secular humanist, noted that the populations that are having children are those that are devoutly religious. In several generations, the majority of the world population will be the children of these religious families.

The demographic decline is going to produce extreme financial and social distress on all nations, with a much greater potential of instability and violence. Many developing countries, including China, will likely become old before they become rich enough to afford social programs for the elderly (and, as we've seen, even rich nations can't really afford them). As noted in "Why Civilizations Die," many of the theories and models of international relations may not apply to nations facing demographic decline and death. We and our children live in interesting times.

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