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Demographic Cover Story That Misses the Point

Falling fertility

Oct 29th 2009
From The Economist print edition

Astonishing falls in the fertility rate are bringing with them big benefits

The above story appears in the latest edition of the Economist, a magazine we read faithfully as it gives an interesting “outside America” perspective on things.  This story has no political leaning, but instead quantifies the effects of falling birth rates.  In very un-typical fashion, the analysis couldn’t be more wrong in it’s conclusion.  The Economist points to the wonderful virtues of falling birth rates, clearly identifying a “goldilocks” generation where there are fewer children and fewer aged than there are workers.  So far, so good.  The article goes on at length about how wonderful this is, with its increase in output, more opportunities for women to join the workforce, increased productivity, etc.  Many countries are cited as examples of how this story goes - most of Europe and the US - and there are many countries cited as being in this storybook chapter of thier history right now.  But what comes next?  That question is not answered.  Only in passing is Japan mentioned as having issues because of  few workers per retiree and with almost no children coming along to revivie the economy.

It would have been much more enlightening for the article to delve into the truly long-term implications of a falling birth rate in the context of the current economic systems in place around the world.  A 20, 30, or even 40 year view is not enough.  We need to understand our obligations and abilities on a full 80 year cycle to clearly see how our policies of today will help or hinder the generations of tomorrow. 

As we contemplate phenomenal increases in government responsibility and liability, we need to do so with our eyes wide open.  To say such programs have worked elsewhere is only compelling if such programs worked during both goldilocks times and times of contraction.  So far such analysis has not made it to the scene. 

 In a seemingly unrelated article, Evan Ambrose Pritchard wrote a great piece in the Telegraph on why Japan should be the worry of the world instead of the US, as their financial situation is deteriorating by the day.  I say seemingly unrelated because it is an article about the failure of Keynesian economics as employed by the Japanese over the last 20 years, but the real driver of the failure is the totally wrong response of the Japanese government to their real problem - falling birth rates fifty years ago.  In the face of such a demographic shift, taking on more economic burdens at the government level was the complete wrong thing to do as the expectation going forward is for economic contraction.

I’d love to see the Economist take their analysis to the next step, asking what comes after the goldilocks period when you have an aging workforce and no replacement children.  It’s difficult to get much of anyone to look that far over the horizon.