Fertility, growth and the debt conundrum

The so-called Enlightenment placed man at the center of the universe, edging aside the “God-centered” worldview once prevalent among Western elites. Then came the Industrial Revolution, spawning the age of “Economic Man.” Matters of consequence came to be viewed primarily through the prism of economic impact. That is something that both Karl Marx and the robber barons of the Gilded Age had in common – a purely economic worldview. Economic growth became the standard of progress. With a swelling stream of workers, growth was inevitable.

Relentless population increase prompted the Rev. Thomas Malthus to observe that more people generated economic growth, and the new wealth paid for further population growth (large families) rather than for improvements in standards of living. According to Malthus, this trend would eventually exceed the land’s carrying capacity to feed an exponentially increasing humanity. This was known as the “Malthusian Trap.”

It didn’t happen.

Innovations in agriculture staved off starvation, and emphasis shifted from larger families to better living standards. Then in the 1970s, beginning in the industrialized West, fertility rates fell below replacement level (2.1 births per female). The birth dearth also enveloped industrialized non-Western societies. The better off we are, the fewer babies we have. The rest of humanity is following suit.


By the late 1980s discussion of this trend was fixated, as we might expect, on the economic impact: what will population decline mean for the labour force? But in the early 1990s Russia and Eastern Europe emerged from the Iron Curtain, and in 2001 China joined the World Trade Organization. This brought millions of new workers into the globalizing economy. The thinking in elite circles was that this huge influx of new workers would boost productivity for the long haul. 

But Mother Nature intervened. Falling fertility means aging societies, where the number of workers declines and the number of retirees rises. Fewer workers mean lower productivity. This can be somewhat offset by automation, which increases productivity with fewer workers. But everything has its limits.  

As time marches on, society’s dependency ratio – the number of dependents to the working age population – is becoming untenable. According to the Meratus Center at George Mason University, in 2013 there were 2.8 American workers in the Social Security system for each retiree receiving payments. Further, “By 2034, the best-case scenario is 2.3 workers paying for each retiree, and in the worst-case scenario that ratio is 2 workers per retiree.”

Elderly folks require expensive treatment and care. An increasing percentage of the workforce will be needed to provide it. Robots cannot do this. Elder care is not economically “productive,” yet it is a social imperative. Increasing elder care costs increase public sector debt, which has already skyrocketed in part due to the Covid pandemic.

So rather than a Malthusian Trap, where excess prosperity increases population, we have a Debt Trap, with no way out.

A valuable book, The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival by Charles Goodhart and Manoj Pradhan, offers a cogent analysis. In a nutshell, Goodhart and Pradhan explain how an aging population will cause huge problems for a debt-ridden economy.

Falling fertility means fewer workers, more elderly, and more debt. The authors present a trenchant analysis of measures to address the debt trap, though they offer little encouragement:

  • Economic growth: That won’t happen with fewer workers. In the glory days of globalism, Wall Street saw offshoring as a way to grow the economy. While offshoring increased corporate profits, it practically destroyed the American middle class (leading to fewer children).
  • Labour-saving technology increases productivity, but a rapidly growing service sector for elder care will absorb workers displaced by automation, which does not work for elder care.
  • Immigration: A disproportionate number of immigrants to the US are unskilled, thus the influx of cheap labour drives down wages, eroding the tax base. The social costs of excess immigration are horrendous.
  • Cutting elderly benefits and increasing the price of health care wouldn’t fly politically.
  • Likewise, raising the retirement age would grievously antagonize a powerful voting bloc.
  • Increasing taxes would encounter fierce resistance and be like trying to squeeze blood out of a turnip.
  • “Jubilee” cancelling of debt will not happen.
  • Inflation is the most likely option. There are strong indications that the US government is preparing to monetize the debt through inflation.

The debt financing binge of the American Empire is coming home to roost in the empire’s heartland. A vicious cycle of raising interest rates to counter inflation will slow growth, leading to interest rate cuts to stimulate the economy, creating more debt.

Bottom line: America’s heritage of fiscal profligacy has met its match in below-replacement fertility. This is an unfolding train wreck. To their credit, authors Goodhart and Pradham confess they really can’t say where this will lead, conceding that “Whatever the future holds, it will be nothing like the past.” As journalists say when they don’t know something, the outcome is “unclear.”

Stay tuned.


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