Getting old – the Reason for Our Economic Malaise?
The world’s economies, especially in the West seem to be in
somewhat of a bind. The markets around the world are currently in a slide;
Europe is worried about Spain and Italy; the USA has had its credit rating
downgraded by S&P for the first time in its history. It is therefore an appropriate time for the
New York Times to publish an article by Chrystia Freeland, the global editor at
large of Reuters, that argues that the world’s economic woes can be linked back
to the fact that the West is getting old.
“The heart of the problem is arithmetical: The post-World
War II social welfare state, created at a moment when the baby boom was still
gestating, is built on a generational Ponzi scheme. As life expectancy
increases and fertility declines, that population pyramid is being inverted —
and in some countries, that is causing the entire economy to topple.”
I like that turn of phrase: “a generational Ponzi scheme”. Was the way of life that was built up over
the past 70 years in the West reliant on steadily expanding populations? Now that the old are becoming a bigger
proportion of the population, is the whole scheme about to collapse? Freeland points to the state’s “suffocating” pension
commitments in Spain and Greece as one of the reasons that youth are taking to
the streets there, and argues that in the United States:
“Programs for the elderly constitute almost half of
non-interest government spending, about $1.6 trillion in 2010, of a $3.3
trillion total. That figure will swell as the baby boomers retire…
According to a paper by political economist Nicholas
Eberstadt, who has done extensive research on the issue, 'costs associated with
population aging are estimated to account for about half the public-debt run-up
of the O.E.C.D. economies over the past 20 years.'”
Aside from the cost of the elderly, according to the IMF
economist Ali Alichi, there is more risk of sovereign default as the share of
the elderly voters increase, because “old folks may be willing to repay
sovereign debt”. Therefore:
“As the number of older voters relative to younger ones
increases around the globe, the creditworthiness of borrowing countries could
decline — resulting in less external lending and more sovereign debt defaults.”
This is something that various countries around the world
have realised – former US Treasury Secretary Robert E Rubin has based his
favourable predictions for the US economy (I wonder if these have been changed because of recent events…?) partly upon its “favourable demographics relative to Europe, Japan and
even to China and Korea”. This is an
argument that we have touched on in this blog before. Similarly, India’s economic rise is based in
part upon its “demographic dividend”.
While in Russia, they are paying families that have a third child with plots of
land, and China is worrying that it will grow old before it grows rich.
So, what are the options open to a country with a decling population? One is immigration, but Freeland
argues that this brings its own problems (she cites Norway and Arizona as
examples…) and that it:
"...is a zero sum game that can't work for everyone forever. As the world's poor countries get richer, their citizens have less reason to emigrate - and they begin to suffer their own demographic squeeze. Mr Eberstadt points out that this is true not only of one-child China, but also of the economically prospering Indian south, where fertility levels are at, or already below, replacement levels."
The other option is to persuade more countries to have more
children. Freeland argues that no country has really worked out how to do this
in a sustained manner.
"As women get richer, better educated and more autonomous,
they have fewer babies. That decline in fertility is driven by harsher economic
forces, too: Most middle class families in the West need a mother’s wage to
survive, and women in industrial and postindustrial societies can’t bring their
babies to work in the way their peasant great-grandmothers could."
The answer is not, according to Freeland, to be “fiercely
conservative” like the Kremlin and to restrict abortion or to make “common
cause with Russian Orthodox Church activists and social conservatives…”
Instead, the answer is feminism – at least in terms of finding a better way for
women to be both workers and mothers. We
should be arguing about maternity and paternity leave and workplace day care.
Is Freeland right to say that the conventional,
neo-Malthusian wisdom, that “one of the keys to prosperity was having fewer
children” has been turned completely around? Were the baby-boomer years a golden age that relied upon increasing
populations to fund? Now that we are
having fewer children, do we have to radically reassess our lifestyles and what
we expect our governments to pay for?
If she is right, what do you think of her proposed
solutions? I tend to think that placing
more emphasis on flexibility for mothers to work can only be a good thing. But
is the lack of crèche facilities at work the only reason that women are
choosing not to be mothers? Are there
other reasons, due to a wish to preserve autonomy and a certain level of comfort and lifestyle? If
one or two children is the societal norm, then workplace flexibility will not
in itself encourage people to have more children I would not have thought. I don’t know what the answer is, but would be
interested in your thoughts.
Or does Freeland’s article present a simplistic answer to a
complex question? Are there so many other factors at play here that to be
worried about our population growth is nonsensical? In my next post I will present an article
written in response to Freeland’s diagnosis and which disagrees with her views.
Until then, you’ll just have to read the other engaging articles and blogs that
can be found on this fine website.
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