Demographic Winter Could Bring Even Greater Financial Crisis

At the turn of the century, America’s biggest advantage was its relatively vibrant demographics. In sharp contrast with its major competitors — the E.U., Russia, China, Japan — the United States had maintained a far higher birthrate and rate of population growth.
But the 2010 Census showed that in the past decade America’s birthrate slipped below at least one European country (France) and under the pace necessary to replace our current population.
 Immigration, both legal and illegal, is also slowing, in part due to plunging birthrates in Mexico and other Latin American countries. As one National Geographic report from Brazil has it, women there, too, are saying: “A fábrica está fechada.” The factory is closed.
America’s sinking birthrate is in great part a function of our wobbly economy. The decline, notes the Pew Research Center, largely coincides with the onset of the 2007 real estate crash and the financial crisis the following year.
The recession had a disproportionate impact on people of child-bearing age, who suffered higher unemployment and steeper income declines than their elders. In the process, the U.S. fertility rate dropped from over 2.1 births per woman in 2007 to 1.9 last year, below replacement rate for the first time since the mid-1980s.
The 2010 Census found that the number of households that have children under age 18 was 38 million, unchanged from 2000, despite a 9.7% growth in the U.S. population over that period.
 Of course many environmentalists would celebrate these numbers, and some nativists as well. But the problem is not that we need more people per se — we need an increase in younger, working-age people to make up for our soon to be soaring population of retirees. Young people are the raw capital of the information age and innovation, and new families are its ballast and growth market.
Yet many developed countries are facing dramatic labor force deficits. By 2050, according to Census projections, there will be 40% fewer workers in Japan then there were in 2000, 25% less in Europe and 10% fewer in China; only projections of higher birthrates and immigration allowed demographers to suggest the U.S. workforce would keep growing.
Without these future workers our already tottering pension system will become even more untenable, as is occurring in Europe and Japan. The bad part about slow population growth is that it depresses the economy, which in turn works against family formation.
Of course, there are others ways to deal with this imbalance of too many retirees and too few workers. One is to raise taxes. The billionaire philanthropist Pete Peterson estimates that most developed countries will need to increase their spending on old age benefit promises from 9% to 16% of GDP over the next 30 years.
This would require an increase in taxes of 25% to 40% — even in the already high-tax countries of northern Europe.
Raising taxes to transfer funds to the older generation is already happening in some of the most rapidly aging countries. Japanese lawmakers just voted to double the country’s sales tax by 2015 precisely for this reason. Due in large part to low birthrates and soaring numbers of seniors, Japan is now the most heavily indebted high-income country in the world.
Germany likewise is now considering a special tax on younger workers to fund the pensions of the growing ranks of oldsters. Chancellor Angela Merkel has proposed the 1% income tax as a “demographic reserve” for a workforce that is expected to shrink by 7 million by 2023.
 “We have to consider the time after 2030, when the baby boomers of the ‘50s and ‘60s are retired and costing us more in health and care costs,” explained Gunter Krings, who drafted the new proposal for Germany’s ruling Christian Democrats.
Higher taxes, or its evil twin, austerity, are unlikely to solve this dilemma. Other issues may constrain family growth — high urban population densities, women’s growing role in the workforce, declining religiosity — but one critical precondition for spurring family growth is to expand the economy. Without growth, the long-term decline of most high-income countries, including the United States, is all but assured.
This turns on its head the commonplace assumption that societies reduced their birthrates as they got wealthier. This pattern was seen in the United States and Europe by the 1960s and, even more so in East Asia, whether governments adopted baby-suppressing (notably China) methods or, more recently, as in Singapore, have tried to promote family formation.
But more recently it appears that declining economics — and strong public perceptions that things will get worse — can also convince people not to have children. In 2010, according to Gallup, most European countries have been expecting harder times; pessimism was particularly strong in Spain, Italy, Greece, the Czech Republic and the United Kingdom. Stories about divorced Spanish or Italian young fathers sleeping on the streets or in their cars is not exactly a strong advertising for parenthood.
In 2011, birthrates fell in 11 of the 15 European countries that have reported numbers. Among the countries reporting declines were Finland and Denmark, where rates had been ticking slightly upwards.
The impact has been even greater in countries like Spain and Greece, where overall joblessness has hit one in four and youth unemployment is roughly 50%. Some of these countries face the prospect of considerable de-population in the coming decades.
“A more pessimistic economic outlook” is one key reason that European birth rates have been depressed and family formation so slow, confirms Austrian demographer Wolfgang Lutz. Overall fertility has fallen to roughly 1.5, well below replacement rate and all but guaranteeing a demographic-based economic crisis a decade or two sooner. Some eastern countries like Latvia now have fertility rates approaching 1.2. Lutz believes that once birthrates fall to these levels, there is no turning back.
Yet it is Japan that perhaps shows this renewed relationship between economics and birthrates most clearly. In 1991 many economists predicted that Japan would overtake the U.S. economy; instead U.S. GDP grew much faster and China supplanted Japan in 2010 as the world’s second-largest economy. As prices deflated and opportunities shriveled, Japanese grew less interested in either starting or growing families.
It could get even worse: Japanese teens seem not only less interested in work but in each other. In what seems an enormous reversal of adolescent nature, 36% of Japanese males 16 to 19 years old have admitted to pollsters having no interest in sex, and some even despise it.
The figure is even higher (59%) for females in the same age category. For many, notes Japanese sociologist Mika Toyota, hobbies, vacations, food and computer games are often more alluring than pursuing the opposite — or the same — sex.
 It may well be that American birthrates have been more impacted than Europe’s by the recent recession due to the relative weakness of the country’s social safety net. Finnish demographer Anna Rotkirch has pointed out that Europeans have tried to mitigate the impact of recession through generous transfer payments to young families. This may account as well for the fact that France’s birthrate last year surpassed that of the United States.
But without strong economic growth, it seems likely that family formation and birthrates will continue downward everywhere, particularly as economic realities force reductions in state aid.
A mindlessly ever-expanding welfare state, trying to enlist more clients, even tiny ones, will diminish private sector growth and usher in even more quickly the onset of “demographic winter.” A lethal demographic cocktail of high taxes, low growth and fewer babies could set the stage for an even greater financial crisis in the decades ahead.

Categories: Bible Prophecy, Breaking News

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