It’s the Child-Bearing, Stupid

Those of us who work on fiscal policy can get lost in programmatic minutiae and lose sight of larger dynamics that can dramatically alter the fiscal landscape. One such dynamic is demographics – a force that will largely shape not just our fiscal future but that of other nations the world over, as the cover piece in the Sept. 27 Weekly Standard makes clear.

If author Jonathan V. Last is right, America is heading in the wrong direction – toward a voluntary version of the one-child-per-family policy that China imposed on its people some 30 years ago. Falling fertility rates threaten to upset the demographic balance between young and old, undermining our health care, pension and workforce systems.

If it’s any consolation, America has lots of company. Fertility is falling all over the world – most prominently in developed nations and mostly due to cultural changes, not government policies like China’s one-child dictum. Global fertility has fallen from 6 births per woman in 1979 to just 2.6 today. A country needs a fertility rate of 2.1 to maintain its current population.

Demography can be destiny, largely shaping a nation’s economic, military, and political strength. That’s because the fewer children that women bear, the greater the financial burden that a society places on those children, as they grow older and enter the workforce, to support the health, retirement and other needs of senior citizens who will comprise a growing share of the overall population. The more a society must devote to its elderly, the fewer resources it will have to invest in its future – and, thus, the lower the living standard will be for those same children as they become adults.

America’s demographic challenges are much smaller than those of China, which lacks a public pension system akin to Social Security, but the fiscal challenges facing the Middle Kingdom still provide a useful window into ours.

If you think China owns the future, consider that it faces the prospect of a huge aged cohort that will be literally on its own in retirement. Due to its one-child policy, China’s population will peak at an estimated 1.458 billion in 2030, and it will then start losing 20 million people every five years. Its average age will rise, from 32 in 2005 to 45 by 2050, and, without the traditional support of extended families that its one-child policy is helping to eliminate, Last writes, “China will have 330 million senior citizens with no one to care for them and no way to pay for their upkeep.”

With just 1.6 workers per retiree by 2050 (compared to today’s 5.4), Beijing will have to either (1) cut public spending on things like defense and public works to find the resources to care for the elderly, or (2) raise taxes substantially on younger workers. “The first option,” Last writes soberly, “risks China’s international and military ambitions; the second risks revolution.”

A similar dynamic is at work in Japan, the nation that was supposed to supplant America as the world’s economic behemoth. Its fertility rate, which was 2.75 in 1950, had fallen to 2.08 by 1960, to 1.49 by 1995, to 1.2 today. Its population peaked at 128 million in 2004 and it’s been losing people ever since.

Japan faces an aging population, a labor shortage, and less demand for goods and services.

Tokyo has offered lots of governmental incentives to convince women to bear more children. Nothing has worked.

America’s situation appears rosy by comparison. But we’re suffering the same long-term problem, however slighter in intensity. Our current fertility rate is 2.06, which, mixed with immigration, can keep America’s population growing a bit. But that’s deceptive, for our rate would be significantly lower without the influx of Hispanic immigrants who tend to have more children – and, alas, the fertility rate of Hispanics is declining as well.

Fertility has fallen in America for a host of reasons: a decline in infant mortality, which has assured parents that the children they have will survive childhood; economic change that made children less needed as income earners; career opportunities that offered women other paths to fulfillment; birth control; legalized abortion; and increases in the cost of living, particularly the costs of raising children and sending them to college.

Unfortunately, Last writes, history suggests that while we may know the reasons for a nation’s fall in fertility, no government has proven that it knows how to reverse it.

And that does not bode well. Here’s the most sobering line of this thoughtful piece – and one that’s surely worth pondering: “No society has ever experienced prosperity in the wake of contracting population.”

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