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Friday, July 18, 2003

On the Problems of Population Meltdown

Brad has another interesting post about an economist article on zero population growth here . I posted a comment on Brads blog, but first the opinon of the economist:

Fertility rates across Europe are now so low that the continent's population is likely to drop markedly over the next 50 years. The UN, whose past population predictions have been fairly accurate, predicts that the world's population will increase from just over 6 billion in 2000 to 8.9 billion by 2050. During the same period, however, the population of the 27 countries that should be members of the EU by 2007 is predicted to fall by 6%, from 482m to 454m. For countries with particularly low fertility rates, the decline is dramatic. By 2050 the number of Italians may have fallen from 57.5m in 2000 to around 45m; Spain's population may droop from 40m to 37m. Germany, which currently has a population of around 80m, could find itself with just 25m inhabitants by the end of this century, according to recent projections by Deutsche Bank, which adds: “Even assuming (no doubt unrealistically high) annual immigration of 250,000, Germany's population would decline to about 50m by 2100.”

Combine a shrinking population with rising life expectancy, and the economic and political consequences are alarming. In Europe there are currently 35 people of pensionable age for every 100 people of working age. By 2050, on present demographic trends, there will be 75 pensioners for every 100 workers; in Spain and Italy the ratio of pensioners to workers is projected to be one-to-one.............

But while the EU has a rich, old and shrinking population, countries on the Mediterranean's other side have poor, young, growing ones. The tide of immigrants, legal and illegal, crossing the sea is an obvious reaction. So shouldn't Europe be more liberal about immigration, to redress its population imbalance? An appealing idea. But the OECD calculates that immigration might have to be between five and ten times its current level just to neutralise the economic effects of ageing populations. Even today's inflow is causing political strains, with anti-immigration politicians like France's Jean-Marie Le Pen, Italy's Umberto Bossi and the Netherlands' late Pim Fortuyn popping up all over Europe.

Persuading Europeans to have more children is the obvious alternative answer. Part of the problem may be what Italians call the “partial emancipation” of women, who are free to go out to work but are then still expected to bring up children, look after the grandparents and do the housework. Making family life easier or less expensive might help keep up the population. France, which has some of the most extensive state-funded child care in Europe, also has one of its highest birth rates. Sweden boosted its birth rate in the early 1990s by raising tax benefits for mothers. But the effect of that tailed off after a while. And as well as being costly and unpredictable, policies to encourage childbirth also make some Europeans uneasy, since they are associated with authoritarian government.

So Europe will probably try to muddle through its demographic problem. There will be some pension reform, a bit more immigration, more family-friendly policies, higher taxes, growing fiscal problems for many governments and slower economic growth. With luck the European Union will avoid or postpone a really huge economic crisis. But the political and economic renaissance of Europe that was predicted at the European convention is likely to be stillborn.
Source: The Economist

In the end is it Europe or the Economist which is 'muddling through'? If we are lucky we will 'avoid or postpone a really huge economic crisis'. And if we are not so lucky? What we have is the usual pot pourri of suggestions, but nothing which measures up to the scale of the problem. And all because of the problem of the Jean-Marie Le Pens, and the Umberto Bossi's of this world. Luck isn't in question, the problem is coming.

Now Brad, interestingly enough, raises two interesting points , on which I commented as follows:

Speaking of a paper from "Cutler, Sheiner, Elmendorf, Summers, perhaps a coauthor or two I've forgotten, and perhaps not all those I've named" he suggests that "they concluded that having lots of old non-workers around was about as much of a burden as having lots of young non-workers around (i.e., children)"

Then Brad, I'm afraid they reached a dubious conclusion. The liquidity constraints on the two groups are not the same. Society A, with lots of young non-workers can borrow on the anticipated future earnings of the young non-workers, and invest some of this in education. Society B can only effectively dis-save, or send the educated young out to work in more productive societies to send money back to employ less well educated migrants to care for their ageing parents. As Europe ages my guess is we will see growing out migration of young people towards certain favoured destinations, and probably something then resembling a generalised 'Ermoliev Urn Process' with positive feedback here and negative feedback there. Some winners and some losers, bigtime.

He also asks us:

"Is it correct to say that most people love and are willing to sacrifice more for their children than for their parents?"

I would say no. In fact my research into Bulgarian migrants here in Spain suggests that they are leaving adolescent kids behind to care for parents, and thus sacrificing the young to help the old. It depends on culture more than psychology I feel.

Incidentally my anecdotal observation here in Spain is also that people find it tremendously hard to sacrifice their parents for the interests of their children. I guess its all about kinship systems and family ties. The US, being a society based on long-distance migration, where effectively ties are cut, may well have priviledged the interests of the next generation over the previous one. Come to think of it, this may explain all that consumption and debt you have, and why in Asia people tend to save more. It may not just be about confidence in financial institutions.

Finally I would say that the point from Frans in the earlier post about young Dutch peple migrating to Norway could give us a glimmer of what may be about to happen.

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