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Socratic Economics XI: Demographics

by someone Sun Jun 29th, 2008 at 08:44:25 AM EST

Written in the spirit of the Socratic Economics Series

From the June 26th Salon:
ManfromMiddletown:

The Future of American Power
But Europe has one crucial disadvantage. Or, to put it more accurately, the United States has one crucial advantage over Europe and most of the developed world. The United States is demographically vibrant. Nicholas Eberstadt, a scholar at the American Enterprise Institute, estimates that the U.S. population will increase by 65 million by 2030, whereas Europe's population will remain "virtually stagnant." Europe, Eberstadt notes, "will by that time have more than twice as many seniors older than 65 than children under 15, with drastic implications for future aging. (Fewer children now means fewer workers later.)

My first reaction was my usual frustration that the need for fresh young babies are taken for granted, and that the finite carrying capacity of the earth seems to be taken into account nowhere.

But on a second examination, there is something else potentially amiss here. Children and the old have one thing in common. They are not economically productive, and they require resources for their survival. Yet, somehow, the old are in this type of article considered only a burden, and the young, only a benefit in terms of future workers. Yet, right now, they both need nourishment and care, and give nothing (of economic value) in return. Thus it would seem, to me, naively, that perhaps fewer children to support would make the numerous aging more affordable. Sure, they will provide fewer workers later, but at that point we would expect even fewer children. In effect, the two 'parasitic' age groups would balance each other out. So, what would the demographics of a shrinking population look like?

Promoted by DoDo


Well, I will have to begin with a bunch of assumptions, as I don't have time to make a detailed analysis of the topic, and then do some very quick population simulations. Let's start with the death rate. I withdrew some numbers quickly from Statistiska centralbyrån, the Swedish statistics agency. By looking at a the difference in population year to year in the different one year age groups, I calculate which fraction of each dies. (I.e. of the n-year olds, how many survive to n+1 the year after?) With some light, (very) approximative, exponential fitting that extrapolates a bit after 100, and make 105 the definite maximum age, I get the following Death Rate curve:

(DeathRate = exp((t-105)/9))

Then I fudge together my approximately stabilized base population, with a brisk birth rate of 1.5 children per person, or 3 per couple. (These are calculated as 1.5 children of the mean of the 25-40 year olds for next years population). I then run populations with births and deaths forward for 150 years. I create 8 different curves, the first one holding steady at 1.5 births, and the other 7 decreasing over 50 years to between 1.4 and 0.8, and then holding steady for the remaining 100 years. I display three different age groups in the graphs: 0-20 (unproductive) 21-64 (productive) and 65+ (unproductive). The colors match between the two graphs, and blue to red they represent 1.5, 1.4, 1.3, 1.2, 1.1, 1.0, 0.9, and 0.8 children per person.

Thus it seems, that my very simplified model yields a (slightly) larger productive slice of society with shrinking birth rates! (~52% -> 54%, comparing 1.5 to 0.8 children) at the end of the 150 years.

How should demographics and their economic impact be modeled? Are all 'unproductive' people the same? Do old people cost more than young to maintain? How much would things change if we allow for a changing death profile, with an increased life span? How much is an average human lifespan expected to rise over the next N years? Are more young people really as important as seems to be assumed?

Or do we simply need more people each generation to pay interest on the debt of the previous one, and preferably provide some 'growthing' on top of this? Are they needed to provide an increased 'quantity of lifestyle'?

[editor's note, by Migeru] Socratic Economics is an occasional series of questions posed in a Socratic effort to understand economics. Previous entries: Other diaries which should have been added to the series...

Display:
Why don't you approximate the death rate by a logistic curve?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Thu Jun 26th, 2008 at 10:10:08 AM EST
Because of the ones that survive to 100 we expect a large fraction to die very soon. It's the probability of death for a person of age N, not the probability to die at age N. I use it to calculate the number of people at age N+1 for next year.
by someone (s0me1smail(a)gmail(d)com) on Thu Jun 26th, 2008 at 10:23:24 AM EST
[ Parent ]
Still, if an exponential approximation with the midpoint at 100 years is a good approximation, is the cutoff at 105 years necessary?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Thu Jun 26th, 2008 at 10:25:02 AM EST
[ Parent ]
It would have to be tweaked, as the logistic function is mirror-symmetric about the midpoint, and we would not want the near-one value closer to 140 than 105. The function needs to rise rapidly to one over a few number of years after 100, is my intuition.
by someone (s0me1smail(a)gmail(d)com) on Thu Jun 26th, 2008 at 10:32:00 AM EST
[ Parent ]
Hmm, notice you're talking about the death probability per year being larger than 1/2 already... Once you're a centenarian, does it really get that much worse at 105, 110, etc?

Your model doesn't allow people to live to 120 at all, which is worse than the alternative given the vanishingly small probability of survival year after year when the yearly one is under 1/2.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Thu Jun 26th, 2008 at 10:36:17 AM EST
[ Parent ]
Does one or two very, very old people make much difference for aggregate statistics that lumps people 65+ together already?
I made the death rate slightly less for the calculation to maybe fudge out the cutoff age a bit. I.e., I moved the probability one death-age from 104 to 105, and slowed the curve a bit. Here are the two actual fits (exponential, and logistic):

I could redo the calculations with a higher cutoff and the logistic. (I want a cutoff to maintain finite vectors. But it could be 150, or more.)
by someone (s0me1smail(a)gmail(d)com) on Thu Jun 26th, 2008 at 10:59:49 AM EST
[ Parent ]
Ack, I see what you are saying. Yeah, that would probably be better. However, in the data I obtained, which goes by one year, and then to 100+, one only see the rising exponential bit. So I extrapolated up, to a cutoff at 105 years so that I could have fixed size vectors.
by someone (s0me1smail(a)gmail(d)com) on Thu Jun 26th, 2008 at 10:27:51 AM EST
[ Parent ]
Why not "Socratic Economics XI: Demographics"?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Thu Jun 26th, 2008 at 10:48:54 AM EST
As you command.
by someone (s0me1smail(a)gmail(d)com) on Thu Jun 26th, 2008 at 11:02:03 AM EST
[ Parent ]
Great work, by the way.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Thu Jun 26th, 2008 at 11:16:52 AM EST
[ Parent ]
Why do you start with a fertility rate (since what you are calling birth rate is actually half of fertility rate, i.e. number of children per woman, whereas birth rate is computed compared to population) of 3.0 ? That's more than brisk...

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Thu Jun 26th, 2008 at 11:18:15 AM EST
Well, since I do such a rough approximation, I though I'd start at a large rate and move to a slower one over a fixed number of years (linearly decreasing) and then hold steady. Just to get some rough ideas of how numbers play out. Going further, doing a possibly longer, smoother decline, computing birth rates with a weighted averaging over all age groups, counting productive vs. unproductive aged and youth in a weighted manner by age rather than by sharp cutoffs, etc. etc. could all be done. However, I wanted to slap something together in an afternoon, without consulting too many statistical sources that would take a lot of time. I though a strong initial rate with a rather fast decline was a good way to show the idea that maybe this kind of demographic development is not as detrimental as often assumed.
by someone (s0me1smail(a)gmail(d)com) on Thu Jun 26th, 2008 at 11:25:57 AM EST
[ Parent ]
Governments, as representatives of social opinion in some way, should not (as in China) regulate, at an individual family level, the size of that family. They can however offer incentives or disincentives to family size that will have statistical influence over the whole population.

The paradox is, of course, that families take a long time to grow and that growth takes place in an unpredictable future. So the incentives and disincentives are in one sense irrelevant, because they address asynchronous time cycles.

Drastic depopulation due to pandemic disease is a real and continuous threat as a result of globalization. The only answer that I can see is the decentralization of family growth decisions based on the universal availability of education.

You can't be me, I'm taken

by Sven Triloqvist on Thu Jun 26th, 2008 at 05:25:44 PM EST
But on a second examination, there is something else potentially amiss here. Children and the old have one thing in common. They are not economically productive, and they require resources for their survival. Yet, somehow, the old are in this type of article considered only a burden, and the young, only a benefit in terms of future workers.

Ha! This is an idea I tried to communicate in my very first diary on ET, An Amateur Economist's Quibbles, returned to in 2006, and again in a comment thread debating one of our past trolls. To recap and emphasize again:

  1. Relative numbers matter more than absolute numbers.

    Where do you want to live: a country whose population grew 50% while its GDP grew 25%, or a country whose population shrunk by 50% while its GDP shrunk by 25%?

  2. For the pupose of social budgets, when considering the entire economy, the only thing that matters is the ratio of wage-earners and supported persons.

    What proportion of the latter receive pensions, jobless benefits, incapacity and social benefits, charity support, beggars' money, support from family members (be them housewifes, grannies, children), childcare benefits and education funds, is - detail.

  3. The first-order effect of demographic changes (as well as policy and rule changes) is only to shift population percentages between different categories of suported people. The improvement of the budget in one narrow social area goes with the worsening in another.

    This diary considers one shift: aging; reduced ratio of supported children while there are more retired people. But, you can shift from jobless to retired (by changing the retirement age), from jobless to incapacity benefit (done in Britain, as we discussed often), from the previous to family support and beggars (by cutting state social benefits).

From the viewpoint of private companies, population growth might be attractive for two reasons, both more psychological than real: (1) growth is positive, and simply grow while the pie grows too is easier than battle for a bigger slice of a shrinking pie; (2) companies hope that supply will outstrip demand on the labour market, reducing their labour costs. (On the longer term, the latter doesn't mean much: population growth will also increase demand for products, and thus companies' demand for labour...)

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sat Jun 28th, 2008 at 01:08:55 PM EST
... size of the available labor hours to support the population, if desired, by structuring employment institutions to make it easier for people retired from full time employment to work half time and quarter time (and eighth time, etc.).

In that sense, shifting the share of the "supported" population in favor of retirees could yield more flexibility.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Jun 29th, 2008 at 08:25:00 PM EST
[ Parent ]
A significant factor not accounted for so far is the number of the elderly who continue to work.  This is increasingly common in the USA, and is especially evident in areas with relatively large retirement populations, such as Northern Arkansas, where I live.  

Here, retirees who continue to work while drawing social security and benefiting from medicare continue to pay in to these same funds via payroll taxes or self-employment taxes at an effective rate of about 15%, even if half is paid by an employer.  And their labor contributes to the GDP.  

You could model that by assuming half of the population over 65 works half time, at, say, $10/hr until they are 75.  Might not be totally accurate, but it would be better than completely neglecting this demographic.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jun 28th, 2008 at 03:35:06 PM EST
retirees who continue to work while drawing social security and benefiting from medicare

That would be simply illegal in Spain, I think.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Sat Jun 28th, 2008 at 06:50:28 PM EST
[ Parent ]
In the USA, once you have reached your "full retirement age" you can choose either to continue working and defer drawing social security, in which case your benefits increase by 7% for each year deferred, or draw the benefits to which you are entitled and continue to work.  You can first retire at age 62.5yrs at reduced benefits.  If you opt for early retirement you can make up to $32,000/yr while only paying the usual ss/medicare/fica taxes, ~15%. Once you have reached your full retirement age there is no longer any penalty on your earnings, regardless of the amount.

If you are working full time and earning, say $60,000/yr, it makes no sense to file for social security.  If you are making under $32,000/yr it may make perfect sense, depending on your situation and expenses.  Given that the maximum social security benefit is only about $22,000/yr many retirees continue to work at least part time if they are able.  The benefits are supposed to be indexed for inflation.....  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jun 28th, 2008 at 08:02:47 PM EST
[ Parent ]
That would be simply illegal in Spain, I think.

I'm sure that it still happens.  Throughout the 1980s there was a fairly well documented practice of allowing workers on the dole to do casual work on the side and no lose benefits in Andalucia.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Jun 29th, 2008 at 04:36:45 PM EST
[ Parent ]
That was 20 years ago when spain had official unemployment around 20%. Nowadays the underground economy is much smaller. I'm not saying it doesn't happen, but in fact towards the end of the 80's José Borrell turned tax fraud around with a vigorous campaign as secretary of state for finance.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Sun Jun 29th, 2008 at 05:59:22 PM EST
[ Parent ]
Nowadays the underground economy is much smaller.

Preg.  Senor, quiere Ud. una factura para su compra, si le doy se necesita pagar el IVA.

Resp.  No, yo la tenga toda necesito.

Sure, the underground economy is smaller, because it's harder to keep track of.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Jun 29th, 2008 at 06:15:18 PM EST
[ Parent ]
I'm not saying it doesn't happen


When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Sun Jun 29th, 2008 at 06:19:04 PM EST
[ Parent ]
I would have to get the numbers for Europe. I think more people outright retire at 65 or earlier here, due to more generous pensions. Further, people working after 65 is a favourite right wing thing to push for. Every now and then there is a call to push the retirement age higher. Usually giving the demographic situation as an argument. It is something that I would like to argue against. I.e. low birth rates does not immediatly indicate that people should have to work longer, or that Europe is in trouble, or anything else.
by someone (s0me1smail(a)gmail(d)com) on Sun Jun 29th, 2008 at 05:20:38 AM EST
[ Parent ]
Actual retirement age is well below 65 in most of Europe. France is actually at 58...

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Sun Jun 29th, 2008 at 06:34:07 AM EST
[ Parent ]
Over here the right wing never tires of reminding everyone that Social Security was never intended as a full solution to retirement, when they are not reiterating their long held belief that "it will never work."  Meanwhile they are busy in Congress, whenever they are able, making sure that any surplus from the 15% payroll levies go to tax relief for the rich and endless wars rather than to investments in infrastructure and human capital.

For those who are fortunate to have some savings, their feckless policies have led to the current policy box with interest rates at 2%, real inflation well above 2%, and with Vegas looking better than stock and futures markets as investment opportunities.  One seriously doubts that the voter reaction will be anything so strong or long as that following Hoover's administration.  "It is the doom of men that we forget!"

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jun 29th, 2008 at 01:24:53 PM EST
[ Parent ]
It is something that I would like to argue against. I.e. low birth rates does not immediatly indicate that people should have to work longer, or that Europe is in trouble, or anything else.

I tend to agree.  The main thing here is that there is this idea that the total social wealth must be increased.   Yet on a per capita basis if the decline in population is more than the decline in total social wealth, decreased aggregate wealth may mask increased per capita wealth.

For example:

Let's say that the population of Germany decreases from 80 million to 65 million between now and 2025.  At the same time, the Germany GDP decreases from 2 trillion euros to 1.85 trillion euros.  So you have modest economic recession, something on the order of .25-.5% GDP decline annually.  

Looked at as an aggregate, Germany is worse off. If the concern is the standard of living?

Then in the first case the GDP per capita is 25,000 euros annually.  While in the latter the GDP is 28,462 euro annually.  So the standard of living increases while the GDP falls.

The problem is how you deal with the aggegrate economic contraction.  A shrinking population means that you have less need for expanded housing and other infrastructure needs.  There is a need to maintain, not expand.  How do you keep the construction industry afloat in this?

Same thing with cars and other consumer goods.

And viewed not as a matter of standard of living, but size and power in the global economy, Europe does face a problem.  At the same time that its aggregate wealth is decreasing, that of China, India, and others is rapidly increasing.  Which means that the relative position of countries in the global economy changes.  

And the structural power of the EU may decrease as global standards are not determine din Brussels or Washington, but in Beijing and New Delhi.

And what happens when Brussels doesn't care for the decisions that Beijing makes?  The reversal of position means that the old colonial countries are in the position of being dictated to by states whose ideas of democracy and social justice are often quite different than those that we have in the "West."

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Jun 29th, 2008 at 04:57:23 PM EST
[ Parent ]
An historical example being the demographic crisis in 14th century Europe : the economy certainly contracted between 1350 and 1450, but the demographic crisis was such that the ordinary man was much better off after rather than before.

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Sun Jun 29th, 2008 at 05:29:13 PM EST
[ Parent ]
However, the size of the ruling class didn't change so when they saw their share of revenues contract they tightened the bolts and as a result you got things like the peasants' revolt around 1380.

In MfM's example about Germany the contraction of GDP would lead to a precipitous drop in capitalised asset values, and a "depression". There would be class war.

More from Veblen:

The primary hardship of a period of depression is a persistent lesion of the affections of the business men; the greatest secondary hardship is what falls upon the workmen, in the way of partial unemployment and a decline in wages, with consequent precariousness and reduction of their livelihood.(30*) For those workmen who continue to find fairly steady employment during the depression, however, even at reduced wages, the loss is more apparent than real; since the cheapening of goods offsets the decline in wages. Indeed, the cheapening of the means of living is apt to offset the fall in wages fully, for such workmen as have steady work. So that in the case of the workmen also, as well as in that of the business men, the distress which dull times brings is in some part a spiritual, emotional matter.

To the rest of the community, those classes that are outside of business enterprise and outside of the industrial occupations proper, that is to say, those (non-industrial) classes who live on a fixed salary or similar fixed income, dull times are a thinly disguised blessing. They suffer in their affections from the reflected emotional detriment of the business community, but they gain in their ease of livelihood and in their savings by all the difference between the price scale of brisk and of dull times. To these classes an era of prosperity brings substantially nothing but detriment.(31*)

30. Work goes on during dull times, though at a slackened pace, and extensions and improvements are continually being made. The volume of output consequently increases, so that, even if there has been a setback to production at the beginning of the depression, the aggregate output presently again reaches the volume which it had when the dull times set in. It may be added that the rate of consumption is also appreciably lower during dull times, particularly in the more wasteful forms of consumption. This lowered aggregate consumption offsets the lowered intensity of production during dull times to such an extent that it is probably safe to say that the net surplus product, measured by weight and tale, is at least not appreciably smaller during depression than during prosperity. Cf. Carroll D.
Wright, Testimony in Report of the Industrial Commission, vol.
VII. p. 25.

31. The reduced scale of living of the working population is the chief factor that counts as an offset against the reduction of the gross production during dull times, as indicated above.




When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Sun Jun 29th, 2008 at 05:56:53 PM EST
[ Parent ]
In MfM's example about Germany the contraction of GDP would lead to a precipitous drop in capitalised asset values, and a "depression". There would be class war.

Consider also, that reduced population growth will make labor more expensive.  Thus, you have rising wages, and increased traction for labor against capital.  

The same thing is going to happen very soon in China as the labor force starts to contract due to the onset of the one child policy's effect on population levels.  You already see low end production shifting to Vietnam due to the increase in Chinese wages.

Consider also the demand side of population decline.  China's rapid ascent has been based on increasing demand in the United States, Japan, and Europe.  To where will other states wishing to industrialize ship their goods when demand declines in these regions?

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Jun 29th, 2008 at 06:26:47 PM EST
[ Parent ]
Consider also, that reduced population growth will make labor more expensive.  Thus, you have rising wages, and increased traction for labor against capital.

But with today's capital mobility investors could take their money to greener pastures if the assumed population decline is a localised phenomenon as opposed to a global one. You could have an Argentinean situation where workers need to take over productive industrial plants abandoned by their owners.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Sun Jun 29th, 2008 at 06:30:49 PM EST
[ Parent ]
The problem is that the decline is likely to be global.

First, because everyplace but Africa is at the point where birth rates decline.  And Africa faces the scourge of AIDS that often takes people at the height of their working years.

The issue is that if pay in a producing country isn't enough to buy a product, then you have to find someone else to buy it.  Who?

If demand in advanced countries declines with the population, then who buys the stuff.

FYI, I've got a copy of Veblen on my desk in front of me waiting to be read when I go eat.  I just finished Freakonomics.  I was not impressed.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sun Jun 29th, 2008 at 06:37:05 PM EST
[ Parent ]
ManfromMiddletown:
If demand in advanced countries declines with the population, then who buys the stuff.
If the premise of our economic system is that we must have ever increasing production and consumption we are in trouble anyway. Finite world and all that. Further, I would argue that Global Warming and other environmental calamities are if nothing an indication of over production. The greenest product is the one you don't buy. The proper challenge is to figure out how to have society work less and consume less, not to prop up consumption in face of a falling population.
by someone (s0me1smail(a)gmail(d)com) on Mon Jun 30th, 2008 at 02:10:40 AM EST
[ Parent ]
Consider also, that reduced population growth will make labor more expensive.

Temporarily (if at all). Reduced population growth also decreases the future consumer base and thus future consumer demand for products, thus reducing future employee demand for labour. The same feedback works when there is population growth, and it works both for natural population growth and immigration.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Jun 30th, 2008 at 05:49:56 AM EST
[ Parent ]

To the rest of the community, those classes that are outside of business enterprise and outside of the industrial occupations proper, that is to say, those (non-industrial) classes who live on a fixed salary or similar fixed income, dull times are a thinly disguised blessing.

I don't think Veblen ever saw recession or depression combined with inflation.  In such times cash was king.  That was before resource depletion.  The problem was deflation.  That would be preferable to me to the current situation of real decline in the purchasing power of the dollar, especially for those who have to eat and use energy.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jun 29th, 2008 at 07:25:43 PM EST
[ Parent ]
Yes, to him depression is a monetary phenomenon.

But stagflation is not depression - depression is what you get when you use interest-rate shock therapy to stop stagflation.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Mon Jun 30th, 2008 at 02:33:17 AM EST
[ Parent ]
Well, in the Great Depression, purchasing power collapsed and producers could not find buyers.  Retaliatory tariffs did their part, e.g. Smoot-Hawley.  Perhaps "Helicopter Ben" could fly to the rescue.  My fear is that, if a worst case, the USA will see a reprise of hyper- inflation, or at least a return the inflation rates of the late '70s and early '80s.  The only way out of such a situation would likely involve coordinated tax, spending and monetary policies.  This requires the Fed, the Treasury, the Congress and the President all to be moving towards a shared goal.  We need this in the worst way, and that is probably how we will get it.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 30th, 2008 at 11:58:37 AM EST
[ Parent ]
An historical

I hear your French accent even in your writing :-)

the demographic crisis was such that the ordinary man was much better off after rather than before

Is that true right into the population decline? Not after, during the new boom? I thought there was a collpase of trade and agriculture that added to the woes of city-dwellers and villagers alike.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Jun 30th, 2008 at 05:41:38 AM EST
[ Parent ]
Actually, a collapse of agriculture is good for peasants : the lands that fell into disuse were the least productive ones, marginal lands that had been cultivated because of population. Thus work was quickly much more productive, and by 1450 most land workers ate meat regularly. During the collapse, the rough times came not because of economics but because of politics, warrior bands roaming the lands, and illness with the repeating plagues.

Note that the history Migeru quoted about labourers getting better wages dates from the 1370's ; pretty much the early phase of the collapse, as population continued to decrease into the fifteenth century.

Un roi sans divertissement est un homme plein de misères

by linca (antonin POINT lucas AROBASE gmail.com) on Mon Jun 30th, 2008 at 09:56:47 AM EST
[ Parent ]
There is a need to maintain, not expand.  How do you keep the construction industry afloat in this?

We can upgrade and expand our rail net and renewable infrastructure and improve the energy efficiency of our houses. There is no shortage of stuff to do in the foreseeable future.

And viewed not as a matter of standard of living, but size and power in the global economy, Europe does face a problem.  At the same time that its aggregate wealth is decreasing, that of China, India, and others is rapidly increasing.  Which means that the relative position of countries in the global economy changes.

Europe is a big place. Our population can drop by 40 % and we'd still be about the current size of the US, which didn't seem to have a problem maintaining its great power status for about a century and a half.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jul 1st, 2008 at 12:45:01 PM EST
[ Parent ]
Great diary.

My initial reaction:  Who gives a damn what an idiot like Zakaria has to say.  Fareed Zakaria needs to be shipped back to Mumbai on a raft.  Another armchair general among the Very Serious People who gets a raging hard-on over the idea of using our military anywhere and everywhere to promote his bullshit agenda.

Proof, I guess, that you can stick any imperialist asshole with a foreign accent in front of a camera and get the hamsters to run on their wheels.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Sun Jun 29th, 2008 at 06:04:36 PM EST
In Frebruary 2003 I decided to understand Geopolitics. One of my first readings was a Noam Chomsky book where he noted that young were not only a burden to public budget, but that they were a GREATER burden that old people, because the investment applied on then was much larger. Therefore he suggested that expenditure with non-working people would decrease; the (American) social security system would become even more sustainable.

Later I got a second reference on pensions funds sustainability,  from wsws.org (world socialist web site, a place where interesting things are found, still I rarely go there, because i think is biased from the start - yet I read often the Financial Times!? ). Follows an excerpt of the article "Britain: Truth suppressed about pensions crisis", by Jean Shaoul (17 March 2004).

The Office of National Statistics (ONS) postponed the launch of Social Trends No. 34 while it reprinted a version that was more to its liking.

Academics Sara Arber and Jay Ginn, from the University of Surrey's Centre for Research on Ageing and Gender, introduced the 2004 edition of Social Trends with an article entitled Ageing and Gender: Diversity and Change.



It made clear that the government's abandonment of one of the central pillars of the welfare state--universal pension provision through the redistribution of income by the state--would have disastrous consequences for the elderly.

Arber and Ginn then exposed the fact that the funds existed to prevent such a situation from occurring. The National Insurance Fund--made up of workers' contributions and used to pay pensions, sick pay, unemployment benefits, etc.--was in fact in surplus.

More recently a honest and concern senior politician, just before leaving my country, called attention discretely to the IMF Working paper WP/05/71 - "Aging - some pleasant fiscal arithmetic" -, from David Hauner.
I could not understand it, though. Can any of you?

by findmeaDoorIntoSummer on Mon Jun 30th, 2008 at 12:35:06 AM EST
NYTimes has a quite dramatic long article on European demographics.

[For] the first time on record, birthrates in southern and Eastern Europe had dropped below 1.3. For the demographers, this number had a special mathematical portent. At that rate, a country's population would be cut in half in 45 years, creating a falling-off-a-cliff effect from which it would be nearly impossible to recover. Kohler and his colleagues invented an ominous new term for the phenomenon: "lowest-low fertility."

[The] main threats to Europe are economic. Alongside birthrate, the other operative factor in the economic equation is lifespan. People everywhere are living longer than ever, and lifespan is continuing to increase beyond what was once considered a natural limit. Policy makers fear that, taken together, these trends forecast a perfect demographic storm. [The crisis] will come from a "triple whammy of increasing demand on the welfare state and health-care systems, with a decline in tax contributions from an ever-smaller work force." That is to say, there won't be enough workers to pay for the pensions of all those long-living retirees. What's more, there will be a smaller working-age population compared with other parts of the world...

"[There] are really four different population changes happening in Europe." One concerns Eastern Europe, where trends date from the Communist period and portend a special, and especially virulent, class of social problems. Bulgaria's birthrate is 1.37, and life expectancy for males is seven years less than in Belgium or Germany; the E.U. estimates that Bulgaria's population will drop from 8 million today to 5 million in 2050. Since 1989, Latvia's population has dropped 13 percent; its fertility rate is one of the lowest in the world, and its divorce rate is among the highest in Europe...

Was communism better for family building than modern capitalism?!

Germany and Austria are in something of a category of their own. They share many of the same characteristics of other Western European countries with regard to forces affecting family life, but in addition childlessness is peculiarly high in these countries, and has been for some time. A 2002 study found that 27.8 percent of German women born in 1960 were childless, a rate far higher than in any other European country. (The rate in France, for example, was 10.7.) When European women age 18 to 34 were asked in another study to state their ideal number of children, 16.6 percent of those in Germany and 12.6 percent in Austria answered "none." (In Italy, by comparison, this figure was 3.8 percent.)

[But] the true fertility fault line in Europe [runs] between the north and the south. Setting aside the special case of countries in the east, the lowest rates in Europe -- some of the lowest fertility rates in the world -- are to be found in the seemingly family-friendly countries of Italy, Spain and Greece (all currently hover around 1.3). "[We] see that Italy has two records that are maybe world records," he said. "One, young people in Italy stay with their parents longer than maybe anywhere else. No. 2 is the percentage of children born after the parents turn 40..." [The] deeper problem may lie precisely in the family-friendly ethos of these countries. This part of the self-definition of southern European culture -- the "My Big Fat Greek Wedding" ideal -- has a flip side. "In all of these countries," Billari said, "it's very difficult to combine work and family. And that is partly because, within couples, we have evidence that in these countries the gender relationships are very asymmetric."

[The] accepted demographic wisdom had been that as women enter the job market, a society's fertility rate drops. [But] more recently, and especially in Europe, the numbers don't bear it out. In fact, something like the opposite has been the case. [Analysis] of recent studies showed that "high fertility was associated with high female labor-force participation . . . and the lowest fertility levels in Europe since the mid-1990s are often found in countries with the lowest female labor-force participation." In other words, working mothers are having more babies than stay-at-home moms.

[The] hypothesis the sociologists set out to test was borne out by the data: women who do more than 75 percent of the housework and child care are less likely to want to have another child than women whose husbands or partners share the load. [As] Mencarini said, "It's about how much the man participates in child care."

[In] Europe, many countries with greater gender equality have a greater social commitment to day care and other institutional support for working women, which gives those women the possibility of having second or third children. [The] Scandinavian countries have both the most vigorous social-welfare systems in Europe and -- at 1.8 -- among the highest fertility rates. [Norway] guarantees about 54 weeks of maternity leave, as well as 6 weeks of paternity leave. With the birth of a child comes a government payment of about 4,000 euros. State-subsidized day care is standard. The cost of living is high, but then again it's assumed that both parents will work; indeed, during maternity leave a woman is paid 80 percent of her salary.

[While] Italian women tend to be as highly educated as Scandinavian women,[just] about 50 percent of Italian women work, compared with between 75 percent and 80 percent of women in Scandinavian countries. Despite its veneer of modernity, Italian society prefers women to stay at home after they become mothers, and the government reinforces this. There is little state-financed child care, especially for new mothers, and most newlyweds still find homes close to one or both sets of parents, the assumption being that the extended family will help raise the children. But this no longer works as it once did. [The] same economic forces are at work in both northern and southern Europe -- it's just as hard to make ends meet in Madrid or Milan or Athens as in Oslo or Stockholm -- which gives the predominantly two-income families in the northern countries an edge. [In] Scandinavia, thanks in part to state support, the more children a family has, the wealthier it is likely to be, whereas in southern Europe having children is a financial sinkhole, which drags a family toward poverty.

How were "the same" economic forces working before? Some forces and counter-forces must be shifting really unpredictably. Or is there some global development pattern that says there is not much point to bring a child into this world?

by das monde on Mon Jun 30th, 2008 at 03:53:50 AM EST
falling-off-a-cliff effect from which it would be nearly impossible to recover.

I fall off my chair seeing such idiotic rhetoric.

That is to say, there won't be enough workers to pay for the pensions of all those long-living retirees.

As always, assuming a constant retirement age... and no money spent on children, jobless, incapacitated, etc...

One concerns Eastern Europe, where trends date from the Communist period and portend a special, and especially virulent, class of social problems.

Was communism better for family building than modern capitalism?!

The article's language suggests otherwise... They pretend the problem originates in communist times, rather than the collapse that followed under neo-capitalism with IMF recipe.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Jun 30th, 2008 at 06:05:29 AM EST
[ Parent ]
That is to say, there won't be enough workers to pay for the pensions of all those long-living retirees.

For me the worst of it is the assumption that pensions can only be funded from earned Income, and not from the unearned Income generated by productive Capital in private ownership.

There is plenty of wealth available to provide pensions, but no political ability to tax it, and indeed the entire rhetoric of contemporary economics is designed to even preclude the thought....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jun 30th, 2008 at 06:33:14 AM EST
[ Parent ]
Yep, are we in aggregate poorer than before that we cannot keep a general pension (or health) system? FDR started Social Security from zero.

Article's North-European examples show that "socialist" state has non-trivial better consequences from even demographic point of view. But as usual in today's media, loudest conclusions do not relate to most interesting observations.

As for "unrecoverable" falling-off-a-cliff effects, I can think of many more cliff divings that are much more impossible to recover from than a population revival. Perhaps our biological clocks know better when are times to multiply and when just to talk about joys of fertility.

by das monde on Mon Jun 30th, 2008 at 07:04:30 AM EST
[ Parent ]
From the same article, with no figures to back them up of course:
The fears on the right are of a continent-wide takeover by third-world hordes -- mostly Muslim -- who have yet to be infected by the modern malady called family planning and who threaten to transform, if not completely delete, the storied, cherished cultures of Western Europe.
How does their north/south argument explain that the highest fertility rates in Italy are in the south? A quick scan of the article shows no discussion of southern Italy at all. Is this because the Italian researchers simply aren't interested, or because it would make it harder to come up with simple explanations?
by gk (gk (gk quattro due due sette @gmail.com)) on Tue Jul 1st, 2008 at 05:08:34 AM EST
[ Parent ]
I've been reading the first section on the front page, and thinking that there's something intrinsically wrong in the argument of "Demographic Vibrancy" and I'm sure it probably comes down to Peak Vibrancy. sooner or later you're going to hit a peak in your elderly population, unless you can either keep breeding faster, or import more people. Sooner or later you're going to have a hump in the numbers of elderly, unless for some reason you can see that your population is limitlessly supportable. by pushing the Idea of Demographic Vibrancy, all you're doing is pushing that hump a few years down the road, and making it a bugger problem when it happens.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Jun 30th, 2008 at 08:50:40 AM EST
Bugger problems are the worst ;-)

You can't be me, I'm taken
by Sven Triloqvist on Mon Jun 30th, 2008 at 09:58:36 AM EST
[ Parent ]
damn this welsh keyboard.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Jun 30th, 2008 at 11:57:14 AM EST
[ Parent ]
I want to repost a graph from destatis (German statistics institute) I have posted before. There are a lot of changes due to historical events and fashionable live styles (Baby-boom, -bust, war, migration), which have effects.


It shows in blue the number of people older than 65 years per 100 people between 20 and 65. In green the number of people below 20, as the sum of these people is expected to be those who can't earn their own income. For the modelling it is assumed, that net immigration will be around the value of the last ten years (so slightly higher than currently), constant fertility and some reasonable assumption about life expectancy.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Mon Jun 30th, 2008 at 11:30:55 AM EST
Could you link to source data? I would like to redo this graph by relating employed people to people under 20, above 65, and unemployed.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Jun 30th, 2008 at 01:13:55 PM EST
[ Parent ]
I have the picture from a pdf without source data:
Link to destatis
In the corresponding excel file only the future development is documented with different scenarios.

However, I could find a "Bevölkerungsfortschreibung" with numbers from which you can get the share of people between 20 and 60 (instead of 20 and 65):
Link to excel file
Table 1.3 in that file may do the job.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Jun 30th, 2008 at 02:34:07 PM EST
[ Parent ]
Dean Baker: The NYT Magazine Section Is Worried About the European Shortage

. . . Why should we fear being able to go to beach and not fighting for a place to put a blanket? Will the world collapse if we go to work and there are no traffic jams? And, should we be upset that it will be easier to reduce greenhouse gas emissions if there are fewer of us emitting?

The article seems to rely on some loon tune economics to make the prospect of declining populations seem like a serious problem. For example, it warns about rising rates of retirees to workers. Guess what, we have had rising rates of retirees to workers for the last century. Why on earth would anyone think that this is some sort of crisis?

. . . The implication that we will have no workers to care for our elderly, or alternatively that future generations of workers would face some crushing tax burden can be seen to be ridiculous with the most basic economic analysis. As one commentator quoted in the piece notes, there is a large amount of unemployed and underemployed labor in Europe. This could be put to work in the event that there was a labor shortage.

. . . Yes, but their taxes will rise. Excuse me, but this sort of argument is tripe and it has no place in a serious newspaper. Standard projections for the growth rate of wages show that the rise in before tax wages should easily outpace the impact of any tax increases necessitated by a higher ratio of retirees to workers. There is no plausible story in which demographic pressures will cause future generations of workers to have lower standards of living than we do today.

Emphasis added.

by TGeraghty on Mon Jun 30th, 2008 at 11:16:49 PM EST
Why Won't Ye Spawn, Euro Scum?

The New York Times Magazine this past Sunday joined the chorus of alarm over the declining birth rates of Europe.  The implicit message: we Americans will be left alone in a world overrun by the brown hordes because the wimmens of Europe will not breed for the Fatherland.  

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Jul 2nd, 2008 at 01:16:26 PM EST
Very interesting post.
The most interesting conclusion to me -- that the nations in which women attain high levels of education, but nevertheless maintain a patriarchal culture under the surface -- Spain, Italy, Greece, as well as Japan and South Korea -- have extremely low birth rates.  In essence, women seem to be opting out of having children in nations where their husbands are likely to be momma's boys who won't share the burdens of child rearing.  The sophisticated welfare states of Scandinavia with their more egalitarian relations between the sexes have much higher birth rates, as do England and France, which has a longstanding tradition of pro-natalist welfare state innovations.  Paradoxically, the states in Europe with the highest birth rates are also those with the most robust participation by women in the work force.  


When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Wed Jul 2nd, 2008 at 02:00:28 PM EST
[ Parent ]


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