When the Titanic struck an iceberg on the night of April 14, 1912, no one thought there was any real danger. After all, the ship was "unsinkable." Crew members reassured the passengers, who continued to eat, drink, dance, and eventually sleep. Reality started to set in only when the ship’s Second Officer, Charles S. Lightoller, noticed that, with all the pumps working, the level of water in the stairwell was still creeping up and up. When the Titanic slipped below the surface, it shocked out of its complacency a world that felt it had almost achieved mastery of its destiny.
The story of the Titanic provides a vivid metaphor for the current demographic state of the world’s industrialized nations. Like the passengers of the Titanic, today’s public, news media, and government leaders are oblivious to ominous news—in this case, the quiet unfolding of the most portentous event of modern history: the failure of current generations to produce enough children to replace themselves. A French historian, Professor Pierre Chaunu, has called this failure "the White Pestilence," because, unless successfully combatted, it will eradicate European and other industrialized populations as surely as the Black Death destroyed the cities and towns of the Middle Ages. The loss of millions of young men in World War I was regarded at the time as a catastrophe of unequaled proportions, but, while today’s White Pestilence is progressing quietly and without physical devastation, the impact on industrialized societies will be incomparably more severe and long lasting. Sustained below-replacement fertility affects almost every facet of national life. The funding through tax dollars of medical and retirement benefits, national defense, basic research, education, and infrastructure construction, to name but a few, relies on the efforts of working citizens. And that is in addition to the effect on the economy itself.
The remorseless figures
There is no question of what is taking place. The data on fertility—the average number of children per woman—are carefully recorded and published by the governments of all modern nations. It is well established that in nations with modern health standards an average of 2.1 children per woman is needed to maintain a steady population—the "replacement level" (one child to replace each parent, and a fraction extra to replace children who die before reaching reproductive age, as well as to compensate for the slightly smaller number of female than male births).
How ominous are the current fertility figures? Very ominous. The fertility rate of Italy and Spain, for example, now hovers around 1.2. Japan is only slightly better off, at 1.46 and France at 1.6. The United States’ fertility rate is currently at an almost healthy 2.0, but for a period in the late Seventies it was as low as 1.73. A rate as low as Italy’s or Spain’s means that in every generation the native population will be nearly halved. Furthermore, unlike a population decimated by war or pestilence, populations with low fertility age before they die, creating enormous economic burdens for the remaining young workers.
As the proportion of the non-working elderly to the working young increases, the income of young workers is increasingly absorbed by taxes. The ratio of the population aged 65 and over to the population aged 15 to 64 is known as the "elderly dependency ratio." While in most industrialized countries the ratio is now around 20%, in only thirty-three years it is expected to nearly double in the United States and France, and more than double in Japan, Germany, Italy, and Canada. In Italy, for example, unless the fertility rate rises dramatically, the elderly dependency ratio will grow from 23.8% in 1995 to 37.5% in 2020 to 60.0% by 2050. Dramatic aging of the population will occur in Japan, Germany, and Italy in just 12 ½ years, and in the other industrialized countries in another twenty years. Any nation whose tax base, production, and consumer base declines as precipitously as those of Europe appear destined to do faces economic and social catastrophe on a proportion not seen in modern times.
Projected Ratio of Population Over 65 to that Between 15 and 64
COUNTRY 1995 2000 2010 2020 2030 2050
United States 19.2 19 20.4 27.6 36.8 38.4
Japan 20.3 24.3 33 43 44.5 54
Germany 22.3 23.8 30.3 35.4 49.2 51.9
France 22.1 23.6 24.6 32.3 39.1 43.5
Italy 23.8 26.5 31.2 37.5 48.3 60
United Kingdom 24.3 24.4 25.8 31.2 39 41.2
Canada 17.5 18.2 20.4 28.4 39 41.8
Source: Sheetal K. Chand and Albert Jaeger, "Aging Populations and Public Pension Schemes" Occasional Paper 147, International Monetary Fund, Washington, DC 1996, p. 4.
Note: The IMF figures assume, "perhaps optimistically," a return of the fertility rate in all countries to 2.1 over the next four decades. The actual increase in the dependent/working ratio will probably be much more drastic unless immigration rates increase appreciably.
Why is such a phenomenon not more widely remarked on? Why is it not the center of all government policy?
In the case of the Titanic, equanimity was bred of ignorance about the extent of the damage and the way the ship was constructed. In the present population crisis, equanimity is bred of ignorance of the etiology of the much-publicized "world population explosion" since the end of World War II. In fact, world population has grown markedly. However, it has done so mostly not through an increase in the fertility rate but through a decrease in the mortality rate owing to unprecedented advances in public health, in areas such as water purification, malaria control, and inoculations. What has taken place is a doubling and tripling of the number of generations alive at one time. When average life expectancy was 35 years in much of the world, many parents died before their children had reached reproductive age. Suddenly, in the span of a few decades, not only are parents living at the same time as their adult children, but so are grandparents and sometimes great-grandparents. As Nicholas Eberstadt, former Harvard professor and consultant to the World Bank and the Agency for International Development, has phrased it, "Population growth is not due to the fact that people are breeding like rabbits, but that they have stopped dying like flies."
Failing to understand the principal reason for the postwar population growth and ignoring basic economic theory, "experts" and the popular press have for over 30 years deluged us with "standing room only" scenarios marked by famines and disasters. In fact, the postwar population increase has brought with it enormous economic growth, resulting in better diets and more wealth throughout the world. The famines that have occurred have almost all resulted from specific policies of dictatorial governments, as in Ethiopia, or of government ineptitude in trying to force farmers into socialist economies, as in the old Soviet Union. Population density has been no bar to economic development and improved living conditions in free economies, even in areas with limited or no natural resources, as is attested to by the success of Hong Kong and Singapore. Prices have been falling for almost all resources, from food to minerals to fuels, indicating greater plenitude, because as population has grown, so have the ability, knowledge, and numbers of the producers. New resources have been discovered or produced faster than the old ones have been used. (Whale oil was once considered to be a diminishing prime resource.)
Gary Becker, Nobel Laureate economist from the University of Chicago, credits the success of the new economies in Asia to their ability to create "human capital." He calculates that 80% of wealth exists in the form of human capital—factors such as education, family support systems, and the development of the work ethic. Human capital, however, like natural resources, requires continual renewal.
When the industrial nations first experienced below-replacement-level fertility, demographic projections assumed a return to the replacement level. This has not occurred, and there was never any reason to think it would, absent a conscious effort to cause it to do so. This effort has not been made, partly because policy makers are still fixated on "Limits to Growth" overpopulation scenarios, partly because breaking a vicious circle can cause more short-term pain than politicians will readily inflict.
A Warning from History
What is now happening to the industrialized world appears to be such a new phenomenon that many are in denial; population collapse and the resulting economic and social collapse "just cannot happen." But it can happen, and did at least twice in the ancient world. The primary cause of the demise of the Roman empire, and previously of the Greek city-states, appears to have been population collapse on a massive scale.
Over a period of two to three hundred years, starting at the time of Marcus Aurelius Antoninus in 150 C.E., the population of Rome’s western empire fell by more than 80%. Where once there had been six Roman citizens, two to three centuries later there was only one. The consequences of this depopulation included deserted cities and farms; disintegrating roads and water and drainage systems; mosquito-plagued swamps where there had been fields; once-fruitful land overgrazed by sheep herds and eroded. The social and economic chaos resulting from falling fertility in turn resulted in more disease and less food, further depressing fertility. Finally, the deepening shortage of recruits to man the military legions meant depending on barbarian tribes to defend the borders, tribes who ultimately sacked the empire.
The collapse of the Roman population has been ascribed to a number of factors. Increasing urbanization, with absentee landowners who constantly increased their levies on the farmers until their lives became hopeless, has been advanced as one reason by Professor Chaunu. Changing social mores and epidemics have been given as reasons by others. Probably many factors combined to lower fertility, but there is no question about the result: economic and social collapse, finally ushering in the Dark Ages.
A similar collapse had taken place in ancient Greece a few centuries earlier. Even as some writers of the age were concerned that the future might bring overpopulation, fertility was falling. A few understood the danger. Isocrates (431-338 B.C.E.) wrote: ". . . those that die are not replaced." There were no official census figures to give us an exact picture of the population’s collapse, but there are figures on the number of taxpayers and voters. The 9,000 Spartan families that held land in the time of Lycurgus (a Spartan leader in the ninth century B.C.E.) had dwindled to 5,000 by the fifth century B.C.E., to 1,500 by the fourth century B.C.E., and to 711 by the third century B.C.E.
During the third century B.C.E. the entire territory of the Achaean league (12 city-states of the Peloponnesus, east central Greece, and the islands of Crete, Rhodes, Cephalonia, and Ithaca) could produce only 3,500 soldiers. In 146 B.C.E., the kingdom of Macedonia and the Etolian and Achaean leagues together were capable of fielding only 20,000 men.
The Greek geographer and historian Strabo (63 B.C.E.-21 C.E.) described Greece as "a land entirely deserted; the depopulation begun since long continues. Roman soldiers camp in abandoned houses; Athens is populated by statues." Plutarch observed that "one would no longer find in Greece 3,000 hoplites [infantrymen]." The historian Polybius (204-122 B.C.E.) wrote: "One remarks nowadays all over Greece such a diminution in natality and in general manner such a depopulation that the towns are deserted and the fields lie fallow. Although this country has not been ravaged by wars or epidemics, the cause of the harm is evident: by avarice or cowardice the people, if they marry, will not bring up the children they ought to have. At most they bring up one or two. It is in this way that the scourge before it is noticed is rapidly developed. The remedy is in ourselves; we have but to change our morals."
Causes of Fertility Collapse
Why is fertility collapsing today in the developed world? As in the ancient world, there are doubtless several factors at work. The change from agrarian to urban societies may have caused family life and children to be less highly valued. Members of modern economies need more years of education to acquire the skills for wealth creation; the time needed for acquiring education and establishing a career can cause women to put off marriage till age thirty or later, reducing the prime childbearing years by almost half. In the United States, acquiring that education can saddle young couples with high debts that may further postpone their having children, and high taxation on their earnings can create the perception that having more than one or two children is beyond their means. In many European nations, high social welfare costs and other public policies have restrained economic growth and created high and enduring unemployment, which affects the young disproportionately. Marriages again are therefore postponed, or young couples may be forced to live with parents in crowded housing that affords no room for children.
Changing sexual mores are also a factor. The social stigma on cohabitation has been greatly reduced, especially in cities. Abortion is readily available. Divorce is commomplace and, for many women, ends their childbearing.
Increased employment of women in the marketplace is yet another factor. Many women enter the workforce because of a desire for independence and professional opportunities. Many others, however, would gladly stay at home to care for children if they thought it economically feasible. Ironically, the entry of women into the labor force to better the family financial picture has tended to lower the average wages of husbands, who now must compete for jobs in a more crowded labor market. Engaging women in the labor force has always been in the short-term interests of business, which profits from the expanded labor market, a factor that has no doubt contributed to the historic growth in developed economies over the last several decades. In the long term, however, business must suffer from population collapse, just as it has prospered from the population growth which has produced more and larger markets.
We have seen the ultimate effects of population implosion in the cases of ancient Greece and Rome. How does a persistently low fertility rate affect a modern industrialized economy?
Testifying before the Congressional Subcommittee on Social Security, Paul S. Hewitt, Project Director for the Global Aging Initiative of the Center for Strategic and International Studies, described the course of events: "Aging recessions are marked by declining asset values, falling levels of consumption, spikes in precautionary saving by aged workers, falling growth rates and hence tax revenues, chronic budget deficits, declining returns on investment, capital outflows, and currency crises. If this sounds familiar, it should. Japan, in my opinion, already is in an aging recession. Its population has leveled off and soon will decline. Consumer spending has fallen for 29 straight months. Property values have collapsed. The retail and construction sectors are on deficit-financed life support. Due to the unique characteristics of Japan’s social compact, the economy remains more or less at full employment. Yet under these conditions, fiscal stimulus is ineffective, since you cannot stimulate an economy when there are few workers to bring into the labor force. Monetary policy is also proving counterproductive, to the extent that lowering of rates of return merely prompts aging workers to save more. After 2010, these conditions are likely to prevail throughout much of Europe as well.
"Indeed, in its flagging currency, the euro, Europe, too, is beginning to exhibit symptoms of decline. Capital is fleeing the Continent at an unprecedented rate. Despite today’s unfavorable exchange rates and the supposed overvaluation of U.S. equities, German companies announced $94 billion in U.S. acquisitions in August alone. One reason for this is that European firms face the prospect of declining unit sales for as far as the eye can see. [Emphasis added.] A real estate shakeout is also on the horizon. Italy, Germany, and several smaller countries will experience dramatic declines in their household forming age groups—Italy could have 30 percent fewer persons aged 25-40 by 2020. These kinds of pressures are sure to weaken household and financial institution balance sheets, spawning weakness elsewhere."
How Much Time?
Despite the recession of the last few months, the United States has some time to spare. But not much, as witness recent worries over Social Security and Medicare.
Begun in 1937, the American Social Security system paid its first benefits in 1940 to 220,000 beneficiaries. Benefits were funded through a 1% tax on workers taken from their pay each week and a corresponding tax on their employers. Although Social Security was initially "sold," politically, as a kind of annuity, a worker’s tax payments are not invested for his own needs in old age but rather are used to pay benefits to the currently retired (leaving aside the recent practice of borrowing from the Social Security trust fund). When each worker retires, new taxes from younger workers are needed to fund his benefits. The system has therefore been likened to a Ponzi scheme, which pays large dividends to stockholders but does so only by finding an ever larger number of new investors, until the scheme must ultimately fail. Because both the number of workers entitled to benefits and the size of the benefits have grown significantly over the last 60 years, the combined tax on the employer and employee is today 12.4%, plus an additional 2.9% to fund medical care for the elderly.
The Social Security Ponzi scheme will start to collapse in about 10 years, when the first members of the "baby boom" generation reach retirement age. At that point, the government will have to choose among reducing benefits, greatly raising taxes on the still smaller proportion of working families, or devaluing the currency. The most likely course will be a combination of reduced benefits and higher taxes, which will tend to further reduce the number of children that young couples feel they can afford, thus compounding the problem in later years.
Serious as the problem of funding Social Security is, the problem of funding Medicare may well dwarf it. According to a report issued by the Organization for Economic Co-operation and Development (OECD): "Medicare expenditures have been growing much faster than GDP (Gross Domestic Product) already, even though members of the baby-boom generation have not reached 65 yet. Such growth is due to a combination of factors, including a high elasticity for health care spending, deficiencies in controlling demand, but also the rapidity with which technological change is introduced. . . . An ageing population, when coupled with the diffusion of medical technologies, could lead to an even greater increase in demand for medical services . . . than the simple increase in the number of 65 and over would suggest . . . Official estimates show Medicare and Medicaid net spending [as] rising much more rapidly than Social Security spending . . . doubling as a share of GDP in thirty years.
"Official projections assume that the growth of Medicare costs will slow to the rate of per capita GDP between 2010 and 2020. No rationale is provided for this assumption, other than that otherwise spending would grow unreasonably fast." In fact, Medicare costs have soared since the program’s inception. Starting at $3.4 billion in 1966, they had doubled to $7.2 billion in just four years; by 1980 the program cost $35 billion, by 1990, $109.7 billion. The problem is not—as is sometimes stated—that Americans are living longer. The problem is the abrupt fall in U.S. fertility after 1970. Had U.S. fertility remained at its average 1947-1964 figure of 3.37, there would today be over one and a third times as many workers under age thirty-three paying into the Social Security and Medicare Trust Funds, and there would be no impending disaster. In short, American couples have raised too few children over the last thirty years to pay for the cost of their own retirement and medical care in old age.
A Way Out?
Societies are gripped in a vicious circle. Fewer births create an aging population, which in turn requires increasing support through higher taxes, thus placing increasing pressure on young couples, who respond by producing fewer children. Politicians, too, are trapped in a box. Promised spending programs for the elderly become increasingly costly as populations age, and, as the elderly form a larger proportion of the population, they acquire increasing political power. Furthermore, our election cycles are so short that no politician can succeed by focusing on demographic and economic problems that will not become apparent to voters for another ten or twenty years.
Immigration is sometimes cited as a solution. However, unless the immigrants reproduce above the replacement level, they will only add to the aging population down the line. And if they do reproduce faster than the native population, this would be likely to change the character of the society in ways that many Europeans and Americans would find unacceptable.
However, there may be a workable solution, at least in the United States where the problem is not as severe as in Europe. The answer lies in an enlightened family policy.
The only "population policies" that the United States has pursued have been attempts to lower the fertility of developing nations. These policies are succeeding only too well. In 1992 the World Health Organization reported that, over twenty years, fertility in the developing nations had already fallen from 6.1 to 3.9. By now, some developing nations are dipping below the replacement level. Money spent on driving down even faster the fertility of developing nations would be much more wisely spent on boosting the United States’ own fertility.
There is evidence that policies which support families with children are effective in raising fertility. Shortly before World War II, France, with a population depleted by the appalling losses of World War I and suffering from the lowest fertility rate in Europe, implemented a family-support policy. This program provided cash support for each child; it was commonly said at the time that the third child enabled a family to buy a car. Family size grew rapidly and became one of the largest in Europe.
Gradually, however, what had started as a "family policy" became a "social policy" that provided a plethora of programs for all sectors of the population. The proportion of family allowances to family income steadily decreased, as it was not adjusted for inflation. Wives gradually found that it was financially more rewarding to enter the work force than to raise children, and French fertility has since declined. The economist Jean-Didier Lecaillon believes that the reduced value of the family allowance was an important factor in this decline. However, the remaining allowance may well still account for the advantage that France, with a rate of fertility of approximately 1.6, enjoys over Italy, at 1.2. Prior to reunification with the Federal Republic, East Germany started a similar program of allowances, also with appreciable success.
The United States has never had a program of direct government aid to intact families; however, tax law following World War II practically shielded families with two or more children from federal income taxes. Because of the personal exemption, a median-income family with four children paid no federal income tax in 1948. "Bracket creep" gradually wore down the value of the personal exemption, as the exemption remained constant, while inflation edged—and eventually, in the 1970s, spiraled—upward. Measured as a percentage of income, the income-tax burden rose most dramatically for families with children. The 1981 Economic Recovery Tax Act finally indexed tax brackets and exemptions to inflation, and, in 1986, the personal exemption was increased, but not nearly enough to make up for the years of decline in its value. Today, given not only inflation but also the rise in tax rates, we would need a personal exemption of over $12,000 to provide the same tax shield to families attempting to raise children as the $600 exemption did in the early postwar years. Were the family’s tax exemptions or child tax credits increased to this value, it is reasonable to expect that many wives would opt to leave the work force and rear additional children. The promised new child tax credit of $1,000 is a step in the right direction, but only a small step.
Singles and older taxpayers grumble at any tax break offered specifically to families with children, but this is shortsighted. The overall fairness of a child-oriented tax policy becomes apparent when one considers that it is the children of those parents who elect to have them who will form the tax base in decades to come. Singles and couples who raise no children expect to draw Social Security and Medicare benefits in old age, but these benefits will be funded, under our present system, only through the taxes paid by other people’s children. And each of those children, according to the U.S. Department of Agriculture, will cost the parents over $236,660 (adjusted for inflation) to raise to age 17, not including investment for higher education. It is indeed fair, therefore, that those who pay the cost of raising the next generation of taxpayers should pay lower taxes now, while those who do not take on the costs and responsibility of raising children, yet expect to be supported by the taxes paid by other people’s children, should carry the heavier tax burden today. Tax relief for couples with children should also include payroll taxes for Social Security and Medicare, because these taxes are increasingly the ones that most limit the ability of working low-income families to meet the expenses of raising children.
Fertility and Prosperity
The famous "baby boom," commencing in the aftermath of World War II and continuing into the early 1960s, sparked an enormous surge in the economy, with an unprecedented demand for food, housing, appliances, furniture, toys, clothing, automobiles, and school buildings. An article in the April 18, 1952, edition of U.S. News & World Report, titled "More Babies, More Business," well illustrates the optimism of the period:
"The baby boom has been so large and so fast that the country still has trouble adjusting its thinking. In six years about 22 million children have been added to the population. That almost equals the entire population of the U.S. in 1850. It is half the population of Great Britain. In numbers of consumers, the postwar children represent a market equal to the 11 Mountain and Pacific States, plus Louisiana. That new market has appeared in 312 weeks. In the same period, the net population growth—births minus deaths—has totaled 13 million. Never before—not even in the heyday of immigration—has the U.S. grown so fast.
"In 1952, barring the unexpected, a new market equivalent to the population of Indiana will be presented to industry. That will be the effect of the 3.9 million births estimated for this year. These will bring to nearly 26 million the new children gained by the nation since World War II. They must be fed, housed, clothed, educated, and given all the other goods and services they require. Their vast number guarantees, too, another population spurt in about 20 years as they reach marrying age."
In 1965 Robert C. Cook, President of the Population Reference Bureau, stated that the slumping birth rate of that year—when for the first time in 12 years the number of U.S. births dropped below 4 million—was "unquestionably related to a recognition that rearing children was an expensive undertaking." At that time, the cost to an average family with an annual income of $6,600 of raising a child to age 18 was estimated by the Institute of Life Insurance in New York to be $23,835.
The following two decades saw a fall in fertility that no doubt had something to do with the changes in sexual and social mores in the 1960s, but that also coincided with a growing proportion of income being taken in federal income and payroll taxes. The fertility rate bottomed at 1.73 during the "malaise" years of the Carter administration. (U.S. fertility had also plummeted during the Great Depression.) The Reagan years, which saw the indexing of tax brackets and exemptions in 1981 and the increase in the personal exemption in 1986—coinciding with "morning in America" economic expansion— also saw a modest upturn in fertility: to 2.0 by the end of the second Reagan administration.
The Road Ahead
It is ironic that the importance of children to the future has been understood by primitive tribes since early times, but that in today’s supposedly sophisticated society, men and women behave as if children are no longer important to the survival of peoples. It is crucial that leaders in the news media, government, and industry understand the consequences of what is now beginning to happen in Europe and do everything possible to prevent the same thing from happening in the United States. Our leaders must find the courage to explain to older citizens the need to sacrifice some benefits for the future of the nation which so many have fought to preserve.
Clever solutions can buy time for industry and for government. Manufacturers of strollers can switch to producing wheelchairs, and baby-food manufacturers can start producing foods for the elderly. In the case of Social Security and Medicare, raising the retirement age, taxing the benefits of well-to-do senior citizens, forcing greater savings for retirement through an investment-based Social Security system, and in some way rationing medical care might all, though disagreeable, help postpone the day of reckoning. Such actions, however, cannot solve the basic problem: in the long term, a people must have sufficient children in order to survive.
We cannot continue to behave as ignorantly as the Titanic’s passengers. Fertility statistics are freely available, and they clearly foretell the nation’s sad prospect if steps are not taken to change the course of our destiny. A people that does not produce new generations large enough to replace the old has no future.