In America, the 1990 census showed a marked decrease in childbearing. 25% of the women between 30 and 34 were childless, while the comparable figure in 1976 was 16%. By 1985, the birthrate expected per average woman over her lifetime had fallen to 1.8, slightly below Europe’s level and below the “replacement rate”, the level needed to keep population stable, of 2.1. Europe’s birthrates have continued to fall, and now slightly below 1.4, while America’s has rebounded to 2.1.
This development blindsided demographers, who, working off 1990 data, saw a US fertility rate below replacement level and forecasted a sustained aging of the population. As the August 24, 2002 Economist noted:
America’s population should have been 275m in 2000. At least, that is what the central projection of the 1990 census predicted. The 2000 census showed it was actually 281m, higher even than the “high series” projection from 1990.
Those higher fertility rates will have a bigger impact as time goes on. By 2040, using the new census’s “middle series” projection, America’s population will overtake Europe’s. This forecast has already proved too low. On the “high-series projection”, the crossing point occurs before 2030. But if this proves correct, Europe’s population in 2050 would be 360m and falling, America’s would be over 550m and rising. Half a billion people: in other words, America would be twice the size it is now. Europe would be smaller. Obviously, straight-line projections over 50 years need to be taken with plenty of salt. All the same, the numbers are startling.
Increased fertility rates are not the only cause. Immigration in the 1990s was forecast to be between 7 and 8 million and instead was 11 million. More rigorous counting may also have led to somewhat larger results. The current view was that the 1970-1985 period witnessed women deferring, but it turns out not giving up on, having children.
Given how badly demographers were surprised, it also seems possible that a period of women postponing childbearing might have been followed by a bit of doubling up. Late baby boomer women often delaying having children until their mid-late 30s. Now, younger women appear to prefer having children in 20s, at worst early 30s.
Demographics are too often overlooked in the discussion of our current mess. Economic growth is a function of demographic growth and productivity increases. With the US economic engine flagging, immigration from Mexico has fallen sharply.
And those optimistic population growth assumptions may also have played a role in the housing boom. David Goldman (hat tip reader Paul) looks at the data and finds demographics point to a negative outlook for housing:
So is this something outside the lesson book of the Great Depression? Most officials and economists argue that, until home prices stabilize, necrosis will continue to spread through the assets of the financial system, and consumers will continue to restrict spending…All the apparatus of financial engineering is helpless beside the simple issue of household decisions about shelter…
To understand the bleeding in the housing market, then, we need to examine the population of prospective homebuyers… Families with children are the fulcrum of the housing market. Because single-parent families tend to be poor, the buying power is concentrated in two-parent families with children.
Now, consider this fact: America’s population has risen from 200 million to 300 million since 1970, while the total number of two-parent families with children is the same today as it was when Richard Nixon took office, at 25 million. In 1973, the United States had 36 million housing units with three or more bedrooms, not many more than the number of two-parent families with children—which means that the supply of family homes was roughly in line with the number of families. By 2005, the number of housing units with three or more bedrooms had doubled to 72 million, though America had the same number of two-parent families with children.
The number of two-parent families with children, the kind of household that requires and can afford a large home, has remained essentially stagnant since 1963, according to the Census Bureau. Between 1963 and 2005, to be sure, the total number of what the Census Bureau categorizes as families grew from 47 million to 77 million. But most of the increase is due to families without children, including what are sometimes rather strangely called “one-person families.”
In place of traditional two-parent families with children, America has seen enormous growth in one-parent families and childless families. The number of one-parent families with children has tripled. Dependent children formed half the U.S. population in 1960, and they add up to only 30 percent today. The dependent elderly doubled as a proportion of the population, from 15 percent in 1960 to 30 percent today.
If capital markets derive from the cycle of human life, what happens if the cycle goes wrong? Investors may be unreasonably panicked about the future, and governments can allay this panic by guaranteeing bank deposits, increasing incentives to invest, and so forth. But something different is in play when investors are reasonably panicked. What if there really is something wrong with our future—if the next generation fails to appear in sufficient numbers? The answer is that we get poorer.
The declining demographics of the traditional American family raise a dismal possibility: Perhaps the world is poorer now because the present generation did not bother to rear a new generation. All else is bookkeeping and ultimately trivial. This unwelcome and unprecedented change underlies the present global economic crisis. We are grayer, and less fecund, and as a result we are poorer, and will get poorer still—no matter what economic policies we put in place.
We could put this another way: America’s housing market collapsed because conservatives lost the culture wars even back while they were prevailing in electoral politics. During the past half century America has changed from a nation in which most households had two parents with young children. We are now a mélange of alternative arrangements in which the nuclear family is merely a niche phenomenon. By 2025, single-person households may outnumber families with children…
Housing prices are collapsing in part because single-person households are replacing families with children. The Virginia Tech economist Arthur C. Nelson has noted that households with children would fall from half to a quarter of all households by 2025. The demand of Americans will then be urban apartments for empty nesters. Demand for large-lot single family homes, Nelson calculated, will slump from 56 million today to 34 million in 2025—a reduction of 40 percent. There never will be a housing price recovery in many parts of the country. Huge tracts will become uninhabited except by vandals and rodents.
All of these trends were evident for years, and duly noted by housing economists. Why did it take until 2007 for home prices to collapse? If America were a closed economy, the housing market would have crashed years ago…
In the industrial world, there are more than 400 million people in their peak savings years, 40 to 64 years of age, and the number is growing. There are fewer than 350 million young earners in the 19-to-40-year bracket, and their number is shrinking. If savers in Japan can’t find enough young people to lend to, they will lend to the young people of other countries. Japan’s median age will rise above 60 by mid-century, and Europe’s will rise to the mid-50s….
America has roughly 120 million adults in the 19-to-44 age bracket, the prime borrowing years. That is not a large number against the 420 million prospective savers in the aging developed world as a whole.
The post is considerably longer than this, with a great deal of tooth gnashing of the ‘our wealth is our children” sort. Goldman’s conservative agenda unfortunately leads him to solutions that have a very ugly undertone. He calls for restoring “the traditional family to a central position in American life.” That sounds both anti women in the workforce amd anti gay. it also fails to acknowledge that the planet is running up against resource limits. At the Milken Conference last year, hardly a bunch of tree-huggers, quite a few session were devoted to two coming constrains: potable water and energy. In addition, emerging economies aspire to first world living standards, which increases resource demands.
There was an ugly intergenerational fight on one of Leo’s posts earlier, and that reflects the demographic issues outlined above, a large retirement population versus a not growing (and maybe shrinkng) working age cohort. The irony is that the vogue for corporate cost cutting has in many cases lead some people to retire early, when in many cases they’d have been content to stay employed to retirement age. But given the substantial prejudice against older workers, most wind up either retiring completely, taking occasional part-time gigs, or starting a business (although the failure rate of new businesses is high). If anything, we should be encouraging much greater levels of workforce participation among those over 40, and even more so for those over 60, when before the crisis, we have been witnessing the reverse. Immigration is another solution, but that is not exactly a popular idea right now.
Goldman also fails to acknowledge that historically, the result of a financial crisis is a permanent reduction in the standard of living, which he instead chooses to pin on demographics. But frankly, I don’t find his downside all that persuasive:
We are going to be poorer for a generation and perhaps longer. We will drive smaller cars and live in smaller homes, vacation in cabins by the lake rather than at Disney World, and send our children to public universities rather than private liberal-arts colleges. The baby boomers on average will work five or ten years longer before retiring on less income than they had planned, and young people will work for less money at duller jobs than they had hoped.
I don’t see the leap in logic to the duller jobs, and the rest sounds like an overdue downsizing rather than a disaster. And more demand for public schools might, mirable dictu, lead to better teaching standards. In the 1940s, City College of New York was a very good school, a stepping stone for many bright kids from modest homes. Now its not much better than a community college. We could some welcome reversals of fortune.
That’s a long winded way of saying Goldman does a service in highlighting an overlooked issue, but his religious/political agenda badly blinkers his analysis and suggestions. Demographic stresses will be an issue, but trying to turn the clock back and reinstitute 1950s America is not a viable solution.