One widely accepted nostrum is that falling birth rates, particularly when accompanied by rising life spans, are bad for economic growth and therefore bad generally. The assumption is that a shrinking pool of 20 to 65 year olds will be forced to support a larger and larger cohort of unproductive citizens, namely, the aged. That vision, of young people hostage to parasitic elders, is also one of the foundations of boomer hate, which is actively stoked by major Republican party funder Stan Druckenmiller, who has been touring college campuses to sell the false notion that Social Security and other social safety nets for the elderly are bad for them.
There has been some opposition to this idea from those with environmental concerns, who argue that we are running up against resource limits. They contend we need to learn to live with low or no growth and also need to learn to manage the social challenges of a stagnant or declining population.
Adair Turner, in Project Syndicate, argues that the falling birth rate/aging population alarmists are all wet. Their forecasts are inconsistent with what is actually happening in aging advanced economies. I urge you to read the entire essay. Here are the critical parts of his case for what he calls “demographic stabliazation”:
Is a shrinking population always a bad thing? Judging by the lamentations of some economists and policymakers in the advanced economies, where people are living longer and birth rates have fallen below replacement levels, one certainly might think so. In fact, the benefits of demographic stability – or even slight decline – outweigh any adverse effects…And, perhaps more important, the benefits of increased longevity and reduced fertility are considerable.
Rising life expectancy is the welcome product of medical and economic progress, and additional increases are almost certain. Indeed, the average life expectancy for children born in prosperous countries could soon exceed 100.
That implies an ever-rising ratio of those over 65 to younger cohorts. But as long as average retirement ages rise to keep stable the proportions of life spent in work and in retirement, the fact that working and retirement years are growing at equal rates has no adverse economic effect. There is, moreover, strong evidence that rising longevity can mean more years of healthy active life, not unhealthy dependency. Only bad policies, such as the recent German commitment to reduce retirement ages, can turn longer lives into an economic problem.
Declining fertility, including in some lower- and middle-income countries, such as Iran and Brazil, also reflects hugely positive social developments – particularly the empowerment of women. Wherever women have the right to an education and to choose how many children to have, fertility rates fall to or slightly below replacement levels.
Falling birth rates challenge pension systems more than rising longevity, because they imply a rising old-age dependency ratio even if retirement ages increase in line with life expectancy. But as long as birth rates are only slightly below replacement level, pension systems’ sustainability can be ensured by means of affordable increases in contribution rates. And lower birth rates deliver the offsetting benefit of lower child dependency ratios, reducing education costs or enabling increased investment in education per child.
Slower population growth might also reduce the increase in wealth-to-income ratios, and the resulting increase in inequality that Thomas Piketty recently highlighted. In many countries, the increase results primarily from the rise in real-estate prices relative to income, as more prosperous people devote a growing share of their income to purchasing property in desirable locations.
Continued population growth would intensify competition for such “positional goods,” which are not easily supplied in greater volume. A stable population, or actual decline, would reduce their importance somewhat. It would also make it easier to reduce carbon-dioxide emissions at an acceptable cost, and to preserve and enhance local environmental quality, which people increasingly value as their incomes rise.
Yves here. This view may strike some readers as unduly optimistic, but based on observations of my colleagues, as well as reader comments, there are plenty of people in their 50s and 60s, and some even in their 70s, who’d like to continue working, not just for the money, but for the sense of purpose it provides and the engagement with other people. But scaremongering about what might happen down the road is also a convenient distraction from the failure of the officialdom to devise policies to create enough employment right now.