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Dean Baker's commentary on economic reporting

The NYT Magazine Section Is Worried About the European Shortage

I have nothing against Europeans (some of my best friends .....), but I have never worried that the world will run out of them. This sets me apart from the NYT magazine which devoted a lengthy piece to this "problem."

Some of the discussion is reasonable. Several countries in Europe, like France and the Scandinavian countries, have adopted work and child care arrangements that make it easier to raise kids in two worker families. Other countries, like Italy and Spain, lag badly in this regard. Certainly it makes sense to have policies that allow workers the option to raise children without extreme hardship.

But, let's say we adopt these policies and populations still decline. 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 article actually tells us how much Germany and Britain's populations would have to increase to keep the ratio of retirees to workers constant. I suppose that is interesting trivia, but why on earth would anyone care?)

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.

Once underutilized labor was fully employed, we would expect to see workers go from less needed jobs to more highly valued jobs. That means fewer people working in restaurants, as house cleaners in hotels and homes, and working the midnight shift at convenience stores. I still don't see the crisis.

Note that as the labor shortage develops, wages get bid up. So our impoverished young people will be earning really high wages. They also will pay much less for housing. In the U.S., rent averages 30 percent of expenditures. It can often be 40-50 percent in highly populated areas. In our declining population scenario, rents will fall since there will be an excess supply of housing.

So, our impoverished young people will be getting high wages because of the labor shortage and paying low rent because of the glut of housing. 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.

(The article even puzzles over the question as to whether we can have economic growth with a declining population. The correct answer is, "why would anyone care?" Suppose the population is falling by 2.0 percent annually and the GDP is falling 1.0 percent a year. This translates in per capita GDP growth of 1.0 percent a year. What is the problem with that?)

It would be useful if the NYT would have an editor with some knowledge of economics review a piece like this before turning over 10 pages in the Sunday Magazine.

--Dean Baker



COMMENTS

Yeah, we're running out of kids all over the world -- I think it was China's declining birth rate last time. Perhaps it's just that the powers what be are worried that with fewer workers, workers will be able to enforce things like higher wages, free childcare, better education, more vacations and other fun stuff.

Oh, and there will be less pressure on little planet Earth. Mars may be a great place to grow asparagus, but I don't think we want to move there.

the main body of the piece was really about the reasons behind the differences in birth rates. that was interesting and worth reading. the part about economic decline etc. seemed so thrown in that I had no trouble ignoring it.

Anyways, I think the couple of guessed about sustainable world population are in the 2 billion range. so maybe Italy's policies are what we should aim for.

Congratulations on your ignorance. Population falling 2 percent annually means it halves every 35 years. You have no problem with that? Then let me ask you what your optimal population for example in the USA would be. 10 million? 1m? 100k?
I left Germany last year, because pension funding is a Ponzi scheme and most of Europe is turning into gerontocracy.
Lets talk about this again in 10 years, shall we?


Spot on, Dean. Where ever does this doom&gloom about declining population come from, and why. World population has been growing exponentially, doubling every 30 years or so. What is more scary than that. And Europe can solve the problem easily

You missed what I saw as one of the most problematic economic points in the piece: "Meanwhile, 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" How are couples in Italy facing the same challenges as those in Stockholm if they have lower starting wages, a lower growth economy, less political stability and fewer social supports? And it sounds like the market most closely associated with fertility, the housing market, hasn't done as well in Italy as it did in other places. Although I've only seen US studies related to that so it might be specific to Americans.

The problem with your model here though is that you make an assumption that a demographic labor shortage will result in a price rise, but there are three other possibilities, immigration, outsourcing and technology. Immigration is obviously a central theme to many of these discussions and has been thoroughly discussed so I'll move on. Outsourcing is certainly possible, I really just mean that jobs that were once done in one place become more geographically mobile than they were previously, mostly due to technology. Then there are robots, which have been discussed rather often in relation to Japan's low fertility rate, but technology is cheap to move.

by shrinking its bureaucracy for the next 30 years. Oops did I answer my own question here?

There is something unsustainable and unhealthy about perpetually falling populations. Carbon footprint be damned.. Thorium nuclear power is the future anyway.

'I left Germany last year, because pension funding is a Ponzi scheme and most of Europe is turning into gerontocracy.'

Yeah, that Bismarck pension plan from 1889 was a horrible Ponzi scheme, whose catastrophic collapse in - oops, it actually has yet to collapse yet, even after absorbing the burden of East Germany's pension system.

Germany will face challenges, but this 'aging' population fear is fascinating to see. The best description of growth unrestrained by any constraints when found in a human body is 'cancer' - and I can certainly imagine that cancer would object to its lifestyle being attacked in favor of some hard to define definition of well-being.

Are humans smarter than yeast? Some most certainly aren't.

Demographic hysteria like this is invariably an tortured rationalization of the right-wing fear that swarthy wogs are outbreeding us. We had better hope they keep outbreeding us - if they were to embrace birth control, as developed countries eventually do, with their overwhelming resource wealth our lovely Christian daughters would be hired away in no time as domestic servants, fanning the infidels, feeding them grapes, capering lewdly with flimsy veils, and so on.

I have read this argument before - in the Nation as I recall - and it basically boils down to worrying that in most Europeans, the majority might not be European. The great boons of the European social safety net might end up benefiting the browner people coming in to take the jobs their economies (unlike ours) are creating. Wouldn't that be a crisis? I suppose if you are a right-winger it is.

"lecherous pasha" has captured the essence of the argument well.

Some long-term considerations:

Malthusian economics may have been staved off in the developed countries by the use of fossil fuels (not by the magic of free markets). Now China and India are developing and increasing their use of fossil fuels, though they are still at much lower than European/US levels. Unless major alternative energy sources are found, the World will probably revert eventually to Malthusian, if population growth is not checked. At some point economic strategies and policies must cease to rely on growing population.

The increasing proportion of elderly is a consequence of past population growth, and is only temporary. It is inevitable unless the population continues to grow exponentially, which is simply impossible.

Employers may think that Malthusian conditions benefit them, but the whole nature of the economy is changed under those conditions.

There's an interesting, highly speculative discussion to be had about the fate of the world if the pattern of sub-replacement fertility rates persisted for a long time, and what it would take to stabilize a falling population..... but we're so far from that point, and probably so far above a sustainable level, that it seems counterproductive to bring it up.

As an open-minded conservative who believes in weighing facts above emotion, I visit this site and read Atlantic in order to learn from (generally) more left-leaning contributors. I have found these two sources much less prone to the hyperbolic ad-hominem attacks and appeals to emotion over reason than most liberal sites. Thanks for the insights, Dean, and most comments seem to be reasoned, even if I may disagree in whole or in part.
As to Pasha's comment re: "swarthy wogs," do you liberals ever consider that this is part of the problem with our schools today?

Dean's been pretty good over the years in pointing out the absurdity of concerns, in standard economic reporting, over declining populations, which are a strictly necessary condition for a sustainable future (though personally I can hardly look with equanimity on the death rates implied by a 2% annual drop in population, as in Dean's hypothetical example). Watch out for his reliance on "standard projections" however - in this case those pertaining to expected wage growth - as they do not take into account the rational expectation of rapid loss of energy supplies to the international market, and the huge predictable economic consequences of that. Yesterday, I attended a memorial service for a retired, and rather disillusioned economics professor I had the pleasure of knowing for a couple of years - he had long-standing concerns, dating at least to the first Oil Shock, over sustainability. I remember that when I once asked him why economists don't understand energy, he said that it was because they almost all subscribe to a Labor of Theory of Value (evidently he wasn't limiting this to the Marxist concept). I think Dean, like most other economists, really has little comprehension of what it means for, say, the US to rely on 20 million person-years of hard labor equivalent per day of oil-based energy, and what this means for "labor productivity" when those supplies go into decline.

lecherous pasha: You mean you're against forced mating by superior specimens ?

What's the problem: That they're more studious and have more native intelligence? You could say they set a fine example for all our dim-witted real Americans. Though they do tend to edge your children out of the best Universities, there are plenty of inferior schools that they don't want to go to.

ndallasj "do you liberals ever consider that this is part of the problem with our schools today?"

No more than we thought that hordes of dirty Irishmen were the fundamental cause of crime and poverty in Northeast cities in the 1840s.

Certain people have always imputed all problems to inherent characteristics of 'The Other' and so justified measures such as segregation, conquest and at the extremes 'final solutions'. It is an impulse to be resisted.

On one side of my family I am descended from respectable German and Irish Protestant farmers, on the other from people who would often by termed 'hillbillies' or 'white trash' and so blamed for all deficiencies. The fact that my father's ancestors were ignorant and dirty had nothing to do with the fact that they had no running water and had to leave school to work in the mines oh no! What else do you expect from hillbillies.

Assimilation is almost always and everywhere a matter of strain on both sides, and to the extent that immigration is related to relatively poverty and relative poverty related in predictable ways to criminality of course you expect some spillover effects in the schools and everywhere else.

Which is no reason to bring back the "No Dogs or Irishmen Allowed" signs. Rent 'The Gangs of New York' and try to get some perspective.

The reason for these fallacious articles are twofold:

1. Some people are worried that about the loss of social cohesion of white populations due to increases in non-white minorities. This leads to articles on the topic from any point of view, just to catch eyeballs.

2. Some people believe that immigration is such an unalloyed good that any argument that seems to require immigration should be put forward.

Odd that these two opposing groups of people both lead to articles of this sort.

The other long-term point usually ignored is that population cannot increase without limit.

Eventually it will stabilize at some level.

Then there will be an equilibrium distribution of ages. ... which will have lots of old people.

Immigration cannot solve this problem. If young people leave one country, then they will leave behind an old country.

We have to develop an economic system which can handle the inevitable; and the sooner we do, probably the less pain.

A population drop of 2% per year is a very extreme example. Germany's population is expected to decrease from currently 82 million to around 74 million in 2050, that would mean a decline by 0.1-0.2% per year ( the estimation range goes from 68 - 86 million, very speculative ). At this speed of population decline it would need several hundred years until Germany reaches the population density of the U.S. Not very dramatic.

And what really counts is the relation between workers and the rest of the population. Germany for example has currently 40 million workers and a population of 82.2, the U.S. had in 2007 around 302 million inhabitants and 146 million ( civilian ) workers. In most industrialized countries 45-50% of the total population is actually working, the rest must be supported in one or another form. Some countries such as France or Italy live very well with even lower shares of ( legal ) workers. And the high share of part-time workers here in Europe leaves a lot room for more ( mainly female ) labor market participation.

What really counts is productivity growth, per capita GDP and perhaps most important the distribution of wealth inside a country. And here the U.S. ranks at the lower end. What really frightens all those paid apocalyptics is the serious shortage of labor-supply, especially skilled labor-supply in nearly all parts of the world. Even the U.S. will have a drastically shrinking share of working age population, despite a fast growing total population. That will give back the employees side most of the negotiation power, it has lost over the last decades.

Besides, if Peak Oil and a general resource shortage are more than a fantasy a fast growing population is not necessarily an advantage. Population decline alone will reduce energy consumption in Germany until 2050 by around 10%, in Japan by around 20%. The U.S. will have to find during the same period new energy supplies for a population that will be 40% larger in 2050 than today. And that could become a really, really scary task.

The article points out that South European young take their sweet time flying the coop. Shouldn't this be self-correcting if population drops? As you point out employment and wages should rise and housing prices fall, which should favor having children at a younger age.

Another interesting point raised is that double income families have more children. Perhaps this is partly because families with two bread earners can afford better housing than single income families? Maybe that's another cause behind South Europeans staying home for so long?

The article notes that European women would like to have about 2.6 children on the average. They have a lot less, partly because their societies make it difficult. While France went through its day care crisis in the 17th century, and they have one of the higher birth rates in Europe, a lot of nations go out of their way to make raising a child a challenge. Germany, for example, makes it impossible for a woman to both earn money to buy groceries and also to actually buy groceries.

The other issue is that while women want to have more children, men do not. In the nations where men help raise children, there are more children. Most children have two parents, so population growth depends on both of them.

Personally I figure that Europe will do just fine with fewer people. One of the reasons the United States had much higher wages than Europe through much of the 19th and even 20th centuries was that the U.S. had a lot fewer people. (It also helped that land was incredibly cheap). This labor shortage also led to a lot more mechanization. Necessity was the mother of invention.

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