Demographic Decline Has Serious Implications

May 3, 2013

For 200 years, academics have predicted a demographic crisis, one of epic proportions as the world's population would theoretically outpace the world's ability to support such a large number of people. Malthus predicted massive famine, Margaret Sanger bemoaned the high reproductive habits of less intelligent people, and today's environmentalists worry that too many people will overload the natural world's resources and create too much pollution. In reality, modern population projections show that the population will never reach these levels, which will have a different set of consequences, says Bruce Thornton, a research fellow at the Hoover Institution.

  • Women must average a total fertility rate (TFR) of 2.1 children apiece for populations to remain stable.
  • In the developed world, and even in the developing world, fertility is below the 2.1 mark, meaning that populations are declining.
  • Japan and Italy have a TFR of 1.4, which means their populations will decline by 50 percent in 45 years.
  • The European Union has an average TFR of 1.5, and by 2050, only three countries in the EU will not be experiencing population declines.
  • Fertility rates are also dropping in developing regions like Latin America, where the average fertility rate fell from six children in the 1960s to 2.5 children by 2005.
  • Compared to the rest of the world, the United States' 2.0 TFR looks good; however, the number is largely dependent on the fertility rate of Hispanic women, which is 2.35.
  • If Hispanic fertility rates drop in the United States as expected, the U.S. TFR would drop substantially.

A country with fewer children becomes, on average, increasingly older. Old people spend less and invest less, shrinking capital pools for the new businesses that create new jobs. Entrepreneurs do not come from among the aged: countries with a higher median age have a lower percentage of entrepreneurs.

Most important, a shrinking labor force means fewer workers contributing the payroll taxes that finance old-age care. The U.S. Social Security program is already beginning to be impacted by the decline in the worker-to-retiree ratio.

  • In 1940, there were 160 workers for each retiree. By 2010, there were just 2.9.
  • Once some 80 million baby boomers retire, the number will plummet to 2.1.

This means taxes will have to increase and benefits be cut substantially to keep the program solvent. Medicare is similarly threatened by declining fertility. Both programs will cost more but have fewer workers footing the bill.

Source: Bruce Thornton, "The Coming Demographic Crisis," Defining Ideas, April 25, 2013.

 

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