Eating the Seed Corn of Society

Slate has an interesting article on fertility rates in America that becomes less interesting when the author, Sharon Lerner, offers policy prescriptions.  The discussion is over the fertility divide between professional and poor women.

Two new studies bring the contrasting reproductive profiles of rich and poor women into sharp relief. One, from the Guttmacher Institute, shows that the rates of unplanned pregnancies and births among poor women now dwarf the fertility rates of wealthier women, and finds that the gap between the two groups has widened significantly over the past five years. The other, by the Center for Work-Life Policy, documents rates of childlessness among corporate professional women that are higher than the childlessness rates of some European countries experiencing fertility crises.

In essence, childbirth in America is increasingly likely to occur to lower income (and unmarried) women.  While the article prescribes various remedies, the fact that feminist doctrine is more effectively inculcated in professional women is not mentioned.  Nor is the fact that poorest women experience an increase in disposable income when they have children.

Why are the facts of reproductive divergence problematic for our society?  From a purely biological perspective, women are the more fragile bearers of our species' genetic material.  Eggs are more perishable than sperm.  Gestation time necessarily limits the reproductive output of women.  This is why, historically, the survival of women was more highly valued than that of men during times of crisis.  (This also resonates with our gut instincts.)  We are selecting women to reproduce who typically have below average education and resources and fathers present to insure the future success of their offspring.  Further, professional women are waiting later in life to have children, which leads to its own set of problems.  Society would be better served if a social model other the failing one of feminism was in vogue that encouraged women to have babies at a younger age and delay entry into a profession until later in life.  One could argue that this limits the productivity of society, but what we are doing is essentially similar to a farmer in days of yore increasing his current income by selling his seed corn.  Unfortunately, the time horizon for our difficulties spans generations, not just years, so it is taking a while for the interlinked problems of falling marriage rates, lower male labor participation rates and childlessness among the upper classes to make themselves known.

I know from personal knowledge that your federal government is spending tax dollars allegedly going to defense research to encourage women in their teens to prepare to enter careers in STEM (Science, Technology, Engineering and Math). I never participated in such outreach and actively avoided it.  I will continue to do so as long we keep sending the message that careers are preferable to motherhood for women.

To be clear, I am not calling for any government action, just some neutrality on the issue and an opportunity for us to change the culture.

Photo courtesy of the United States Army.

42 Grandchildren for 100 Grandparents

Mark Steyn nails the demographic problem behind recent financial crises.  He points out that in Greece there are only 42 grandchildren for every 100 grandparents.  In such a society, who will pay for the pensions of the not so elderly? (Many Greeks retire at 50.)  Some key quotes:

Look at it another way: Banks are a mechanism by which old people with capital lend to young people with energy and ideas. The Western world has now inverted the concept. If 100 geezers run up a bazillion dollars' worth of debt, is it likely that 42 youngsters will ever be able to pay it off?
. . .
If the problem with socialism is, as Mrs. Thatcher says, that eventually you run out of other people's money, much of the West has advanced to the next stage: it's run out of other people, period.
. . .
The notion of life as a self-growth experience is more radical than it sounds. For most of human history, functioning societies have honored the long run: It's why millions of people have children, build houses, plant trees, start businesses, make wills, put up beautiful churches in ordinary villages, fight and, if necessary, die for your country.

My friend KT would look at the problem as having its roots in our culture, much like Steyn does.  I am not so sure, because this demographic trend seems a feature of post-industrial economies.  Russia, Japan, China and Germany all have this problem.  India does not, but it has not pulled most of its people out of poverty yet.  America's demographic problem has been mitigated by immigration from poor countries.

The subject of how subsidies and immigration policy affect birth rate are subject for another day.  Suffice to say that cradle to grave "safety nets" create disincentives to having children to take care of us in our old age.

Fearing (for) China

For a while, it was convenient to focus on the "threat from China" in military and economic terms.  These days, not as much, in spite of the occasional Drudge headline.  Consider this:

• Even though it may be making some progress, China is the world's worst polluter.  It will take time effort and wealth to remedy the situation.
• China's working age population is declining, putting upward pressure on wages.
• Already China is experiencing high wage inflation, making it less competitive in manufacturing exports.  Meanwhile, U.S. manufacturing is enjoying a resurgence due to higher productivity and cheap natural gas.
• China's infrastructure is crumbling, and not because it is old, but because corruption pervades the building process.
• The official banking system in China is heavily dependent on government directed loans to favored industries.  I always found it laughable that some conservatives would claim that Chinese investment was causing them to overtake the U.S. while criticizing U.S. government involvement in the auto industry.  Both sets of polices are bad for the economy of their respective countries.
• Small businesses in China are served by a gray-market banking system that lacks transparency and lacks safeguards.  A collapse of this system could threaten the whole economy.

Every story I cited is both recent and slow moving.  There is almost nothing that Chinese leadership can accomplish in the short run to solve these problems.  China doesn't have long, perhaps a decade, before its demographic curve pushes it towards Japanese levels of growth.  Unfortunately, because of these problems, it will not have the store of wealth that Japan has drawn against to prevent social unrest.  (Hint to opponents of greater legal immigration, population growth drives economic growth.)  I think that it is more realistic and worrisome to consider what a Chinese economic collapse would do to the world, rather than worrying about an economically dominant China.  A collapse would send the consequences around the globe.

I leave you with this admittedly older picture of Chinese pollution heading east.

What You Should Be Reading

• One more piece of evidence that the Obama administration has been lying about Benghazi.
• The IRS might still be targeting conservative groups; there is no way of knowing, since they keep stonewalling.
• The Bob Filner recall petition, and signing it as well, because he is hurting our city economically.
• Nice little newspaper you got there, it would be a shame if something happened to it.

Shinzo Abe Cannot Save Japan

Source: The Economist.

I should probably just end this post with the picture, but a little explanation would be polite.  Shinzo Abe is on the cover of this week's Economist.  Ironically, it is also source of the graphic above.  The Economist is all but endorsing Shinzo Abe's approach to revitalizing Japan, but unless something radical changes with its demographics, it will have too many old people to support with too few workers.  They admit as much in one of the opening paragraphs:

Pulling Japan out of its slump is a huge task. After two lost decades, the country’s nominal GDP is the same as in 1991, while the Nikkei, even after the recent surge, is at barely a third of its peak. Japan’s shrinking workforce is burdened by the cost of a growing number of the elderly. Its society has turned inwards and its companies have lost their innovative edge.

What are the Prime Minister's bold proposals?  More government spending in an economy with an already debt to GDP ratio over 200% and printing money.  And vague "supply side" reforms to be created by five different commissions.  This won't help, but to be fair, nothing will help.  Mr. Abe also proposes to reinvigorate national pride.  Unless this results in more babies; nothing he does will do much good, because his economy lacks workers and the old folks want their benefits.

A stable or growing population is a source of economic growth.  We see this over and over throughout the world.  When native birth rates fall, then immigration is the only other source of population increase, which isn't happening in insular Japan.

Here in the United States, immigration reform is necessary for the same demographic reasons as exists in Japan.  However, pulling in an unskilled immigrant population that is as dependent on the government as the elderly will do us no good.  We need skilled and wealthy immigrants.  The current effort in the Senate does not emphasize this outcome.

What You Should Be Reading

Dean outlines simple and common sense health care reform implemented by one doctor.

Could we finally be getting rid of that miserable hack Holder?

The Deficit and Immigration

Today's U-T is reporting that about 365,000 illegal immigrants evaded border security forces this year, down from a peak of 1.2 million in 2005.  This is either good news that stepped enforcement is working or proof that the border is still porous, depending on your point of view.  This may turn into one of those rare problems that goes away on its own.  The following chart of Mexican fertility rates informs the issue:

As you can see, Mexico's fertility rate had fallen very close to the replacement rate of 2.1 by 2010.  I expect this downward trend to continue and will result in much less economic pressure for Mexicans to desire to immigrate to the United States.  A WSJ article on America's baby bust indicates that a similar pattern is taking place in all of Latin America.  So while we debate how to solve illegal immigration, the problem may be solving itself.

That's not to say there is nothing to fix.  It still behooves us to secure the border, in order to prevent criminals and terrorists from entering.  But if we had a very broad based guest worker program, I think the number of illegal crossings would vastly diminish.  That would also increase the success rate for catching border crossers, because they would be much more rare, and the resources in place would be adequate to the task.

I look forward to reasonable immigration because we need more workers in this country, especially skilled workers.  Expansion of the legal avenues of immigration, such as the H-1B visa program, are unlikely to happen outside of the context of full reform.  But I am also committed to the rule of law, so I demand a secure border and that those who have entered illegally not be permitted citizenship, even if we allow them to stay under some circumstances.

What has this got to do with the Federal budget deficit?  Looming future deficits are a result of the poor shape of our demographic curve.  We don't have enough workers compared to the number of folks drawing medicare and social security.  The graph below shows a bulge of workers peaking in the 50-55 age range, with fewer workers behind them to produce the economic output necessary to sustain them in retirement.  Further, we can predict that the base of the graph will continue to shrink over time, see WSJ article on baby bust.

Certainly, there are other issues exacerbating the deficit.  Federal spending jumped in 2008-2009.   Promised benefits have also grown, and medical cost inflation has exceeded general inflation, but this profile would still spell trouble.  Increased immigration is a stop gap measure to fill in the gaps in this curve.  But that requires reform of the current system.

But in the long term, forces are at work that are slowing the growth of population world wide.  Doom-and-gloomers are now predicting extinction of the human race in 600 years due to falling birth rates, just getting ahead of the curve, I guess.  However, the forces and incentives shaping today's falling birth rates will certainly undergo change themselves.  Who knows what technology will bring to cause that change?  Child rearing robots could be THE key invention of the next century.

More on Demography

I posted last week about trends in world depopulation, and how America needs immigrants as a result.  In a review of a book by Jonathan V. Last, Heather Wilhelm argues that even having a high immigration rate won't necessarily hold off the impacts of low birth rates forever, because it is a global trend.  Further, because the causes of low birth rates (i.e. below replacement levels)  are cultural, and immigrant women assimilate the culture, their birth rates drop as well.  Near the end of the review, she gives us this food for thought:

The best arguments for having children, unfortunately, run opposed to modern, secular American culture. Good reasons to have kids tend to be about delayed gratification, prioritizing family, putting others first, transmitting serious values and beliefs, focusing on something larger than yourself, and understanding the difference between joy and fun. Perhaps this is why, as Last notes, "American pets now outnumber American children by more than four to one." It's also why, if American fertility continues to slide -- and, as the author notes, that's still an "if" at this point -- there's little the government can do.

Indeed there is not.  Just one more area where culture has its consequences.  The falling birth rate is going to wreck the welfare state, and world wide, not just in America.  We are already getting a taste of it now, as the demographic bulge of baby boomers starts to enter retirement and medicare costs continue to ramp skyward.  Immigration could hold off the trend for a while, but eventually birth rates must return to sustainment levels for modern humanity to survive.

Demography and Destiny

Slate reports some facts that I knew were coming for some time.  They have not not received widespread attention.  In addition to passing through the 7 billion mark for world population last year,

It took humankind 13 years to add its 7 billionth. That’s longer than the 12 years it took to add the 6 billionth—the first time in human history that interval had grown. (The 2 billionth, 3 billionth, 4 billionth, and 5 billionth took 123, 33, 14, and 13 years, respectively.) In other words, the rate of global population growth has slowed. And it’s expected to keep slowing. Indeed, according to experts’ best estimates, the total population of Earth will stop growing within the lifespan of people alive today.

For those challenged by calculus, this means that we already have evidence of a slowing rate of growth, which eventually becomes no growth at all.

This means that all the doomsayers from Malthus to Paul Ehrlich will be proved wrong in the lifetime of my children.  I am sorry that my Uncle Paul, who first argued this issue with me when I was a youngster, isn't alive for me to say I told you so.

More importantly, it points to the need for the United States to solve its illegal immigration problem, so that we can get on with the business of encouraging legal immigration of skilled workers that we need.  From the same Slate article:

Instead of skyrocketing toward uncountable Malthusian multitudes, researchers at Austria’s International Institute for Applied Systems Analysis foresee the global population maxing out at 9 billion some time around 2070. On the bright side, the long-dreaded resource shortage may turn out not to be a problem at all. On the not-so-bright side, the demographic shift toward more retirees and fewer workers could throw the rest of the world into the kind of interminable economic stagnation that Japan is experiencing right now.

The United States has clear advantages in attracting new migrants that would overcome these difficulties.  We have freedom of expression, rule of law and relatively reasonable levels of taxation and regulation.  But all of these advantages are under assault by this administration.  Given future world trends, freedom turns out to be a competitive advantage for attracting human capital.

Meanwhile, the Republicans should cut a deal on immigration with Obama that ties liberalization of rules on current illegals to proof that the border is secure.  This would put the Democrats in a bind, because they don't really want the border secured.  The sort of unskilled migrants that are of low value to our economy are seen as future Democrats, in my opinion.  So the Democrats want more of them to reside in the country.  Sane immigration policy would be encouraging highly skilled immigrants to come here, say from India and China perhaps, and would keep out those likely to be unemployed and consuming social safety net benefits.

Wrong!

Last Hurrah for the GOP?

The Last Hurrah is a novel about an Irish machine politician of the 1950s whose final campaign for mayor is his "last hurrah."  He loses because of forces changing the nature of politics that he doesn't master, specifically TV.  In the end he loses the election and dies soon after.  I read the book in my early teens, but still remember its contours.  Today, many on the left are righting a similar obituary for the Republican party through the lens of the changing demographics of the country.  They point to the fact that currently, Republicans draw heavily on white support and whites constitute only about 71% of the electorate, which is declining every four years.  Brookings reports that they will comprise about 75% of actual voters, but that figure is in decline as well.  Here is a graphic of the trend.

One would think that this spells long term disaster for the GOP, but I think not.  Just focusing on group, Hispanics can explain why.  One of the key reasons that Hispanics have been voting Democrat is a misperception that the Republican position on immigration is motivated by race.  It is not, but that is a hard perception to change.  I believe that Mexican-Americans, who are largely Catholic, would not be in the Democratic coalition except for this.  As often is the case, Victor David Hanson lays out the case much more eloquently than I.  The quoted article is explaining why there is hope for California's dysfunctional politics, but his comments have broader implications.

At some point, the state’s southern border will finally be closed, and with it the unchecked yearly flow of illegal immigrants. The economic downturn in the United States, globalized new industry in Mexico, and increased border enforcement have already resulted in lower numbers of illegals. No national support exists for wholesale amnesty or for open borders. And with an enforced border, California will see not only decreased remittances to Mexico and Latin America and a reduced draw on state services but also, perhaps, a change in attitude within the state’s largest ethnic group. After all, illegal immigration warps the politics of the Mexican-American community, which constitutes more than 40 percent of the state’s population. The unlawful entry of Mexican nationals into California not only ensures statistically that Mexican-Americans as a group suffer from disproportionate poverty rates; it also means that affluent third- and fourth-generation Mexican-Americans become part of a minority receiving disproportionate state help.. . .Indeed, the great fear of the liberal Hispanic hierarchy in government, media, and academia is that without illegal immigration, the conservative tendencies of the Hispanic middle class would cost the elites their positions as self-appointed spokespeople for the statistically underachieving.

The Republicans could speed this change by reaching out to Hispanics now, and by actually getting the border under control after a Romney victory.  Control of the border will be the down payment conservatives will require before negotiating a more thoughtful immigration policy.  But once that issue is settled, I see Hispanics splitting between Republican and Democratic leanings in the same proportion as whites.  That will force the Democratic party back to the middle and be good for the country as a whole.

Demography and Economic Destiny

Megan McArdle examines the extent to which southern Europe's economic troubles are related to their demographic profiles. While she makes no explicit reference to U.S. troubles, some inferences can be drawn. The arc of modern industrial societies goes something like this. Improvements in living standards and health care result in lower infant mortality rates and increased longevity. As a consequence, parents make the rational decision to have fewer children because they have an expectation that these children will all grow to adulthood. Having fewer children allows them to pour more resources into raising each child. At first, this results in increasing growth as women can enter the work force and people in general can work longer.

However, as birth rates fall to below replacement level, a bulge enters retirement and starts drawing down on their savings, or to greater detriment, they draw on social security schemes that must now be funded by a smaller work force. These macroeconomic trends weigh down the economy. Even before these older workers enter retirement, they are highly paid, but less likely to be innovative risk-takers in ways that grow the economy.

The whole piece is worth a read, its an excellent primer on the subject. So what's to be done? McArdle calls for the usual remedies of raising the retirement age and forcing people to save more on their own. These are in fact good ideas, but I wonder why no one ever touches on the idea of immigration from countries where there are still high birth rates or there are two many people to countries with demographic issues. The U.S. has a demographic issue of its own, not as bad as that of Europe. We are in a better position to absorb immigrants than Europe, because we are already a nation of immigrants. I have posted this graphic before, but look again at the advantage of bringing in workers from a country like India:



Don't be fooled by the scaling either, India's population dwarfs that of the United States. Also, the U.S. problem is not near as bad as Italy's. To look at the population pyramid for any country by past or future decade click here, it is pretty interesting stuff.

Explaining a Few News Items

Lots of articles about the problems besetting the Occupy movement, especially Occupy Wall Street. I take no pleasure in their difficulties, but this seems inevitable for a movement that has adopted the French Revolutionary model, with the whole Paris commune/General Assembly concept. It is good to remember that the French Revolution ended in slaughter and dictatorship. The American Revolution stood the test of time, because a constitutional republic with separation of powers restrains the worst impulses of the mob. Early on I had hoped that their movement would focus on crony capitalism and call for an end to cozy relationships between business and government, but they don't seem to be trending in that direction. I also could be wrong about that, because I don't trust the media to accurately portray them any more than the tea party movement was accurately portrayed.

Much has been made of stagnating wages in the U.S., especially on the left. Professor Perry at Carpe Diem suggests that their may be a relationship to the number of workers entering retirement and stagnating incomes. I agree but not for the reasons cited by Perry. He suggests that the workers leaving the workforce see household incomes stagnate because they are now retired. But I don't think the statistics include retirees. However, there is an impact of the increasing number of retirees and the relatively fewer Gen Xers as compared to Baby Boomers. As the boomers retire, they leave the work force at their peak earning years. But there are fewer Xers to replace them, but more Millenials than Xers. This causes the average age of the work force to trend younger, and therefore less well paid. See the bulge of retirees at the 50-55 year old group below.



Opposition to the Keystone pipeline, designed to bring so called "tar sands" oil from Canada to the United States is usually couched in language about the potential impact to water supplies and the like. However, famous global warmist James Hansen, also director of the Goddard Space Flight Center, explicitly links opposition to the pipeline to preventing global warming.

Phase out of emissions from coal is itself an enormous challenge. However, if the tar sands are thrown into the mix it is essentially game over. There is no practical way to capture the CO2 emitted while burning oil, which is used principally in vehicles.

Note that this is a tacit admission that there is plenty of oil in the ground, by a leading warmist. It is interesting to note that the enviros try to have it both ways, arguing simultaneously that our dependency on oil will come a cropper as we run out of oil, and also saying that if we keep burning oil we will wreck the environment. If we were really running out, then they wouldn't have to worry, would they?

Disagreeing with Glenn Beck on China

Glenn Beck has been claiming that China is overtaking the United States as a global economic power. While he makes a number of good points he and his panel of experts have missed some key issues that will inevitably hold China back. Beck's experts, Jim Rogers, global investor, and David Buckner, economist, opine correctly that future national economic trends can be traced to people and capital. They then proceed to focus on capital and forget about the people. The fear that we are being overtaken is nothing new, in the 1980s there was widespread fear that we were being overtaken by Japan; then "Japan, Inc." tanked. Before it did, I remember reading a quote in Reason from Thomas Friedman's book The Lexus and the Olive Tree, "I am not afraid of Japan or the other Asians. Our Asians will beat their Asians any day." The quote was ascribed to a Silicon Valley entrepreneur, who was making the point that we are the only country attracting brain power through immigration. It is a source of strength not matched by our Asian competitors. So while our public education system isn't really building the home grown talent we would like, a point made repeatedly by Beck, it is not the only source of human capital for our nation.

My second objection is that the demographic trend line for China is following that of Japan's, which will cause domestic tension and considerably raise their labor costs as they bear the burden of an aging population. Consider the following demographic profiles from Simon Bond's blog:


Because of its one child policy, China is following Japan in having an aging population that lacks younger workers to support the pension benefits of their forebears. The United States has a problem, but not nearly as severe. Note too that India, with its English speakers, flatter population profile and commitment to education is a much greater long term threat to our economic supremacy. Note too, that their is a large gap between the male and female populations in the 20-24 age group, with a deficit of about 4 million against 65 million males. This is certainly going to cause societal problems.

Next, China's lack of regard for the environmental effects of its industrial policy will come under pressure as its workforce becomes wealthier. This is not a pretty picture:


Two final thoughts. First, China's investment is heavily directed by the central government. Beck professes belief in the superiority of the free market system over and over on his show, but loses his mind when it comes to China. "State capitalism" will prove no more robust than socialism in the long run as an economic system. The ability of a free market economy to outmaneuver other models is already proven. The question for America is how will we preserve the light regulation needed for capitalism to work, and not allow the heavy hand of government to strangle free enterprise. Second, China is still a repressive regime, which is incompatible with the agility of mind and freedom of choice necessary to a culture of free enterprise. Without those strictures, the party loses its power. With them, it will always be chasing countries with free markets.

Personally, I think we should be more concerned with India in the long term. They are a democracy and working through their problems slowly but effectively. I wish we would be allowing their best and brightest to immigrate to our country in much more massive numbers than we currently allow, to give us a head start on the inevitable economic competition.

Headwinds for the Economy

Despite signs of recovery in the broader economy, I remain concerned about a double dip recession. First, the evidence that the economy is recovering:

Economists have steadily grown more upbeat about growth in recent months and boosted their estimates for the fourth quarter of 2010 in this survey. On average, respondents now estimate the U.S. grew 3.3% at a seasonally adjusted annual rate in the fourth quarter—up from an estimate last month of 2.6% growth. The economy grew 2.6% in the third quarter.

However, the headwinds moving against the economy appear powerful. First, the housing market has never been allowed to adequately deflate. I repeat a previous graphic on the subject:


Just as the original recession was triggered by the fall in housing prices, I believe that a double dip could be similarly triggered.

State finances are going to get worse before they get better. First, their borrowing costs are rising.

Yields on 30-year triple-A rated general obligation bonds shot higher to 5.01% on Thursday, reflecting a spike in perceived risk, according to Thomson Reuters Municipal Market Data. The last time those bonds yielded 5% was Jan. 30, 2009, during the financial crisis.

Second, attempts to raise taxes are going to be met with business flight. Illinois' massive personal and corporate income tax increases will only encourage the loss of wealth producers. The news from Illinois:

In a deal hammered out by the state's Democratic leadership, the lame-duck legislature pushed through a 67% increase in the state income tax and a 45% increase in the corporate tax.
. . . "We're saying to the people of Illinois, 'For eight years we've overspent, now we're going to make it your problem,'" said Rep. Roger Eddy. "We're making up for our mistakes on your back."

Gov. Mitch Daniels of Indiana and Gov. Scott Walker are ready to welcome Illinois' businesses to their states.


Pension problems are hitting as the Baby Boomers are hitting retirement age. State, local, school district and union pensions are all underfunded. I have blogged and tweeted about a number of these problems already. To some extent demography is the key challenge here, look at the bulge in the U.S. demographic trend. (Note that this is 2000 data, so to make sense of it, add ten years to the age.) Note that we have the peak of the boomer bulge currently in the 50-54 age group, but there are significant numbers of people retiring.


The only hope is a quick deflation of the housing bubble, followed by more spending as the properties get bought up and corporations open up their bank accounts to invest in new growth.