Wednesday, June 13, 2012

Does Socialism Breed Infertility?

Ed Yardeni makes the case:
Demography is destiny. If so, then the future will be challenging in many countries around the world where fertility rates have dropped below the replacement rate. At the same time, people are living longer. So dependency ratios--the number of retirees divided by the number of earners--are destined to soar.

Why have fertility rates fallen around the world? There are a few plausible explanations. One of them stands out, in my opinion: Socialism may breed infertility! In the past, people relied on their children to support them in their old age. Your children were your old-age insurance policy. Over the past few decades, people have come to depend increasingly on social security provided by their governments. So they are having fewer kids.

That’s fine as long as the ratio of retirees to workers isn't so high that the burden of supporting our senior citizens crushes any incentive to work resulting from excessively high tax rates. The cost of increasingly generous and excessive entitlements has been soaring relative to taxable earned incomes even before dependency ratios are set to rise in many countries. Governments have chosen to borrow to finance social security and other entitlements, to avoid burdening workers with the extremely high tax rates that are necessary to balance entitlement-bloated budgets.

Median ages are highest in advanced economies with large social welfare states. Among the 45 major countries, Japan has the highest median age (44.7), while the Philippines has the lowest (22.2). Advanced economies tend to have higher median ages than emerging ones because they provide more social welfare, which boosts longevity and depresses fertility.

Bond markets may be starting to shut down for countries that have accumulated too much debt. That’s creating a Debt Trap for debt-challenged governments. If they slash their spending and raise their tax rates, economic growth will tend to slow. If tax revenues fall faster than spending, their budget deficits will widen. There has recently been an outcry about the hopelessness of such “austerian” policies that perversely lead to higher, rather than lower, debt-to-GDP ratios.

The demographic reality is that people around the world are living into their 80s and 90s. Some of them believe that they are entitled to retire in their late 50s and early 60s even though they are living longer. Yet, they didn’t have enough children to support them either directly (out-of-pocket) or indirectly (through taxation). Instead, they expect that their governments will support them. So governments have had to borrow more to fund retirement benefits. That debt is mounting fast and will be a great burden for our children. The result can only be described as the Theft of Generations.
I hasten to add that the only solution to this crisis is to return to free markets, where each individual plans for his own retirement. Perhaps some will have more children in anticipation of the children supporting them during retirement. Others may choose to save more, so that they will have sufficient funds to live comfortably in retirement. Whatever the individual choice is via free markets,it results in completely removing the central planning aggregate problem that results from promises of being taken care at retirement by the nanny state--by a nanny state that is broke.

4 comments:

  1. Mises Canada's Editor in Chief, James E. Miller got a brilliant article published in the National Post last week on this topic: "Forget the ‘Generational War.’ Blame the Government"
    Link: http://www.mises.ca/posts/blog/forget-the-generational-war-blame-the-government/

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  2. Making Kids Worthless...

    ...is an interesting study by Oskari Juurikkala of some of the economics underlying why the Baby-Boomers are going to bust Social Security, and why those of us left will pay the burden...

    Here is one of the assumptions:

    People will always have children,' assured Konrad Adenauer, the German Chancellor, in 1957. He was convinced that the future of the brave new pay-as-you-go social security system would not be undermined by demographic changes.

    And here is an unintended consequence:

    Instead of caring for their own parents and close relatives, those of working age are compelled by force of law and gun to pay for the retirement of everyone else. To put it plainly, social security replaces children and the family as the main support in old age by literally socializing the traditional duties of the family. Why have children when the state will take care of you in your old age? http://generationalhelots.blogspot.com/2007/04/social-security-and-fertility.html?m=1

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  3. I'm not having kids because I don't want them to grow up in a global insane asylum.

    Let the statists try to loot my non-existent offspring. Not having kids is the chink in the armor of the state. They can't loot what does not exist.

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  4. No surprise that people have less kids because of the cost of living and inflationary system.

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