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Preeti on the Web |
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Providing Food for Thought |
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Lisa Simpson had it right when she said, “Children are our most valuable natural resource, even more valuable than oil.” As dehumanizing at it sounds, children are a natural resource. A shortage of them could result in troubling consequences. |
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How falling birthrates could have troubling impacts |
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March 24, 2006 |
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Note: This column was written for a class on Social Security reform. “Children are our most valuable natural resource, even more valuable than oil.” This astute observation was made by the cartoon character Lisa Simpson, while campaigning for Springfield’s Mayor Quimby’s re-election in the television show The Simpsons. While children are indeed our most valuable natural resource, they are also in short supply in the developed world. And, a shortage of any valuable natural resource—whether children or oil—is bound to have some troubling implications. To understand these implications, it’s first important to grasp what’s been going on with children. In the U.S., fertility peaked at 3.7 children per woman during the post-World-War-II baby boom, but has since fallen to 2.1 children per woman. The situation in other developed countries has been even more extreme. Italy and Japan have some of the world’s lowest fertility rates, at 1.3 children per woman. This figure is well below the replacement rate—2.1 children per woman—needed to prevent population decline. Already in Germany, death rates have begun to exceed birthrates. Between 2003 and 2005, the number of people in Germany shrunk by 82,000, according to the country’s Federal Statistical Office. Most developed countries are expected to follow Germany’s pattern of reaching a population peak and then declining. Aside from the far-fetched possibility that Germans could become extinct, there are three major reasons why this birth dearth in the developed world should be of concern. First, falling birthrates have begun to place strains on social security systems. In the U.S., there were about five working-age people for every person over age 65 in 2000. By 2050, however, there will only be about three working-age people for every person over 65. With fewer workers to pay each retiree’s Social Security check, something will have to give. Taxes will have to increase; Social Security benefits will have to fall; or the retirement age will have to rise. The Bush administration has proposed reforming Social Security by adding the option of individual accounts. Such a reform isn’t unprecedented. Countries such as Sweden and Australia have already made individual accounts part of their social security systems. As promising as individual accounts may sound, their sustainability depends on the overall health of the economy, which is the second area of concern with respect to fertility decline. A country’s GDP (gross domestic product) is a function of the number of workers it has and their productivity. As the number of workers decreases, raising productivity is the only way to generate economic growth. How much productivity can increase is up for debate, however. Technological and organizational innovation can raise productivity. But, as people age they tend to take fewer risks. They become less entrepreneurial; and they invest less in risky tech stocks and more in safe bonds. Additionally, governments may likely decrease spending on education and scientific research in order to cover skyrocketing costs of healthcare and pensions. Borrowing by the government could also divert capital away from technology investments in the private sector. Essentially, it’s still up in the air whether productivity can rise enough to increase per capita GDP in a country with a shrinking labor force and growing number of elderly dependents. The third area of concern is the international balance of power. In terms of U.S. military power, it may become increasingly difficult to maintain military spending at desired levels as Social Security and Medicare consume more of the budget. In many developed countries, as the age 18-24 demographic shrinks and as families have fewer sons, people may become more hesitant about engaging in armed conflicts. Even if advanced military technologies could reduce the number of troops needed in a conflict, those technologies would still require considerable government spending in research and development. Thus, falling birthrates should raise concerns over retirement security, economic growth and the international balance of power. In the U.S., Americans will be faced with tradeoffs between spending on the elderly and other needs. In a panel discussion on fiscal responsibility at Duke University last month, Stuart Butler, vice president of domestic and economic policy at the Heritage Foundation, said we need to consider how fair and just it is to let the budget become overwhelmingly consumed by entitlements for the middle-class elderly. He also said we need to consider the equity of letting Bill Gates get subsidized drugs while soldiers can’t get flak jackets. In that same panel, Diane Lim Rogers of the Brookings Institution warned that the only way politicians will implement solutions to the problems posed by the demographic tsunami of aging baby boomers is for the public to turn unpopular choices into popular choices. She’s probably right. And so is Lisa Simpson when she reminds us that children are our most valuable natural resource—the future generation we take for granted until we realize it’s not there. |
