Will a New Baby Boom Solve the Financial Crisis?

If only, if only…

If only everyone had more children we could solve all of the world’s problems, presto! The fault for all of our economic ills is… underpopulation.

There is much to be said for the idea, and Jonathan Last says it well:

Forget the debt ceiling. Forget the fiscal cliff, the sequestration cliff and the entitlement cliff. Those are all just symptoms. What America really faces is a demographic cliff: The root cause of most of our problems is our declining fertility rate.

The fertility rate is the number of children an average woman bears over the course of her life. The replacement rate is 2.1. If the average woman has more children than that, population grows. Fewer, and it contracts. Today, America's total fertility rate is 1.93, according to the latest figures from the Centers for Disease Control and Prevention; it hasn't been above the replacement rate in a sustained way since the early 1970s.

The nation's falling fertility rate underlies many of our most difficult problems. Once a country's fertility rate falls consistently below replacement, its age profile begins to shift. You get more old people than young people. And eventually, as the bloated cohort of old people dies off, population begins to contract. This dual problem—a population that is disproportionately old and shrinking overall—has enormous economic, political and cultural consequences.

Among the consequences are these:

Low-fertility societies don't innovate because their incentives for consumption tilt overwhelmingly toward health care. They don't invest aggressively because, with the average age skewing higher, capital shifts to preserving and extending life and then begins drawing down. They cannot sustain social-security programs because they don't have enough workers to pay for the retirees. They cannot project power because they lack the money to pay for defense and the military-age manpower to serve in their armed forces.

America is certainly not alone in this category. The declining fertility rate in Spain and Greece has produced debt-driven depressions. The Japanese fertility rate has been falling for decades and Japan has suffered economic stagnation. Even in Iran and Egypt fertility rates have fallen precipitously over the past few decades. In Iran they are now below the replacement rate.

Last points out correctly that we Americans believe that we can overcome the problem through immigration, legal and illegal.

Yet, he notes, fewer immigrants have been coming to the United States from Latin America of late. Besides, the fertility rate in many Latin American countries has also been declining, in some cases below the replacement rate.

But why is the female fertility rate declining? Are people the world over too stupid or too self-centered to reproduce the species?

The question is not as easy as it appears at first glance. China has had a strict one-child policy for decades now and its economy has done very well indeed.

China’s policy was based on a different calculation: not enough food. In the early 1906s China suffered a famine that killed around 35 million people. The Chinese government is especially sensitive about feeding its people.

A malnourished population is not going to work hard or to innovate.

China has succeeded in tamping down the fertility rate, but the despotic means it used to do so will have little appeal to free or to well-fed people.

In any event, our problem is too few, not too many. The Chinese example suggests that fewer children are not necessarily a bad thing.

It’s well and good to prescribe a new Baby Boom, but mere quantity does not, in itself mean very much. How many of the extra children Last and others are prescribing will become contributing members of society and how many will become career criminals? How many will become dependent on the state?

In a time when marriage is far less stable than it used to be, many people have fewer children because they are not married or because they fear the breakup of their marriages. Broken homes are not the best places to raise children well. They are certainly not the best places to raise a brood of children well.

We also need to mention that parents used to have more children because they did not expect all of their children to survive childhood. In a time when medical care and sanitation has advanced to the point where the chances of a child reaching adulthood are very, very good, one reason for having a large family has disappeared.

Interestingly, the declining female fertility rate seems to be universal. If so, we cannot blame it on a specific culture or imagine that if only our culture placed more importance on having children, then we would see another Baby Boom.

What if the real issue, as the Chinese example suggests, is not lower fertility rates, but diminishing resources? Perhaps the planet is becoming overcrowded. Under the circumstances, declining replacement rates might be a way to manage shrinking natural resources.

Somewhere, somehow there must be a limit to the number of humans who can successfully share the planet. Perhaps people’s minds are attuned to the problem and make appropriate  adjustments.

While I am generally sympathetic to the demographic analysis that Last and others have offered, I suspect that they are caught in a dream.

One senses that the dream of a new Baby Boom might prevent us from trying to get a grip on our and the world’s debt problem.

It makes sense. There is no solution to our national debt that does not involve considerable pain, now or later.

For more than two decades the Japanese have been trying to deal with their debt problem by ignoring it. Today, America seems to want to deal with its problem by inflating and debasing the currency. It’s easier to inflate the currency than to inflate the population.

The other way of dealing with an unsustainable debt load is to begin defaulting on some of it, cleaning out the system and starting anew.

That would entail serious pain, so no one really wants to think about it.

But then, it’s all a vicious circle. As Japan has demonstrated a massive debt burden sucks money out of the private economy and makes it impossible for individuals to retain enough of their income to be able to raise more children. Like it or not, it's a rational calculation.