"It is...Our will that Catholics should abstain from certain appellations which have recently been brought into use to distinguish one group of Catholics from another. They are to be avoided not only as 'profane novelties of words,' out of harmony with both truth and justice, but also because they give rise to great trouble and confusion among Catholics. Such is the nature of Catholicism that it does not admit of more or less, but must be held as a whole or as a whole rejected: 'This is the Catholic faith, which unless a man believe faithfully and firmly; he cannot be saved' (Athanasian Creed). There is no need of adding any qualifying terms to the profession of Catholicism: it is quite enough for each one to proclaim 'Christian is my name and Catholic my surname,' only let him endeavour to be in reality what he calls himself." -- Pope Benedict XV, Ad Beatissimi Apostolorum 24 (1914)

Wednesday, July 3, 2013

The Demographic Blues

June 27, 2013


[This essay is part of a series that examines the five critical challenges America faces in our time. The first group of essays in the series looked at the problem of jobs as the economy transitions from an industrial to an information economy; the next group, which starts today, takes on the challenge of managing the Great Demographic Transition as population growth slows, the workforce changes and life expectancies rise.]

Back in the late 1960s, when I was a callow youth with no common sense to speak of and a huge, misshapen ego, the Big Scare energizing the United Nations, the foundation world, the leaders of civil society and the intellectual establishment of the day was the Population Bomb. It’s hard for young people today to understand how terrified, urgent, self righteous and utterly convinced the Population Bomb movement was. The closest analogy today is the global green movement and its apocalyptic warnings about climate change. The Population Bomb worriers didn’t have as many grassroots organizations in support of their agenda as the greens do today, but the establishment, the mainstream press, and the great and the good were even more worried about the Bomb then than they are about global warming today, and the forecasts we were getting were even more dire.

Basically, the problem was that people were having too many children—especially, though it wasn’t polite to say this, non-white and non-educated people. All over the developing world, modern medicine was reducing infant mortality, but people were having just as many children as they did back in the days when half of all babies died in their first two years of life. With life expectancy increasing for older people as well, the world’s population was exploding, and the inevitable result would be famine, war and you name it.

The most visible spokesperson for the alarmists was Paul Ehrlich, a Stanford biologist whose 1968 book The Population Bomb predicted inevitable mass famines and other unspeakable horrors starting in the 1970s and accelerating to Armageddon as the starving billions fought over crusts and war boiled across an emaciated world. As the professor warned us in exactly the same kind of prose alarmist greens now use, “The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate…”

One of the chief villains of the movement to defuse the Population Bomb was Pope Paul VI; his encyclical condemning birth control among Catholics was considered an act of mass murder. After all, with the world’s population heading inevitably and inexorably off the cliff into unspeakable disaster, for the Roman Pontiff to ban one of the few possible methods of saving the planet was horrible beyond all thought.

The bomb was a dud. Though Dr. Ehrlich went on to peddle other scare stories about Malthusian meltdowns of various kinds for almost half a century after the world failed to collapse, his reputation has never been the same. The decades since the great population hysteria have seen a steady decline in the rate of population growth to the point where in many countries the biggest worry now is population decline. The number of people without secure access to an adequate diet is falling; the 21st century currently looks set to spend more time worrying about obesity than starvation. While the world population continues to rise, most experts now believe (for what it’s worth) that the world population will level off rather than explode.

Two big changes left Dr. Ehrlich with egg on his face: just as he was adding up the numbers and projecting the trends into infinity, food production rose and baby-making slowed. Neither change could have been predicted; the technological breakthroughs that made the “green revolution” in agriculture possible had been brewing for some time, but until the new strains of rice and other crops had been actually planted it was hard to know how successful they would be (or how willing and able poor and uneducated farmers would be to cultivate new crop varieties and use new methods successfully). As for the baby-making, the social consequences of cheap and reliable birth control were only beginning to be felt when Ehrlich wrote. People could have all the sex they wanted in the post-pill world, but for the most part they could limit the number of pregnancies pretty well.

Since the 1960s, cheap forms of birth control have been spreading from the developed world into poorer countries; at the same time urbanization has led many people around the world to limit the size of their families. Even young children are economic assets on a farm; in cities, even adolescent children are a considerable expense. At the same time, the longer period of education required for success in more complex and urban environments led more people to postpone marriage and children until later in life, a trend that generally reduces the number of children an individual woman will have. People all over the world began to adjust their behavior to reflect new conditions, and in country after country after country, birthrates fell.

Establishment panics—those delicious moments when the Great and the Good work themselves into a hysterical frenzy about mostly imaginary dangers—come and go pretty often but don’t usually leave much damage behind. The mainstream media are usually too busy whipping up fears about the next panic to write caustic examinations of the people who keep crying “Wolf!” And in any case, it is rude to point out that many of the people traipsing from think-tank meetings to television studios aren’t very good at, well, thinking.

Older readers will remember or have heard of the Sputnik Panic, the Fallout Shelter movement, the Missile Gap, the balance of payment nightmares of the Kennedy years, the Club of Rome commodities panic, ’70s declinism, the Japan panic, swine flu, Peak Oil, bird flu and, of course, Y2K. At the time, hordes of very important and well-connected people lectured America incessantly on the urgent dangers some of these represented, and various imposing national and global action plans were debated. In some cases, a great deal of money was spent on these plans—though never quite as much as the establishment thought would be best.

But if the Population Bomb was one of the many impending disasters that panicked the establishment without actually happening, the widespread unwavering faith in a world of rapid, unstoppable population growth is turning out to be a very expensive mistake. The demographic assumptions behind the population panic were deeply built into the core assumptions of the modern state.

Sixty years ago, it was hard to find people who doubted that each generation would be larger than the last. That led to some ideas about how to pay for social programs, and those assumptions are still hardwired into the structure of our public pension and entitlement programs. Whether you look at national programs like Social Security and Medicare, or you look at state and city pension plans or the pension plans of many private companies, the basic ideas that led Paul Ehrlich to predict a crisis of overpopulation still drive our old-age retirement system today.

But the demographic transition through which America and many other world societies are passing is bigger and more complicated than the deceleration, and in some cases the reversal, of population growth. To understand the adjustments we need to make, it’s important to take a number of factors into account. The size of the population is changing, its age distribution is changing, and its relationship to the workforce is changing in ways that are shaking the foundations of our social system.

Part of the population is in fact exploding; it’s just from a financial point of view the wrong part. Ehrlich expected the youthful population to lead the explosion. Actually, in many countries around the world, it is the elderly population that is growing most vigorously. It’s a combination of two factors: life expectancy continues to increase, and the population cohort now in its sixties is the Baby Boom segment born in the years after World War II, when Europe, North America and Japan were basking in a wave of prosperity.

Meanwhile, the size of the workforce that needs to pay in the taxes or otherwise support the transfer payments to older people is turning out to be much smaller than the architects of our social system expected. The Baby Boom didn’t have enough children, so in many countries the successor generations are now smaller than their parents’ generation. It’s most marked in China, where the one child policy was the most draconian population control measure since Pharaoh ordered the extermination of baby Hebrew boys, but in many countries we now see exploding numbers of elderly people resting on a smaller base.

The old population model looked something like an Egyptian pyramid, with a very broad base rising to a small peak. Today’s populations look a little more like a Russian cathedral with an onion shaped dome. Higher retirement and elder-care costs are being handed off to a smaller group of payers.

Something else is also at work: because it now takes many more years to navigate the educational system, more and more young people are out of the workforce for long periods of time. A hundred years ago the majority of Americans went to work in their teens; today many are in grad school until they turn 30. Add this to the reality that life expectancy has soared while the retirement age has risen slowly if at all, and it’s clear that there are more and more people out of work whose expenses need to be financed by the shrinking pool of people in the labor force.

Most of us think about the demographic problem in these broad brush ways, and at the macro, national level, the picture is grim enough. But there are some areas of the economy where the picture is even grimmer. Take manufacturing, for example. America’s manufacturers generally have much smaller workforces than they did a generation ago. Between foreign competition and automation at home, we’ve seen a dramatic decline in the size of the manufacturing workforce overall. What this means is that in manufacturing, we often see an even greater generational imbalance: there are many fewer workers today to support pension payments promised to retirees.

Ford Motors, for example, employed 40,398 hourly UAW workers in 2010, versus 102,462 in 2000. In 2001, GM employed 168,000 in the US but employs about half that number today.

Many cities have similar problems. In 1950, when Detroit had 1.8 million residents, about 200,000 were employed in manufacturing, according to Kevin Boyle. Today, the population is down to about 700,000, of which fewer than 20,000 work in manufacturing. Yet this smaller and poorer city must address pension obligations that were taken on when the city was larger than it is today—and when planners and union officials expected the city to continue growing rather than withering away.

In the old days, governments and employers built optimistic growth projections into their pension programs. They assumed that revenue and the workforce would grow. Governments assumed that the population would grow. When these projections began to fail, most of the institutions in our society failed to take steps to guard against trouble.

None of this was particularly hard to foresee, but politicians, union leaders and the chattering classes preferred not to deal with something so mundane as the security of America’s pensions or the financial health of its basic social programs. It was much more fun to slay imaginary and hypothetical monsters. Much more energy was spent fighting Paul Ehrlich’s phantom population bomb than in fixing the state, city, and private sector pensions once it was clear how wrong he was.

Now the country faces two intellectually distinct but politically linked problems. It must manage the shortfall in pensions and entitlements for the over-55 set, and it must set up a new kind of old age and retirement system for a time when workforce growth can no longer be taken for granted—a system that ensures that each generation funds its own retirement.

There are many ways to stiff the Boomers, and some are already being tried. The ultra-low interest rates since the Crash are not only a form of general economic stimulus; they also represent a serious curtailment in the income of savers and retirees. The fall in house prices after 2007-08 also represented a significant transfer of assets between generations; retiring people sold their houses at a discount as prices collapsed. Some believe that as pension funds liquidate investments to meet their obligations to beneficiaries, financial assets will lose value. Many states are looking at ways to limit inflation adjustments for pensions, and it’s likely that Social Security will follow suit. Medicare seems destined to become progressively less generous. As far as possible the cuts will be disguised; more good doctors, for example, will leave the system as paperwork increases and reimbursements shrink. The result will be that people using Medicare will have access to fewer and worse doctors than in the past. Because these cuts are less visible, they will be less resented. Means-testing seems inevitable at some point, perhaps through a back door method that involves continually raising fees and co-pays for higher-income users.

Meanwhile, expect a boom in Walmart greeters. The Locust Generation never really believed that it would grow old, and the Baby Boomers are sailing cluelessly into a stage of life for which many of them failed to prepare. This should not be read as a blanket indictment; many Boomers have been carefully and thriftily preparing for retirement. Others worked hard and tried to save, but there was never quite enough. Now the big bad wolf is coming to the door, and those who built their homes of straw and sticks face trying times.

Even as the Boomers take a massive hit (and, given their lack of leadership, foresight and self discipline on this issue, a well-deserved one), society will have to address the needs of younger generations to prepare for retirement. Their need is going to be greater in some ways; the Boomers will do their best (and their best is very good indeed) to drain the Social Security and Medicare trust funds dry, so the next generation will have a harder time taking more out of the system than it puts in. Indeed, the next generations will probably on balance get less out of the system than they pay in. Their contributions to the system will have to be higher to replace what the Boomers take out—and their benefits will have to be lower to put the system on a stable basis.

This much is math, but there is more to the demographic transition than the retirement numbers and the deficit projections. Values and attitudes shaped by the Fordist society of the 20th century helped lay the foundations for the retirement trap whose jaws are closing on so many Boomers; many of those values and the social patterns constructed on them will have to change as the world of the blue social model continues to fail.

The demographic transition is the harbinger of a cultural transition that needs to take place. I’ll come back to that in another essay.

[Crowd photo courtesy Thomas La Mela / Shutterstock.com]
Posted in Blue Social Model, Essays

No comments:

Post a Comment