1. Replacement Fertility Rates
According to the United Nations, the global population replacement rate is 2.1. That is to say that in order to maintain the current level of global population, every woman on earth has to have, on average, 2.1 children, although there are, of course, regional variations. In countries with high infant mortality rates, for instance, more children are required to ensure that enough girls reach reproductive maturity. And something similar is true with respect to high parturition mortality rates. For if a woman dies giving birth to her first child, she obviously cannot give birth to a second.
Indeed, given the still quite high infant and parturition mortality rates in the developing world, it is a wonder that the global replacement fertility rate is as low as it is, especially when one considers that even if the developed world’s infant and parturition mortality rates were zero, it is mathematically impossible for any population to remain at the same level if its fertility rate falls below 2. This is because each woman in the population has to produce a minimum of two children in order to statistically ensure that she replaces herself.
It is therefore a cause of some concern that, again according to the United Nations, there are currently 95 countries in the world with fertility rates below 2.0, the lowest being South Korea where the rate is just 0.84. Were this to remain unchanged, this would mean that, by the end of the century, South Korea’s population will have shrunk by around 60% from its current level of 51.75 million to around 20.75 million.
And there are plenty of other countries in a similar position. Take Japan, for instance. Although its fertility rate is substantially higher than South Korea’s, at 1.40, its population of 123.29 million fell by around 700,000 over the last year, not least because its low birth rate was not offset by any significant level of immigration. This is in marked contrast to the UK, for instance, which has a fertility rate of 1.56, and should therefore have experienced a fall in population of around 225,000 over the last 12 months. Because UK net immigration – the difference between those arriving in the country and those leaving it – is currently running at more than 500,000 per annum, however, this meant that, even taking into account unexplained excess deaths, the population still actually grew by 227,000 during this period: something which many people would argue is, in itself, a problem, in that, for most of this century, the UK has been gradually but effectively replacing its indigenous population with a new migrant population, thereby giving rise to an entirely different set of problems, to some of which I shall return later.
2. The Causes of Demographic Decline
Before examining the likely consequences of this widespread demographic decline in more detail, however, we first need to understand why it is happening, not least because the most salient characteristic of those countries in which women are having the least children is, of course, that they are all wealthy, while the 25 countries in the world with the highest fertility rates – all of which are in Africa – are among the poorest.
The country with the highest fertility rate, for instance, which currently stands at 6.89, is the Republic of Niger, 80% of which lies within the Sahara and is so arid and inhospitable that the subsistence farmers who largely make up its population generate an annual per capita income of just US $613. With such dire levels of poverty, one wonders, therefore, how people can bear to bring children into the world at all. It is precisely this grinding poverty, however, that drives the fertility rate. For if one lives in a such an unforgiving land, in a country with no state funded welfare system, one has to have as many children as possible simply to ensure that enough of them survive to continue providing for their parents in old age.
Up until the second half of the 20th century, moreover, this was the norm throughout the entire world. In temperate regions such as Europe, the situation may never have been quite so extreme, but without the state to provide a welfare safety net, one of the biggest incentives people have always had for having children is to ensure their future economic security. It is why, not just families, but whole communities took such great interest in seeing their young people forming strong and stable unions, and why the birth of every child was a cause of celebration. For barring illness and other misfortunes, each child born traditionally represented another productive pair of hands who would, in due course, help ensure the whole community’s continued prosperity.
It wasn’t until after the second world war, in fact, when an era of cheap oil brought about an exponential growth in wealth based on the widespread use of the internal combustion engine, that decisions were made throughout most of the developed world to change this fundamental aspect of all previous human societies: a transformation which was principally achieved by providing senior citizens with state pensions, thereby transferring responsibility for the economic welfare of the elderly from the family to the state and reducing the importance of the family to most people’s future economic wellbeing.
While an improvement in economic conditions may have made this fundamental transformation of society possible, however, the most important thing to note about this largely unheralded revolution is that increased wealth did not, in itself, cause or bring about the change. After all, the wealth could have simply been left in the hands of those employed in making it, thereby enabling families to better look after their elderly themselves. What’s more, it is likely that a better off society would have been more inclined to contribute to those charities which already existed to provide support for old people who did not have families of their own to fulfil this role. National governments did not therefore have to intervene in the way they did for the lives of the elderly to be improved by a general increase in prosperity. The decisions were thus largely political in nature.
That’s not to say, of course, that such decisions weren’t taken for the best of reasons: to prevent old people falling through the gaps in the care that was then available, for instance, or to enable them to retire with dignity without having to go cap-in-hand to charitable institutions. What is still nevertheless the case, however, is that in taking these decisions, governments failed to take into account the long term consequences this transformation would have on society as a whole, especially given the fact – which no one, of course, could have anticipated – that this change more or less coincided with the introduction of an effective and easy to use form of contraception, which meant that, for the first time ever, women could risk having sex without first securing the commitment of a partner on whom they could depend if they became pregnant.
This then had two further consequences. Firstly, it meant that women could delay getting married until after they had experienced more of what life had to offer, including both a career and a more adventurous sex life. Even more importantly, it meant that, even after they were married, they could now plan when they had children, thereby allowing them to combine a career with having a family: something which was simply impossible when children came along haphazardly, forcing on women irregular periods of pregnancy and child rearing which effectively kept them out of the work force, not least because very few employers were willing to hire employees who were likely to be that unreliable.
Thus it was that a comprehensive welfare system – one which liberated both men and women from the need to have children in order to have someone to support them in their old age – combined with a reliable form contraception, suddenly gave women more freedom than they had ever had before. However, it was not just women themselves who were keen to embrace the opportunities this presented. Indeed, there were others with far less honest and honourable motives who were even more intent that they should fulfil their potential. For throughout the decades during which women had been forced to spend their child-bearing years at home, most families, of course, had had to live on the income of just one wage-earner. In order to do so, however, women had to produce a huge variety of goods and services in the home. These ranged from home-cooked meals made from basic ingredients, knitted and home-sewn clothes for both themselves and their children, all-day childcare for their pre-school infants and, of course, care for their elderly parents, all of which they provided without any financial remuneration.
What this meant, therefore, was that half the entire adult population was engaged in economic activity in one form or another upon which no monetary value had ever been placed and for which no money actually changed hands, making it simply impossible, therefore, for anyone to make a profit from it or for it to be taxed. As soon as women had been biologically freed to join the wage-earning labour force, therefore, both government and big business were not just keen to get them out of the home and into the factory, but were positively salivating at the prospect of all the additional revenues this would generate. For by getting women to produce industrial versions of the food and clothing which they had previously made at home, they no longer had the time, of course, to make the old homemade versions. This meant that they now had to buy them readymade on their way home from work, using the wages they received in exchange for their labour as payment, a percentage of which was then returned to the business owner as profit, while another percentage went to the government in tax.
The problem was that, while many women clearly thought that this was a better arrangement, one of its worst consequences, as I explained in ‘Women’s Liberation and the Monetarisation of the Economy’, was that it was highly inflationary. For although industrialisation brought about some increases in productivity, overall production did not increase anywhere near as much as the increases in the money supply which resulted from paying women to produce the same goods and services they had previously produced for free. Worse still, this inflation was largely invisible and so did not result in a commensurate increase in wages.
This was because standard inflation indexes, such the Retail Price Index (RPI) or the Consumer Price Index (CPI), only measure increases in the price of the same or similar items over time. They don’t measure the difference in cost between a cottage pie made from basic ingredients at home and one bought in a supermarket, especially as the homemade cottage pie was traditionally made from left-overs from the Sunday roast. Thus while, according to the RPI, £1 in 1960 had the same purchasing power as £22.62 in 2020, in reality its value was much higher. Indeed, if one bases the relative valuation on other indexes, such as the Commodity Price Index, £1 in 1960 would have actually been worth £79.99 at 2020 prices, more than three and a half times the official figure.
That’s not to say, of course, that all this inflation was caused simply by women going out to work. In 1971, for instance, there was the small matter of the US coming off the gold standard, causing a massive devaluation of the dollar – and all other currencies pegged to it – when set against gold and other commodities. Then, in 1974, there was the 300% hike in oil prices which the west had to pay in return for Saudi Arabia’s promise to continue pricing its oil in dollars, thereby ensuring that the dollar remained a reserve currency. Nevertheless, the monetarisation of goods and services which women had previously produced without monetary remuneration still made a hefty contribution to 1970s inflation, as can be best seen, perhaps, in the case of services which had simply not existed before women started working outside the home. The most notable of these services, of course, was childcare, which, by the 1990s, consumed up to 25% of average take-home pay per child. Thus, if a family placed two children with a pre-school childminder, it could have cost them up to 50% of one of the parents’ salaries, a cost which simply did not exist before.
Of course, most governments throughout the developed world soon recognised this problem and started providing financial support for childcare either through the tax system or through direct subsidies. All this really meant, however, was that working families had pay indirectly for childcare through some other form of taxation. After all, the money had to come from somewhere. More to the point, subsidising monetarised childcare does not solve the underlying problem, which is that, due to the fundamental restructuring of the economies of the developed world over the last sixty years, families have been loaded with more and more costs while the value of the money in which they are paid has been constantly eroded without most people even realising this.
The result is that, whereas in 1960, families with three, four or even five children could manage perfectly well on the salary of just one wage-earner, families with just one or two children today often struggle to manage with both parents working, making two children the most that the average family can afford, thereby making it more or less impossible for fertility rates in developed countries to rise above 2.0.
3. The Consequences of Demographic Decline
Of course, there will be some who will say that this is a good thing, that the planet is overpopulated and that a reduction in population would be beneficial for the environment. However, this reduction is only happening in the developed world. The developing world is still producing as many children as ever, with the result that the global fertility rate, at 2.2, is still actually greater than the required replacement rate, which means that the global population is still growing.
This will no doubt lead others to argue that the developed world should therefore adopt a policy of offsetting their demographic decline by taking in more immigrants, as the UK would appear to be doing. What this fails to understand, however, is that the problem is not about absolute population levels. If it’s about population at all, in fact, it is about the ratio between different generations. For if a country has a fertility rate of 1.50, for instance, this means that each generation will produce 25% less children than the previous generation. This in turn means that, when these children grow up, there will be 25% less adults of working age to support their parents, the whole demographic structure of society being top-heavy with old people.
Nor will this change when the post-war generation of baby-boomers dies out. For as long as a fertility rate of 1.50 persists, every generation will be 25% smaller than its predecessor, while the ratios between generations will always remain the same.
So why, you ask, would immigration not solve the problem? It would, after all, increase the number of people of working age. The problem, however, is not just about the numbers. It is also about having a working population with sufficient education and skills to generate enough wealth to fulfil the Herculean task of supporting a disproportionately oversized elder generation. And the majority of migrants entering Europe just do not fit this description. After all, in most cases they are fleeing poverty, having been born in countries which have only been able to provide them with the most basic level of education. When they get to Europe, therefore, they are only qualified for the lowest paid jobs, which do not generate enough tax revenues to cover their own children’s educational costs, let alone pay for the pensions and health care of the elderly. In fact, most first generation immigrants are a drain on the economy of their host country. It is only when their children grow up and join the jobs market, having received a higher standard of education than their parents, that they can start making a contribution to the community as a whole. As soon as this happens, however, they find themselves in exactly the same position as their native counterparts: stuck in an high tax, low pay economy in which, even with both parents working and all the welfare benefits their adopted home now gives them, they still can’t afford to have more than two children.
This is because what the developed economies of the world actually did when they transferred responsibility for the non-productive parts of their economy from the family to the state was initiate a vicious circle in which the productive sectors of the economy were so squeezed by inflation and taxation that they contracted, producing fewer productive workers for the next generation, which was consequently squeezed even further to pay for all social services and welfare benefits upon which all generations have now come to rely and regard as their due.
Indeed, the fact that nearly everyone today not only relies on this system but believes that, in any civilized society, everyone should be entitled to free health care, at least thirteen years of free full time education and a living pension when they retire means that breaking out of this vicious circle is so politically fraught that even when many developed countries reached the point at which they could no longer extract any more tax from their productive population, governments still did not cut public expenditure. All they did was borrow the money, instead, lowering interest rates both to keep their own borrowing costs down and to increase the rate at which money circulated, thereby increasing the M2 money supply so as to avoid depriving the productive sectors of the economy of investment.
The problem with this strategy, however, is that whether one increases the money supply by printing more of it or by increasing its velocity, it is still inflationary, even if the effects are not immediately apparent. This is because inflation does not always appear in consumer prices. If people are finding it hard to make ends meet, for instance, then, even if interest rates are low, they will generally be loath to borrow money to spend on things that do not improve their financial security. If interest rates are low enough, however, they may be induced to borrow money to invest in assets that are likely to appreciate over time, which is exactly what happened in the 1990s and early 2000s when, seeing what was happening to house prices, people rushed into property market, thereby creating a self-fulfilling housing bubble.
The problem was that hard pressed families didn’t see it as a bubble and so used the rising value of their homes to borrow more money to supplement their incomes, making them feel better off than they actually were, until, of course, the housing bubble, like all bubbles, eventually burst, leaving them with nothing but the debt.
Even this, however, did not lead governments to consider changing the fundamental structure of their economies. Instead, they merely doubled down on the monetary theory which had got them into this mess in the first place, not only reducing interest rates still further but actually printing more money in what they euphemistically referred to as ‘quantitative easing’. Far from stimulating the economy, however, as central bankers and governments continued to claim it would, all this extra money printing did was stoke another round of inflation, not this time in the property market, but in financial assets such as stocks, causing stock markets to continually hit record highs, thereby making some people very rich, while the real economy, which stock markets are supposed to represent, remained stagnant.
Not that this, in itself, posed any significant threat. For although this financialised economy was generally bad for ordinary working men and women, for a long time it actually seemed quite stable. Indeed, after watching this scenario play out for nearly fifteen years, I was beginning to believe that the financial system was not going to collapse in on itself as I had initially supposed. And then, of course, Covid came along and governments throughout the world decided to impose the most insanely self-destructive lockdown rules on their economies imaginable, forcing people to stay at home while borrowing even more money to pay them to do nothing, thus increasing the money supply while actually reducing production, thereby causing both shortages and a new wave of inflation, this time in the price of consumer goods, especially food.
What this meant, therefore, was that central banks now had to suddenly go into reverse, bringing quantitative easing to an end and putting up interest rates in order to reduce the velocity at which money was circulating. The problem was that while, by 2022, the economies of most countries had recovered a little since the height of the pandemic a year earlier, in most cases this recovery was still not complete. This meant that most governments were still borrowing substantial amounts of money. In the UK, for instance, government borrowing in 2022 stood at £71.61 billion, which was well down on the £240.97 billion deficit in 2021, but substantially higher than 2019 when the Treasury actually recorded a small surplus. Worse still, the deficit in 2023 is forecast to be £87.37 billion. Because the rate of inflation is still so high, however, the Bank of England can neither reduce interest rates nor print any more money. This means that all this continued borrowing has now got to come from commercial banks, thereby very possibly leading to a liquidity crisis.
We can see this more clearly in the context of the USA, where five major banks, including First Republic Bank, Silicon Valley Bank and Signature Bank, have already failed this year. This is because, when interested rates were low, they all invested some portion of their customers’ deposits in US Treasuries, which were then yielding around 2%. They were able to do this because they were only paying around 0.5% on deposits. When inflation started to rise, however, and the Federal Reserve, like the Bank of England, started to raise interest rates, the market value of these low-yielding Treasuries started to fall below what the banks had originally paid for them.
Not that, at this stage, this was a problem. For the banks could simply hang on to these bonds until they reached maturity, when they would be redeemed at face value. The problem was that when, in line with higher interest rates, the US Treasury then started issuing bills, notes and bonds with higher yields, customers with deposits in banks which were only yielding 0.5% interest, naturally started taking their money out of the banks in order to invest it in these new high-yielding Treasuries. This meant that the banks which held the old, low-yielding Treasuries now had to start selling them at a loss in order to meet their customers’ demands for cash, thereby making themselves technically insolvent, which, when this was discovered, led to even more customers taking their money out these banks, causing them to fail.
Nor is this problem confined to the USA. The same problem would have caused Credit Suisse, Switzerland’s second largest bank, to fail in March this year had it not been taken over by UBS, Switzerland’s largest bank. What’s more the problem is soon likely to become much worse and more widespread. This is because at the end of May, after months of haggling, the US Congress approved a bill to raise the US debt ceiling above the $31.4 trillion at which it had stood since the last time it was raised. As a result, it is now anticipated that the US Treasury will sell another trillion dollars’ worth of Treasuries over the next three months, many of which will be bought by investors who will take the money out of their deposit accounts to do so, thereby causing several more commercial banks to fail, with possible knock-on effects all across the which financial system, which may not be able to survive another such blow.
4. The Solution
You may of course be wondering what all this has to do with demographic decline. In economics, however, everything is connected. It’s like a massive eco-system: you make a change in one part of the system and it has an effect somewhere else, often where you least expect it. In 1958, for instance, Mao Zedong ordered the extermination of all the sparrows in China as part of the country’s ‘Four Pests’ campaign, the other three pests being rats, flies and mosquitoes, all of which, of course, play some role in spreading disease. In contrast, the sparrow’s sole crime was that each bird was estimated to consume 2 kg of grain per year, which could otherwise have been used to feed people. And so Chairman Mao ordered their eradication. What neither he nor any of his officials seem to have realised, however, was that, in addition to consuming 2 kg of grain per year, sparrows also ate a lot of insects, including locusts, which, without the sparrows to control them, now devastated Chinese crops, contributing significantly to the Great Chinese Famine of 1959 to 1961, in which somewhere between 15 and 55 million people are estimated to have died.
In deciding to transfer economic responsibility for the elderly from the family to the state, we, of course, did nothing quite so obviously stupid or with such immediately devastating effects. By making it both less necessary and less affordable for people to have as many children as they had before, however, we set in train a process of demographic decline in which the working population gradually contracted until it reached a point at which it could no longer generate enough tax revenues to cover the contractual liabilities the state had so foolishly taken on itself, thereby forcing governments to borrow the money instead. In order to avoid liquidity problems, however, this in turn forced them to increase the money supply, which inevitably caused inflation, thereby placing most western governments in the double bind in which they now find themselves: still needing to borrow money to meet their obligations, but unable to print more money to so, thereby making a liquidity crisis more or less inevitable.
Of course, this is a grossly oversimplified model of how we got to where we are today. There were probably hundreds if not thousands of more factors involved, all of which, collectively, forged the history of the post-war era. Right at the heart of this history, however, was the decision, taken throughout most of the developed world, that the state should play a much more prominent role, not just in the everyday lives of ordinary people but, even more particularly, in the management of the economy, with the result that the US federal government now owes $31.82 trillion, or 120% of US GDP, while the UK national debt currently stands at £2.85 trillion, or 101% of UK GDP, neither of which sums can ever be repaid without further massive devaluations of the two countries’ respective currencies, which can only be achieved through inflation, with all the devastating effects this will have on their populations.
The only hope we have of avoiding this is therefore to reverse the developed world’s post-war policy of expanding the state and introduce, instead, an era of state contraction, which might be most usefully begun by abolishing state pensions, which are not only the epitome of state paternalism but are at the centre of everything that has gone so disastrously wrong with the economy over the last sixty years, not least because, in most countries, state pensions have been based on a lie.
I say this because, in the UK at least, the new tax which had to be introduced to pay for these pensions, and other related state benefits, was sold to the British population as a form of insurance. Indeed, it was actually called ‘National Insurance’ (NI), as if it were a fund into which people would pay when they were working and from which they could then make withdrawals if they were out of work and when they retired. However, the ‘contributions’ which were made into the fund were never actually hypothecated or set aside in this way. They were simply lumped together with all the other taxes which the government collected, to be used for public expenditure in general.
This also meant that they were not invested in the way in which real pension funds are invested, so as to accrue interest and hence increase the size of the pension that is eventually paid out. Instead, the government relied on more and more people paying into the scheme in order to pay existing pensioners. In this respect, the UK state pension was and still is a classic pyramid selling or Ponzi scheme, which has always relied on there being more people at the base of pyramid, paying into the scheme, than there are at the top, taking money out. Not only does this make all such schemes intrinsically unsustainable, however, but by making the having of children both less necessary and less affordable, the very nature of this particular scheme, in itself, ensured this outcome.
Given that they are so unsustainable, it follows, therefore, that if state pensions of this type are not abolished, one of two things will happen. Either governments will continually raise the pension age so that young people today, who are just starting to make NI contributions, will probably never receive a pension, or governments, unable to borrow more money without causing either a liquidity crisis or hyperinflation, will simply go bankrupt, with the result that the pensions will not be paid anyway. It would be far better, therefore, for governments to announce a gradual reduction in the state pension over, say, the next fifty years, combined with a commensurate reduction in NI contributions so that people can make alternative provision for themselves by paying more into personal pension plans.
The problem, of course, is that this, in itself, would cause governments to incur additional costs. For while graduated reductions in contributions would have to take effect immediately, it being impossible to ask people to pay more into a pension fund than they are ever going to get out, reductions in the pensions, themselves, could only take place gradually, and could only apply to new pensioners, it being impossible to reduce payments to existing pensioners without causing unacceptable hardship.
To complicate matters even more, the viability of any such state pension abolition scheme would also depend on keeping inflation low and interest rates high over the next fifty years. For one of the great problems with personal pension plans over the last two decades has been that, with interest rates at record lows, they simply haven’t produced pension pots of an adequate size by the time the intended pensions were due to start being drawn down, a problem which is now being further exacerbated by high inflation.
To solve this problem, we should also therefore abolish central banks, as, indeed, I recommended in ‘Rebuilding The World After The Next Crash’. This would stop governments lowering interest rates to stimulate demand, a policy to which modern governments are seemingly addicted, even though it has never actually worked. Instead, commercial banks would set their own interest rates, not in an attempt to manipulate the economy, but simply to balance the supply and demand for money. Thus, if the demand for money were high, banks would put up interest rates both to attract deposits and to dampen demand by weeding out projects that were only marginally viable at low interest rates. If, on the other hand, demand for money were weak, banks would reduce interest rates both to discourage deposits and encourage potential borrowers to come forward. After all, this is the way commercial banks used to operate before central banks were created. And it worked perfectly well.
It may, of course, be objected that without central banks, commercial banks have no one to fall back on if they get into difficulties and thus risk losing their customers’ money. It should be pointed out, however, that the five US banks which have failed so far this year have all done so as a result of the Federal Reserve raising interest rates in order to solve a problem which the Fed itself created by reducing interest rates to almost nothing for more than ten years in the clearly misplaced belief that this would revive a stagnant economy. At the same time, they then started printing money so that a spendthrift Federal government could spend it on perpetual foreign wars, which added nothing to the US economy, and bloated welfare programmes which do nothing to incentivised people to engage in the kind of activities which do in fact stimulate economic growth.
Behind all these crazy economic policies, however, there is a far more fundamental problem: us, or rather our even more misplaced belief that, despite all the evidence to the contrary, we are masters of the universe who can meddle in complex eco-systems without invariably making matters worse, when all our experience ought to be telling us that we should leave well alone, allow free markets to find their natural point of balance and rely on families to look after their own. Not only have we long since stopped believing in such natural and organic solutions, however, but having been immersed in a particular mind-set since the end of the second world war, we have come to believe that it is the function and duty of politicians to fix all of life’s problems for us. Worse still, politicians have come to believe this, too, and would not know what they were for if it wasn’t to meddle in complex eco-systems to make them better.
The result is that we will not be abolishing either central banks or the state pension any time soon. Instead, we will keep up the juggling act, taking one corrective or palliative measure after another in order to the solve the problems created by our previous corrective measures, until eventually the whole thing collapses and we have to start again. And even then we will do exactly the same thing. For the one thing that history teaches us is that we never learn anything from history. And yet still we think we are gods.
