The Causes and Consequences of Low Fertility

some remarks

Fifty years ago, experts thought that the demographic crisis for humanity was overpopulation. Currently, world population stands at about 8 billion. Forecasters predict that this will peak at about 10 billion some time in the next 40 to 60 years, and then it will start to decline.

Today, experts are starting to worry about the rate of decline becoming a crisis. We can use arithmetic to understand their fears. Suppose that there is only one birth for every two people (in South Korea it is even less than that). So if you have 100 people now, you will have 50 people in the next generation, 25 people in the generation after that, and 12.5 people in the generation after that. In just three generations after the peak population of 10 billion is reached, world population will be at 1.25 billion. In three more generations, the entire world’s population will be 150 million.

Given the way we depend on specialization and trade, it would appear that our civilization will be impoverished if world population falls to 150 million. With that number of people and today’s technology, we could not produce the variety of goods and services that we enjoy today.

My inclination is not to worry. We are not going to be using today’s technology several generations from now. Technology is likely to be much more capital intensive, and people’s standard of living is likely to be higher, not lower.

Also, population may not decline so steadily. Fertility in most countries has not fallen as low as 50 children for every 100 people. But suppose that were the current average. That average might reflect two types of people. Type A have 100 children for every 100 people, and type B have 0 children for every 100 people. Suppose that today the population is half A’s and half B’s, so you get an average of 50 children per 100 people.

In the next generation, you will have 50 A’s and 0 B’s. From then on, you will have 50 A’s forever, and no more B’s. The population decline will be a one-time shock, but then population will level off.

A more extreme scenario would be if A’s are only 1/4 of the current population, and they have 200 children for every 100 people. Starting with 25 A’s, in the next generation, there will be 50 A’s and no more B’s. But in the generation after that, you will have 100 A’s. Then 200 A’s, and so on.

Call the A’s “religious” and you can see why Eric Kaufmann says that the religious will inherit the earth.

Finally, as medical science advances, it is becoming easier for women who desire children to have them. This may reverse the decline in fertility.

What is causing the fertility decline?

In an infamous mouse utopia experiment, as mice overpopulate, resources are depleted, and they start to reproduce less. This Malthusian result does not reverse itself as population falls, because the surviving mice just have a lower propensity to reproduce.

A commenter correctly pointed out that I wrongly interpreted the experiment.

Human fertility is not declining for Malthusian reasons. We are not starving.

The main correlates with low fertility are urbanization and increases in female education. We can speculate that some of the reasons for these correlations are causal.

For example, moving from a relatively backward rural existence to an urban existence lowers the value of children (they can be helpful on a labor-intensive farm) and raises the cost of children (because urban housing is more expensive). Cities also provide opportunities for work and entertainment that raise the opportunity cost of caring for children.

The opportunity cost of bearing and caring for children goes up for women as they become more educated. They now can engage in other activities that are rewarding financially and emotionally.

As higher education becomes more valued culturally, women will tend to delay childbirth. This serves to lower fertility, because at some point the delay puts the woman beyond her most fertile years.

Overall, I am pretty uncertain about the cause of fertility decline. But it seems to me that a lot of the increases in urbanization and female education already have taken place. These factors will not be changing as much over the next fifty years as they have over the past fifty years. This should imply a less steep decline in fertility than what we have observed in recent decades.

Turning Point Problems

As I see it, world demographic trends are not a crisis. Instead, they are a turning point.

At a turning point, there are problems with what Eric Weinstein calls “embedded growth obligations.” We act as if the number of college students will keep increasing, so we produce more Ph.D’s than will actually be needed as professors. We act as if the number of consumers will keep increasing, so that stock prices assume that future earnings will be higher than is possible.

I would argue that our biggest turning point problem is self-inflicted by the way that we fund entitlement programs. Social Security and Medicare, in which current benefits are paid by current workers, were designed to fit a population in which the ratio of workers to elderly dependents was always increasing. With a growing population, we could promise nice benefits without overly burdening young workers. But now this intergenerational transfer is becoming an increasing burden on the young.

There are two ways to address the misfit between our entitlement programs and our demography. One way is to raise the age at which people become eligible for benefits. That will raise the number of workers relative to people who collect benefits. As I have written before, I wish that we had done this, because people are living healthier longer. Some allowance for people who work in physically demanding jobs would be appropriate. But fewer and fewer people have a physical need to retire in their sixties.

The other way is to eliminate the intergenerational transfer. As it stands today, people who are elderly now get benefits paid for by people who are working today. Instead, you could have designed the system so that the elderly now get benefits paid for out of what their generation saved.*

How do you eliminate the intergenerational transfer? You cannot just all of a sudden say to the Baby Boomers, “Sorry, young workers today are going to support their own retirement, not yours. Screw you. We’re not paying for your Social Security and Medicare.”

In other words, getting from here to there is a challenge. That is, it is difficult to transition from a system in which the elderly get their benefits from their children to a system in which each generation’s benefits come from its own savings. But in a country in which population is no longer increasing, the current entitlement system unfairly burdens young workers. In the next two decades, something will have to give.

*Even if you shift the financial burden from the young to the old, there still is the fact that the young workers only produce so many bushels. The more of those bushels the old people eat, the less there will be for young people.