The Graying of the Great Powers

Neil Howe, who previously co-wrote several groundbreaking books on demographic trends with William Strauss (Generations, The Fourth Turning, Millennials Rising), published a new book in 2008 with Richard Jackson: The Graying of the Great Powers: Demography and Geopolitics in the 21st Century.

We consider Howe’s prior work with Strauss to be required reading for anyone wanting to understand the role that demographics have played in recent history, particular the interplay between the major generations (Baby Boomers, Echo Boomers, etc.). We would say the same Howe and Jackson’s new book, though readers who are already familiar with Philip Longman’s work, particularly The Empty Cradle, might find it to be somewhat redundant.

Graying covers many of the same themes covered by Longman and others — the usual doomsday (though completely accurate) scare statistics about Europe’s demographic decline, the coming pension and health funding crises and probable wave of national bankruptcies — and combines them with some of the geopolitical themes discussed by Mark Steyn in America Alone and Patrick Buchannan in The Death of the West (though without Steyn and Buchanan’s abrasiveness and charged ideology) and to a lesser extent those covered by George Friedman in The Next 100 Years.

Today, we’re going to review some of these themes covered by Howe and Jackson. (To get a condensed summary of the book, visit the Center for Strategic & International Studies website at: http://csis.org/files/media/csis/pubs/080630_gai_majorfindings.pdf)

Are the West’s Days of Global Dominance Numbered?

It has become popular to speak of the decline of the West and of the United States in particular. Titles like Fareed Zakaria’s The Post-American World have become commonplace. (While Zakaria’s book was less about America’s decline and more about “the rise of the rest,” its gloomy title certainly fits the growing consensus mood.) What do Jackson and Howe have to say on the matter?

The population and GDP of the United States, due to its relatively high fertility and immigration rates, will expand steadily as a share of the developed-world totals In tandem, the influence of the United States within the developed world will likely rise. Many of today’s multilateral theorists look forward to a global order in which the U.S. influence diminishes. In face, any reasonable demographic projection points to a growing U.S. Dominance among the developed nations that preside over this global order.

We would agree with Zakaria to an extent that the US will need to find room at the table for up-and-comers like China, India, and Brazil. But as Zakaria, Jackson, and Howe would all seem to agree, the United States will remain the preeminent economic, diplomatic, and military force in the world for the foreseeable future.

Are Europe’s Demographic Trends Reversible?

All demographers would agree that the West’s and particularly Europe’s low birthrates point to serious economic difficulties in the future. The question then becomes, are these demographic trends reversible? Or is Europe truly entering a demographic death spiral from which it will never recover? Some European countries have witnessed modest increases in their birthrates in recent years, even if the overall rate remains dangerously low. Jackson and Howe explain,

Notwithstanding the higher fertility rate of immigrants, most demographers do not believe that the recent uptick in fertility heralds a major turnaround in the long-term trend. In most countries, it appears to be the result of a temporary “timing shift” that will soon run its course.

This “timing shift” is of particular interest, because so much of our research involves timing — particularly the predictable manner in which people move through their economic life cycle. Jackson and Howe explain the implications of this shift:

In calculating the current year fertility rate—technically called a “total” or “period” fertility rate [i.e. number of babies born per women]—demographers assume that women will, over the course of their lifetime, exhibit the observed fertility behavior of women at each age in that year. When age-specific patterns of childbearing remain unchanged over time, period fertility rates and actual cohort fertility rates are the same. But when women postpone childbearing to older ages, as they have done to a greater or lesser extent in every developed country since the 1960s, the period rate can temporarily underestimate the true cohort rate.

In other words, as countries go through a period of modernization, the birth rate gets temporarily depressed due to women extending their educations and careers and postponing motherhood. A given woman may indeed still have the “normal” 2-3 kids over her lifetime; it’s just that she gets started at 30 instead of 22.

Once this timing shift is complete, the fertility rate will recover to some extent. This is precisely what happened in the United States. Using Jackson and Howe’s statistics, “after plunging from 3.7 in the mid-1950s to 1.7 in the mid 1970s, the U.S. fertility rate rose to 2.0 by the early 1990s under the impact of late-birthing baby boomers, where it has remained ever since.”

In some of the European countries with the lowest fertility rates, such as Spain, Italy, and Greece, it is likely that the timing shift is not yet complete. These traditionally “macho” countries started the process much later. So, each of these countries may enjoy a mild “mini” baby boom as this first generation of post-traditional women finally have children. But, as Jackson and Howe continue, “the potential to raise fertility is limited. In the United States, baby boomers only recuperated a fraction of the births in their 30s and 40s that they did not have in their 20s—and European women are unlikely to fare much better.”

Spain, Italy, and Greece may return to something close to the replacement rate of 2.1 children per woman from their current apocalyptically low rates at around 1.3. But the days of the large Mediterranean family are most likely over forever.

Can Pro-Natal Policies — Such as Child Tax Credits — Make a Difference?

It is our view that pro-natal policies are largely ineffective in the modern, consumer-oriented economy.  When the cultural and economic climate changes, there is not much the government can do about it. Will a child tax credit of a couple thousand dollars compensate a parent for the tens or hundreds of thousands of dollars in direct expenses? What about the untold thousands of dollars in lost wages and career opportunities? And what about “lifestyle” issues, such as the ability to take an unplanned trip to the Caribbean? The obvious answer is “no”; people who decide to have children believe that doing so has nonmonetary benefits, and government incentives are not a major factor in their decision. This is what Jackson and Howe have to say on the matter:

Until recently, ideal fertility—that is the number of children that women say is optimal—remained at or above replacement in every developed country, even as actual fertility rates fell far beneath it. This suggested that there might be room for a substantial rebound if more supportive policies simply allowed women to actualize their ideal. But in a growing number of countries, including Austria, Italy, and Germany, ideal fertility has now dropped well beneath replacement. What has happened, according to some demographers, is that young adults in today’s lowest-fertility countries, having spent their entire lives in societies where children are rare, have acquired a “culture of low fertility.”

Despite this, Jackson and Howe strongly recommend aggressive pro-natal policies such as those used in France and the Scandinavian countries. It is fair to ask: given the seriousness of the problem, doesn’t it make sense to give it a try?

What Effects Will Aging Demographics Have on the Culture and Economy?

The short answer is “bad.” Younger societies are full of dynamism, which is manifested by risk taking and an optimistic outlook. An older society, in contrast, will become more conservative and risk averse; productivity, progress, and mobility will slow. Jackson and Howe share this view:

When economists and historians try to describe the special economic vitality that often characterizes eras of high versus low population growth—the nineteenth century versus the fifteenth century in Europe, for example, for example, or 1960s versus the 1930s—they often allude to a contrast in a mood that cannot be reduced to a strictly classical analysis of the production function. The classical analysis, indeed, usually argues that a stationary or declining population should translate into economic performance (by lifting the ration of labor to land and to other fixed natural resources). Yet eras of high population growth have their own special attributes that are harder to define within standard theory—a restlessness mobility, urgency and optimism.

Note: Gregory Clark’s A Farewell to Alms and David Hackett Fischer’s The Great Wave are also excellent rebuttals of this view. Continuing with Jackson and Howe,

John Maynard Keynes and his U.S. counterpart Alvin H. Hansen always emphasized the role of population growth in triggering what Keynes called the “animal spirits” of investors. John Hicks, in his famous review of Keynes’ General Theory, remarked: “Expectation of a continually expanding market, made possible by increasing population, is a fine thing for keeping up the spirits of entrepreneurs. With increasing population investment can go roaring ahead, even if invention is rather stupid; increasing population is therefore actually favorable to employment….one cannot repress though perhaps the whole Industrial Revolution of the last two hundred years has been nothing else but a vast secular boom, largely induced by the unparalleled rise in population.”

The modern economy depends on population growth. To give a simplistic example, how can Ford sell more cars when there are fewer people of driving age to sell to? The only modern economy that has ever dealt with an aging and shrinking population is Japan. And as Japan’s recent experience has shown, there is no real solution to this problem. There is no substitute for people.

Parting Thoughts

Richard Jackson and Neil Howe are not revolutionary in their writing of The Graying of the Great Powers; they are certainly not reinventing the wheel of demographic analysis. That said, Graying is an excellent collection of statistics and solid analysis of the major demographic issues that will shape the decades to come. For readers looking for a “big picture” book that will help them in their understanding of the world — and possibly their investments as well — Jackson and Howe’s latest deserves a place on the bookshelf.

 

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