Vatican Economist: Recession Caused by Low Birth-Rate

ROME, FEB. 8, 2010 (Zenit.org).- Bankers are not the cause of the global economic crisis, according to the president of the Institute for the Works of Religion. Rather, the cause is ordinary people who do not “believe in the future” and have few or no children.

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In the hundreds of news programs, talk shows, editorials, articles, researches on the recent economic decline, I doubt that any of them have pointed to this as the real cause of the problem – although it does seem to be the key issue at stake.

While it is a slight drag on the economy you don’t often hear mentioned, it’s fairly insignificant. The argument would be stronger if the low birth rate were a fairly recent development. But it’s been declining for years, and the economy has done pretty well. When the economy recovers, will that suggest there has been an uptick in the birthrate? Hogwash.

How did you determine that?

The argument would be stronger if the low birth rate were a fairly recent development.

Let’s say that the low birth rate just occurred over the past five years. This shortage of 1-5 yr olds would be the cause a loss in the taxpayer base?

But it’s been declining for years, and the economy has done pretty well.

Since it continues to decline, then the problem is worse now than it was before.

When the economy recovers, will that suggest there has been an uptick in the birthrate?

It depends. When do you think it will recover and what will be the cause of the recovery?

The real drag is the graying of the population. More retires means simply fewer people working. The mindset of Europe has long been more and longer vacations and early retirement. It makes little sense economically but that is what people want. A smaller and smaller work force supporting an ever older population.

So the head of the Vatican Bank - and what a rich history that institution has - thinks that low birthrates caused the economic recession. Or might it have something to do with the fact that people are living longer, so that the same number of births in year X and year X+10 might generate a lower birth rate in year X+10 if people are living longer. I suspect that the real (not estimated) birth rates for 2009 and 2010 may be a bit lower than normal due to the economic downturn.

I always get a bit concerned when pronouncements on economy and the sciences emerge from anywhere in Rome. I keep thinking that someone will suddenly blurt out that the sun really is at the center of the universe. Of course, that is unlikely to happen as long as there are Jesuit voices involved in the sciences in Rome.

I have to agree that this is a relatively insignificant cause of the recession. Wasting money is a bigger issue. It might be nice to get paid for not working, but it is a drain on the economy and the society in general. When the pension plans and the unions are scrapped we will see a recovery in the economy.

The working young supports the elderly through Medicare and Social Security. It’s true that in past generations, 7 to 8 workers were supporting each retiree. Now it’s more like 2 workers for each retiree. As the population ages and birth rates decline, that will get worse.

That was a WAG, but it’s certainly informed by news about the economy in recent years. While the graying of the workforce, which is due in part to the low birthrate, is a frequent topic, it’s more of a constant drag on the economy, in both good times and bad.

[quote=reggieM]Let’s say that the low birth rate just occurred over the past five years. This shortage of 1-5 yr olds would be the cause a loss in the taxpayer base?
[/quote]

No. Notice I didn’t say “recent,” but “fairly recent.” The birth rate has been falling since the 1960s. We’ve had multiple recessions in that time - and multiple recoveries.

[quote=reggieM]Since it continues to decline, then the problem is worse now than it was before.
[/quote]

If that were true, you might expect the recession of 2001 to be worse than that of the early 90s, which should be worse than the early 80s. I don’t think this was the case.

[quote=reggieM]It depends. When do you think it will recover and what will be the cause of the recovery?
[/quote]

When is a good question. I’d guess in 2-3 years things will be noticeably better. The cause? A lot of it is just cyclical. I think the US recession will be longer than usual because a lot of jobs have been permanently lost, due in part to the growth in productivity (it takes a smaller workforce to do the same work) and to the increasing competence of cheaper overseas workforces/manufacturers.

Your own bias may be showing. You correctly note that birth rates have been declining for years, but you don’t seem to have considered the fact that there is a LONG lag time between birth and economic activity. You actually undercut your own argument when you take into account the effects of the Baby Boomer generation on national spending habits. The center of mass of these folks has now passed beyond the peak consumer spending years and only NOW are the effects of their dearth of children starting to show.

Time will tell, but I think you’ve not presented any rational reasons to brush of this fellow’s observations. On the contrary, you argue against your own conclusion.

When you add that much of the value added activity that actually CREATES wealth (as opposed to merely moving it back and forth) has been moved to Asia, I’m not yet convinced we are going to see a robust recovery very soon.

As I work in the housing industry, I also can’t help but wonder if it won’t be YEARS before housing prices recover. The unexamined demographic factor in housing is that the boom in real estate prices happened in the couple of decades in which Baby Boomers were buying family housing AND America became a much more divorce-prone society (divorce leads to higher overall housing demand per capita). Guess what? Boomers are far less interested in 3/4 bedroom single family homes than they used to be and are looking for lower maintenance options. Who’s gonna buy all those houses? Low demand and high supply leads to… crash.

My advice: plant a big veggie garden and save your pennies. Dunno how we’re going to pull out of this one.

Which bias?

[quote=manualman]The center of mass of these folks has now passed beyond the peak consumer spending years and only NOW are the effects of their dearth of children starting to show.
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That I’ll agree with. But like I said, that’s an overall drag that’s gradually increasing. It made the healthy economy in the mid-'00s a bit more sluggish, and it will make the current recession deeper and more prolonged. I don’t think it was the trigger for the recession.

[quote=manualman]When you add that much of the value added activity that actually CREATES wealth (as opposed to merely moving it back and forth) has been moved to Asia, I’m not yet convinced we are going to see a robust recovery very soon.
[/quote]

Agreed.

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