IT IS always interesting to see an argument that goes against the consensus, and that is true of the (privately-circulated) note from BCA Research, entitled "The Coming Baby Boom in Developed Economies". It starts with the bold statement that
Developed economies are about to experience a baby boom that will be bigger and longer-lasting than even the one that followed the Second World War.
before adding that
Faster population growth implies stronger aggregate demand in the near term and more rapid supply growth over the longer haul. Equities, housing and commodities should all benefit.
and, most intriguingly of all, dismissing worries about the US's long-term fiscal position on the grounds that government projections already underestimate fertility trends.
Our estimates imply a fiscal surplus of 4% of GDP by the end of the century, even if current entitlements are not scaled back.BCA Research is an independent investment firm based in Montreal that, according to its website, has been in business since 1949. To be fair, BCA didn't come up with their idea totally in a vacuum. According to the Economist's "Buttonwood" the inspiration came from a paper published last year (and more recently revised) by demographers at the Max Planck Institute for Demographic Research in Rostock, Germany--a very prestigious organization and home of the very same online journal "Demographic Research" from which I was downloading a publication. The paper shows that if we look at cohort fertility rates rather than cross-sectional total fertility rates, we find that fertility levels in many developed countries are not quite as low as they seem. I see nothing in that paper, however, to suggest a coming baby boom.
I do see that Nate Silver is going to be one of the speakers at BCA's upcoming investment conference in New York City and I would love to see Nate calculate the probability that developed economies are about to experience a huge baby boom. Those are, in my opinion, very long odds. This strikes me as the kind of advice being given to people in the early to mid-2000s that they should buy a home, no matter how outrageously priced, because the price would be even higher in the future and they could turn a nice profit. How did that work out? [correct answer--poorly for most, but some people did make a killing--more later on the rising income inequality...]
Most economic projections are based on bouncing back to replacement fertility soon.
ReplyDeleteIf above-replacement fertility leads to such a fiscal surplus according to their models, then a continuation of current below-replacement fertility must lead to enormous deficits in their models.
Just as taking on a new jumbo mortgage would be foolish for someone about to retire, running a huge deficit must be idiocy for an aging society.
Anonymous, I think you right, but there is a flaw in our democratic systems, in that people get elected by promising the moon and borrowing from the future generation. Also, people without children get the same single vote as the parent of two or eight children. Eventually I think that young people will gradually opt out of paying taxes by working on the gray or black markets, as already happens all over the Middle East. The democratic power will always be on the side of the old who will vote themselves generous benefits. The young will have no other option than leaving the USA or finding ways to avoid paying taxes. I don't that will be unethical either.
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