Not getting any younger
Low fertility rates leave Western nations with little choice but to raise retirement ages.
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"People will always have children." So said Konrad Adenauer when he was chancellor of West Germany in 1957, and at the time that may have seemed like a reasonable assumption. Brimming with post-war confidence, most European and American couples had two or three or more children in the 1950s and early 1960s, and Western governments felt comfortable building social security systems that required ever-growing numbers of workers to sustain them.
But Adenauer was wrong. Just a decade or so after his bold statement, people in the big industrial democracies began to have far fewer children. The years of low fertility are catching up with us: Countries now have highly popular programs like Social Security and Medicare that were built for growing societies, but they don't have the working populations to support them. This is the unspoken reality behind riots in Greece and France over "austerity" measures, behind Japan's passing from economic superpower to financial basket case, and behind the controversial proposals of President Obama's debt commission in December. The problem is going to grow worse over the next several years, and it will force governments to act.
How bad is the problem? Demographers project that the working-age populations in Germany and Japan, for instance, will drop by 15 and 16 percent, respectively, over the next 20 years. Meanwhile, their retirement-age populations will grow by more than a third. The notoriously bankrupt PIIGS (Portugal, Italy, Ireland, Greece, Spain) are on similar paths. Japan and Germany already are seeing decreases in their overall populations, and many nations in Europe will soon follow.
The situation isn't quite as dire in the United States: The U.S. working-age population will continue to grow, but an even faster growing retirement-age population is making entitlement programs unsustainable. The government estimates that Social Security, Medicare, Medicaid, and interest on the debt will eat up more than a fifth of the nation's annual GDP by 2050. "Without dramatic cuts in benefits or increases in taxes," writes Phillip Longman in The Empty Cradle, "all federal spending will eventually go to seniors."
Demographers say that part of the reason for the aging of the democracies is longer lifespans, but the main reason is the decision of couples across the world to start having fewer children in the 1970s and 1980s. Couples coming of age then faced dramatic social upheavals-the emergence of the pill, legal abortion, and widespread college attendance (which tends to delay family formation)-that their highly fertile parents had not faced. (Since then fertility rates have begun to bounce back some in the United States, but not in other countries. In Adenauer's Germany, nearly a third of women have no children.)
Dramatic social changes may make lower fertility rates understandable, but those rates are still forcing difficult choices today. Identifying low fertility as the problem, though, points the way toward a solution: Having not produced enough children to provide for them, able-bodied seniors in the future will almost certainly have to work longer into old age.
All other solutions to the explosion of government debts are ultimately counterproductive. Higher taxes, for instance, would make it more difficult to have children, and for this reason economists like Robert Stein argue forcefully for lower taxes on parents. Increasing immigration may seem like an obvious solution, but Longman points out that fertility rates are also falling in poor countries like Mexico. Nations with low fertility rates have tended to have very low rates of emigration. And while governments could use inflation to pay for entitlement commitments, that would harm everyone.
Given these realities, some political leaders around the world are beginning to accept the idea of raising retirement ages. Despite the riots in France over the idea, President Nicholas Sarkozy went ahead with raising the French retirement age-though only to 62. Germany, meanwhile, peacefully raised its retirement age to 67, beginning this year.
In the United States, Social Security and Medicare are famously untouchable programs, but Rep. Paul Ryan, R-Wis., has taken the lead on these issues and survived politically. His "Roadmap for America's Future" would gradually raise the retirement age and make Medicare a voucher program for those now 55 and younger. He won reelection in November with 68 percent of the vote.
Ryan likes to say that Americans are ready for "an adult conversation" on old-age entitlements. The next few years will determine whether he's correct.
Fertility rates in developed nations
A fertility rate of 2.1 keeps a population stable. 1955-1960 Europe 2.64, U.S. 3.71, Japan 2.16 1980-1985 Europe 1.90, U.S. 1.83, Japan 1.75 2005-2010 Europe 1.50, U.S. 2.09, Japan 1.27 Source: UN Data (data.un.org)
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