Posted on 06/09/2010 9:16:02 PM PDT by Brian Kopp DPM
Why will this recession be different, and likely much worse, than all the other recessions of the past?
Imagine a Paleolithic village which has no children. When all the adults grow too old to work, everyone dies. Now imagine a country with a well-funded national pension system, also without children. Everyone retires on the same day, and the pension fund instantly goes bankrupt.
These hypotheticals overstate the predicament of the industrial nations, who have too few children and too few old people, but it does not overstate it by much. The present economic crisis will not respond to the usual treatment because it arises from a deeper cause, namely the hollowing out of the population of the West. This is not a business cycle, but the grim harvest of a demographic winter.
Financial markets are only a veil for the cycle of human life. Young families borrow, older people lend to them, and retirees spend their savings. Whether the young people of the tribe share their food with the old folks, or retirees earn interest from mortgage-backed bonds issued to finance homes for young families, the result is the same. What makes this crisis intractable is not the financial system, but the social relationships that underlie it.
Taken as a whole, the developed world resembles a village without children. It’s slightly more complicated, of course. The industrial world is aging too fast. There are too many people – over 400 million – in their peak savings years, that is 40 to 64, and the number is growing. And there are too few young earners in the 19-to-40 bracket, and their number is shrinking. There aren’t enough young people in the village to support the old ones.
Figure 1: Population of Developed Countries by Age Bracket
Source: United Nations Population Prospects, Median Variant
That’s the whole developed world. Contrast this picture to a healthier profile, that of the United States of America (Figure 2). Note that there are more young workers (borrowers of savings) than older workers (savers), in contrast to the developed world as a whole. The situation is better than that of the overall developed world, skewed toward the aged by Japan and Europe, but still is headed in the wrong direction, with the number of savers (older workers) growing much faster than the number of prospective borrowers (younger workers).
Figure 2: Population of the United States of America by Age Bracket
Source: United Nations
There are only two countries in the industrial world with a positive rate of population increase, the United States and Israel. That is probably because they are the two developed countries with the highest proportion of people of faith, as I argued before.
Countries aren’t Paleolithic villages, to be sure. If savers in Japan can’t find enough young people to lend to, they can lend to the young people of other countries. The rest of the world lent the US up to $1 trillion a year in 2007. The rest of the world thrust its savings upon the United States, leading to cheaper lending rates and a bubble in home prices. Americans in turn came to expect that appreciation of capital assets made savings unnecessary. America’s savings rate collapsed as the current account deficit (or capital account surplus) expanded.
Demographics isn’t quite destiny. By calling attention to underlying causes, I do not mean to excuse the cupidity and fraud that attended the sale of $2 trillion of bonds backed by sub-prime mortgages with fanciful credit ratings, and similar incompetence. The fact that there wasn’t enough wheat to go around does not excuse the baker for surreptitiously putting sawdust in the bread. But in this case there weren’t enough returns to satisfy all prospective investors, because there weren’t enough young people to earn those returns. The shrinking contingent of young people of our metaphorical Paleolithic village came back from the harvest without enough grain to feed the old people, so they added sawdust. The effects of the sawdust show up some time later in the form of malnutrition, at which point the tribe engages a shaman (a financial expert, that is), to shake rattles and cast bones. That makes everyone feel a bit better, for a short while.
America has roughly 120 million adults in the 19-to-44 age bracket, that is, people in their prime borrowing years. That is not a large number against the 420 million prospective savers in the aging developed world as a whole. There simply aren’t enough young Americans to absorb the savings of the rest of the world. In fact, there aren’t enough young Americans to absorb the savings that America should generate internally. American demographics are healthier than those of the other developed countries, but not by a reassuring margin.
Here is the demographic dilemma underlying America’s financial problems:
1) Americans counted on capital gains in homes and to a lesser extent in equities to fund the largest wave of retirements in American history, and these gains have vanished. Many Americans will thus not be able to retire.
2) Americans need to rebuild their finances, that is, to save, just when their incomes are falling and unemployment is rising.
3) Home prices are not likely to recover in the foreseeable future because demographics are against them. Empty nesters are increasing as a proportion of the population, which is why one academic study forecasts a 40% oversupply of large-lot single family homes by 2025.
If Americans save rather than spend, consumption and output will fall further, according to the conventional economic wisdom. That is why both the Bush administration and the incoming Obama administration offer “fiscal stimulus,” that is, throwing money out of helicopters to encourage consumer spending. It isn’t going to work.
On Dec. 5, the Bureau of Labor Statistics reported the sharpest fall in employment since 1974. In fact, the three-month average of employment change is the worst on record. What Americans have discovered is that an economy based on opening boxes from China and selling the contents at Wal-Mart, and selling homes back and forth, is highly vulnerable. America does not need as many people to sell homes or to open Chinese boxes, and businesses are laying such people off. Service jobs are vanishing just at the point that tens of millions of prospective retirees will be looking for just the sort of jobs that older people seek when they cannot fund their retirement – selling houses, or manning a department-store counter. Wages will fall as older workers seek employment of any kind rather than retire. This effect will be far greater than the impact of immigration on American wages.
American households will cut their consumption further, voluntarily, or because financial institutions cut their credit-card limits. Falling mortgage rates may slow the decline somewhat, but not stop it. Service employment will fall further, particularly as state and local governments find that the collapsing real-estate tax rolls do not justify the generous staffing of past year, and that will lead to further consumption cuts. Businesses will not borrow when investment-grade companies pay 9% for long-term money and speculative-grade companies pay 20%—and that is a real interest rate, for no-one can raise prices in this environment.
Meanwhile the U.S. Treasury will borrow at a $1 trillion annual rate during the fourth quarter of 2008, and at a considerably higher rate next year, depending on how much the new Administration chooses to spend. With $8.5 trillion of federal support already in place through loans, investments, securities purchases and guarantees, the contingent liabilities of the Federal government are enormous, and no doubt will grow further. Treasury borrowing will vacuum up the world’s diminishing fund of available capital keep economic activity depressed.
America’s economy may remain depressed for years. There aren’t enough young people in the developed world—the consequence of the collapse of religious faith, in my view. In the example of the aging village, things don’t get better, ever, at all, unless more young people can be found. John Maynard Keynes thought that the “animal spirits” of entrepreneurs were the source of economic growth. Even animals, though, require the presence of prospective prey, and the necessary (if not sufficient) condition for the revival of animal spirits is the presence of sufficient young people.
The only major source of young people is the Third World. Some years ago Cardinal Baffi of Bologna suggested that Europe seek Catholic immigrants from Latin America. In a small way, something like this is happening. Half the working population of Ecuador has left the country, mostly for Spain. From the American vantage point, it may seem odd for the Europeans to wish themselves inundated by Latin American immigrants, but the alternative for Europe is to get immigrants from Africa and the Middle East. All told, Latin American Catholics are a better fit. Most of Europe has reached a demographic point of no return where nothing but immigration will avail it.
The origin of the crisis is demographic, and its solution is demographic. To break the vicious circle, America needs to find productive young people to whom to lend. There are two ways this might be accomplished: immigration or exports. East Asia has almost 500 million people in the 19-to-40-year-old bracket, half again as many as the entire industrial world. The prospect of raising the productivity of Chinese, Indians, and other Asians opens up an entirely different horizon for the American economy. Since the Asian financial crisis of 1997, Asians have invested their savings in the United States. In theory, the opportunities for investment in Asia are limitless, but political trust, capital markets, regulatory institutions, and other preconditions for such investment have been inadequate.
The arithmetic shows that the demographic imbalances cannot be addressed within the confines of one country’s economic policy. How and whether the capital of aging Americans (and citizens of other industrial countries) will engage the labor of young Asians is difficult to envisage. If America fails to do so, its economic misery will persist for a very long time. America will have to engage China, India, and other Asian countries in a very different way than in the past and understand its economic policy in a far more global fashion than ever before.
Spengler is the pen name of an essayist for the Asia Times Online. His archive can be found here.
Even Sing Sing was more generous than the world you imagine:
"A cell for Sing Sing was only seven feet long by three feet wide and six feet seven inches high.
"It was little more than a cubbyhole for a human being. One warden later wrote that the cells were 'too small for their purpose and have been condemned for years; they have poor ventilation and their unsanitary condition is intensified by the necessary use of cell buckets, the most objectionable and injurious relics of a primitive prison system.'
"The design for the facility called for the construction of 800 such cells, stacked on top of each other, four cells high, in a building that was 476 feet long. But Lynds was a rigid disciplinarian and a relentless taskmaster. He pushed the inmates to the limits of human endurance and ruled by the whip and the yoke."
With room left over.
If it weren't for overpopulation, we'd all be living in places like those vacation spots, instead of increasing numbers of us living in dirty, crowded, smelly, digusting cities.
Which is just where liberals would like us to live: in "population centers" where they can control us and where many rules and regulations and big government is needed to control our behavior.
Like how in a crowded lifeboat, it's share and share alike--what's yours is theirs and what's theirs is yours--or else.
I've had University Professors astonished at the answer to the riddle. It goes to show how often we have been lied to.
Bottom line when people use words like overcrowded for the state of this Nation they have nothing at all to back up such a claim. We are not even close. Its just some folks choose to live in close proximity to other in cities but the vast majority of this nation is relatively empty. Especially out West.
Hell the area I live in in Southern Ohio has areas near me where you can walk for days and see not another soul.
The perfect storm for the ruling elites of modern day Western civilization:
1) Overpopulation causes a great concern that the ruling elites will run out of resources to live their lives the way they want to (ever wonder why billionaires seem obsessed with supporting environmentalism, birth control, abortion, and turning large chunks of property into state controlled reserves?). Their Malthusian obsession is very evident in our time.
2) With advancements in technology, the ruling elites really don’t need all of us hanging around to meet their needs. Huxley estimated a cap of 2 billion in “Brave New World”, the Georgia Guidestones push for a cap of 500 million.
3) We have seen decades of social engineering promoting zero population growth a.k.a. ZPG (abortion, destruction of heterosexual marriage, rise of homosexuality, birth control, obsessive protection of environment at expense of humans, etc.). They have been very successful in accomplishing their goals through this social engineering based on the evidence of the demographic curves.
4) However, someone forgot to persuade the equatorial regions to buy into ZPG and now Western Civilization can quite simply be overrun as soon as the current crop of human beings die off. This has happened many times in the past, stagnant populations are dismissed while more vibrant populations take over.
5) The ruling elites have set up their Western financial system to be driven by constant growth (steady inflation, steady increase in producing and selling things to consumers). Essentially they have constructed an elaborate ponzi scheme which is buckling under the pressure of unsustainable growth. They have the success of ZPG to thank for accelerating this problem.
They are in a conundrum of their own making. The nature of unintended consequences is upon us.
- Demographic Winter - The Decline of the Human Family
- Demographic Winter - The Decline of the Human Family
- Demographic Winter - The Decline of the Human Family
- Demographic Winter - The Decline of the Human Family
- Demographic Winter - The Decline of the Human Family
- Demographic Winter - The Decline of the Human Family
- Demographic Winter - The Decline of the Human Family
- Demographic Winter - The Decline of the Human Family
- Demographic Winter - The Decline of the Human Family
- Demographic Winter - The Decline of the Human Family
- Demographic Winter - The Decline of the Human Family
And you would prefer to live in a place where your food has to be grown in the space between your feet?
And yet the state needs the backs of children to dump debts on, to borrow against, to maintain the vote buying/spoils distributing ponzi racket.
Right now we have world wide approached maximum taxation and are squeezing the last delusion that we can tax future non existing children to borrow against.
We are in the final stages of a Madoff economy. Soon there will be a run for the door. First pensioned government minions to gets out, wins.
The grandiose dream of Obama is a symptom of a population that wanted to double it’s bets to get out of the leftist hole that it is in.
We could be entering the end stage of the Roman Empire, where the center ( demographics) collapses. Like the Empire we will take in foreigners to fill the ranks, thinking that if we keep the bureaucratic forms, populate them with foreigners who don’t have the values, have no idea how they were built, that they will carry on our values thought our institutions. This is the leave your business and home to the Mafia theory and it will be just fine.
Ahh are you not understanding? The point is we don't have to live like that in the USA because the place is so damn big and there is so few people.
If yopu put ALL the people in the world in the USA there would only be around 2000 per square mile take it down to square yards and that is 1 person for each 15488 Sqaure yards that is an area equal to almost three football fields.
In other words if we put all the people of the world into an area the size of the land mass of the USA they would each get and plot 50 yards wide by 309.76 yards long. A normal family of four in a New york Suburb lives on a lot usually one 13th that size. ONE person would get 13 times more than that if we divided up the land of the USA equally between ALL the people of the world.
So as you see your statement "And you would prefer to live in a place where your food has to be grown in the space between your feet?" not only makes no sense whatsoever it shows you have yet to grasp the concept.
What family of 4 of those you want to be your neighbors are going to give up their 1/4 acre so some farmer can grow the wheat your family consumes? Corn? Soybeans? Beef? Swine? Poultry? Vegetables? Fruit?
If you want to live standing-room-only why don't you just move to Hong Kong or somewhere similar now, so you can enjoy the crowd immediately.
Have you ever been anywhere in the US other than your neighborhood? If so, you should have noticed there are more than a few square miles that are not suitable for habitation, or even cultivation. Parts are under water. Parts are deserts. Parts are at elevations or slopes unsuitable for residences or cultivation. All of these conditions should change your allocations of land to the masses you want to live next to.
Really are you truly just trying real hard not to get it? The population of World is nearly 7 Billion the Population of the USA is just 5% of that. The example shown would give pone person an area 13 TIMES THE LAND MASS THAT AN AVERAGE AMERICAN FAMILY OF 4 LIVES ON. AND THAT IS 20 TIMES THE AMOUNT OF PEOPLE THAT LIVE IN THE USA. We can double our population in the USA and everyone could have 5 times more land mass than they have now and still not live in areas not suitable for daily living with plenty left over to farm and for recreation and for retail and manufacturing space AND still have all the national parks etc.
Are you getting it now Sparky? The USA is not even CLOSE to being overcrowded no matter how hard you or anyone else tries to make it so with verbal gymnastics. BTW I've been to goodly portion of the USA. I've driven from the East Coast to the Rockies several times. That is why I smile and giggle every time some yahoo spouts off about overcrowding in America. Drive through parts of Kansas or New Mexico or Nevada or North or South Dakota and you can drive for miles on end and see no sign of Human habitation. Just open country.
The USA is huge and there is damn few people in it by comparison. And that my friend is an undeniable fact.
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An excellent article, but with one glaring problem: “To break the vicious circle, America needs to find productive young people to whom to lend.”
Debt is not necessarily a good way to develop wealth. And the culture is changing. We’re slowly but surely rejecting debt as a lifestyle.
“America is overpopulated as it is.”
LOL!
You obviously haven’t traveled much. There are areas of the west where you can drive on a highway and not see another human being for 40-50 miles (Wyoming, S.D, N.D., AZ to name a few examples). Even in the “overcrowded” east where I currently live, I can travel 30 minutes and be in very thinly populated areas.
Overpopulation, particularly in the U.S., is a tired canard.
“The US will probably need to do so too, eventually. We’re lucky though, in that our “backfill” immigration will come mainly from the Roman Catholic societies of Central and South America.”
I’m not sure we’ll need to backfill all that much. I saw some stats recently (can’t put my hand on them) that indicate that the birthrate in the U.S. seems to be ticking up a bit. If we actually put sane immigration and taxation policies for families in place, we’ll be poised to do very well.
Countries like Russia are probably beyond the tipping point.
Thanks
Countries without social security systems use children for that purpose - and there's an abundance of children.
1. Russia isn't and has never been a western country.
2. The only reason I care about Russia disappearing is the potential for its nukes and oil to fall into more nefarious hands than they have right now.
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