Birth Rates Are Shrinking In Most Countries, Which Will Have Serious Consequences On The Economy

In 2022, the birth rate for Americans was 12.012 births per 100 people, but this is about 20% lower than the birth rate in 2007. We're seeing the lowest rates of birth in a century. Many women have been convinced that this is a good thing for the environment, but the truth is, there are many negative consequences that come from a declining birth rate, especially when it comes to the economy. The Economist shared some recent data that points to how the declining birth rate will affect the rest of the world.

Birth Rates Are Shrinking in Most Countries, and This Will Have Serious Consequences on the Economy

The rapid aging of populations in various countries poses a serious economic threat. A shrinking number of young, educated workers will likely inhibit innovation, stifle economic growth, and increase costs for social services such as pensions and healthcare. Italy and Japan have been grappling with this demographic decline for years. However, recent data shows that South Korea is now leading the race to the bottom with a fertility rate of just 0.8, signaling a next generation less than half the size of its parents.

The demographic decline is no longer confined to affluent nations. Countries like Thailand, Brazil, and even India—whose lower fertility rate will significantly impact the global population due to its sheer size—are experiencing similar trends. In 2021, there were 782 million people aged 21-30 in countries with fertility rates below the replacement rate of 2.1. By 2050, this workforce demographic is expected to decline by a fifth, a projection virtually set in stone as most members of that generation have already been born. Some countries will see even more drastic contractions, with China's 21-30 demographic expected to drop to fewer than 100 million by the mid-2050s.

This shift will transform population structures from pyramidal or pillar-shaped to inverted pyramids, consisting of older generations that far outnumber the young. This will have well-known fiscal implications, including higher expenditures on public pensions and healthcare. Currently, the ratio of individuals between ages 20-64 to those over 65 is around three to one. By 2050, this is projected to be less than two to one, leading to increased retirement ages, higher taxes, or both to offset these costs.

The economic ramifications are not just fiscal; they also pertain to labor, capital, and productivity—three principal determinants of economic growth. A declining workforce will automatically lead to lower economic growth, but its effects on capital and productivity are less understood. While economists disagree on the precise impact on real interest rates, the consensus is that both savings and investment will decline, affecting financial markets. Lower real interest rates could benefit those who have already accumulated assets but would be detrimental to those still saving, exacerbating the retirement savings crisis.

One of the most concerning effects may be on productivity. Younger people possess what psychologists call "fluid intelligence," the ability to solve new problems and generate innovative solutions, whereas older individuals have "crystallized intelligence," or accumulated knowledge. Both are vital for economic performance, but fluid intelligence is particularly essential for innovation. As the global population ages, countries will possess less of this form of intelligence, likely leading to reduced innovation and slower economic growth further.

This demographic decline, then, is a multi-faceted problem with implications far beyond the obvious. The trend toward lower fertility rates is driven partly by a global convergence in women’s aspirations for careers and family life. While this social change is promoted as a step forward for women, it comes with economic (and familial) consequences that nations must prepare for. Strategies may include encouraging higher fertility rates, putting a stronger emphasis on family rather than career, or investing in technologies that can offset the decline in human labor. Some experts suggest we implement policies to attract young immigrants, but many Americans are not interested in that solution because mass immigration has proven to be more harmful to our country than anything else. It has reduced social and cultural cohesion, cut wages of working-class Americans, and resulted in millions more people benefitting from government assistance.

In a 2021 study by economists Mary Kaltenberg and Adam Jaffe, and psychologist Margie Lachman, a database of 3 million patents spanning 40 years was used to explore the link between innovation and age. The study revealed that patenting rates peak in researchers' late 30s and early 40s and then decline gradually. However, disruptive innovations—measured by the number of citations in future patents—are more likely to be the work of younger inventors.

The research has significant implications for global productivity and standards of living. Innovation plays a key role in boosting productivity, which has historically been a critical driver of economic growth. For instance, productivity growth accounted for about 60% of the rise in output per worker in several advanced economies from 1947 to 1973. The concern is that a demographic decline, currently seen in multiple countries due to falling birth rates, will adversely affect innovation and, by extension, productivity. A less productive economy will grow more slowly, affecting standards of living.

Although falling birth rates are a global concern, policy attempts to reverse them have been largely ineffective. Financial incentives offered by countries like Hungary, Poland, and Singapore have had only a modest impact on fertility rates, suggesting that governments have limited power to reverse the trend.

Technological solutions like telemedicine and robotics may also mitigate the impact of an aging population by automating roles or improving elderly care. However, the decline in the number of young, innovative thinkers could reduce the generation of such valuable new ideas. While artificial intelligence might fill some gaps in incremental innovation, its capacity for disruptive innovation remains an open question.

Aside from the economy, a declining birth rate results in serious consequences on the family unit. If the family unit breaks down and loses its strength, that only makes it easier for the government to overreach and attempt to seize more power in people's lives. A family does more than just help provide a stable future for children; it also provides stronger protection from tyranny. Families that include married parents, children, and extended relatives are much harder to program and brainwash, and they're also more likely to be wealthy, healthy, and stable. After feminism convinced women that they would be happier in the workforce rather than in a family, it didn't take long for the birth rate to start declining. Not coincidentally, rates of mental illness, suicide, and the use of antidepressants also increased rapidly. This does not make for a bright future for women or families in general.

Economists may claim that the answer lies in more technological innovation and immigration, but the answer could be quite simple: We need to promote the family unit, encourage people to get married and have children, and share the many benefits that come from starting a family. This will have a positive effect on everything from mental health to the future of children to the state of our economy.

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