Demography and Economic Destiny

Why the global economic crisis is really about old age—and how to encourage prosperous countries to have more children.
By Phillip Longman
Tuesday, August 17, 2010

One day in 1999, I went to visit the billionaire financier Peter G. Peterson in his office high above Park Avenue. In those days, Peterson surveyed a city booming with leveraged deals and paper profits that hourly added to his wealth. Yet he was worried about the future. He warned of a world going gray and predicted that the aging population of the industrial world, particularly in Europe, would tank the era of prosperity then being called “the long boom.”

As I quoted him back then in a cover story for U.S. News and World Report: “The scenario I see is that one or more developed countries . . . is going to decide that the political cost of reforming their pension systems is just too high.” When that happens, Peterson continued, “they will try running high deficits — much higher than the limits set by the European Union’s monetary authorities — in an attempt to finance their way out of the problem. When the financial markets wake up to this news, there will be a broad realization that we have a global aging crisis that is going to be unrelenting in its economic consequences.”

At first, the global recession that began in 2008 seemed to have nothing to do with changing demographics. Economists and politicians pointed instead to the excesses of unregulated capitalism. Many thought that the prophesied demographic-driven entitlements crisis was still years away. But today it is becoming more apparent that Peterson was right: Europe’s demographic problems are not only forcing startling cutbacks in the welfare state but also are damaging the Continent’s prospects for sustained growth and economic recovery. Worse, Europe's today is the rest of the world's tomorrow. the rest

What is the way forward? The future belongs to whatever form of human organization manages to produce enough children to avoid both population decline and environmental ruin.