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Markets which need people: Contraceptive policy and the financial stability of the West

Recent research on the positive correlation of population increases the economic growth has not been widely disseminated. Expanding populations are good for economic growth. This information may sound the death-knell for the anti-natalist policies of the U.S. government. It may also stiffen the resistance of third-world leadership to the high-pressure imperialism of the population controllers.

Population changes in this century in Europe, the Americas, and eastern Asia have been well documented. They constitute a kind of worldwide laboratory for economists and financial managers who try to predict future trends from existing data. Economists at Donaldson, Lufkin and Jenrette have disseminated analyses and conclusions that, on further study, help us to understand how population growth and decline affect national incomes, productivity and markets.

The chart of live births in the United States (Figure l) has been widely published in connection with the maturing of the Boomer generation (born 1946-63). The chart itself is useful to economists. It clearly shows that the era of declining births we associate with the 1929-1939 depression predated that economic downturn by several years. In fact, it is more likely that depressed birth rates helped cause the Depression than that they were caused by the Depression.

A similar mini-depression followed the crash in birth rates that followed the approval in the U.S. of the contraceptive-abortifacient “pill.” Expanding families are net consumers, and consumption stimulates economic growth. Declining populations and Family formation cause economies to contract.

In fact, the DLJ research suggests that it is the rate of household formation, and more particularly the number of 25-year-olds in an economy that directly correlates with economic growth.

According to this hypothesis, domestic consumer expenditure increases and reductions are a function of the number of young adults, because it is they who form consuming households. The ideal consuming household, according to this model, is one with children, because such families spend money for a wide spectrum of goods and services, and typically attract gifts of financial assets from doting grandparents.

Once we understand this, we can comprehend the significance of charts that plot the rate of incremental change in age-segmented populations, such as the U.S. population chart for the 1990s. This chart (Figure 2) shows the rate of change in progressive age groups for the period 1991-2000. As the boomer generation, which began the 1990s at ages 27-44, moves through the decade, there is a dramatic change in the age 50-59 population, and an even larger change in the age 40-49 population. Furthermore, the contraception-induced population bust of 1964-1976 shows up as two successive waves of reducing populations in the critical age groups 20-39.

The “Reagan boom” of 1982-1990, then, was nothing more than the result of Boomers hitting their twenties and thirties, forming families in record numbers, and spending billions for homes, furnishings and transportation. The birthrate (Figure 1) was rising throughout that period. In retrospect, the declining birthrate of that period, rather than the oil embargoes and “ennui,” principally effected the Nixon- Ford-Carter recession of 1973-198l.

Furthermore, the mini-boom of the Clinton administration was a function of the slightly rising birthrate seen during the Vietnam War, as young men elected to become dads rather than infantrymen.

Although European population trends generally mirror those of North America, not all cultures show the same boom-bust pattern. The Japanese baby boom happened prior to World War II. It was a rapidly expanding Japanese economy that caused a heavy demand for oil. Japan, as we know, has no domestic oil reserves. Their desire for increased petroleum imports, frustrated by the Roosevelt pro-China policy, led them to seize by force of arms those resources in Southeast Asia that they could not secure by treaty and purchase. After the war, a pacified Japan saw their economic future in exports. They turned to an expansion of industry as the way to establish secure financial hegemony for a generation. Their population boom, which was only incrementally reduced by the war, was turned into the factories. Legalized abortion, another result of American occupation, produced a long running population bust. But because the domestic economy was underfunded in favor of huge, lucrative exports, the Japanese were able to reap huge profits in Eurodollars, which they ultimately invested in the economies of nations with expanding populations.

The demographic result of this “boom-bust” history (Figure 3) is a dramatically aging Japanese population. During the 1990s, the number of Japanese reaching the end of their productive lives overwhelms the small expansion in the number of twenty-something Japanese. The implications for their system of old-age security are likely to be devastating. If anything can explain why the Japanese stock market roared during the 1970s and early 1980s, but has been moribund since then, it is the simple tact that their once vigorous population is running out of creative steam.

By way of contrast, the number of Americans entering their most creative and productive years during the late 1980s and 1990s has fueled an economic expansion that appears to be without limit. Although the number of Americans starting households during the nine-ties has been disappointing, American companies have learned from Japan how to overcome lackluster buying power. You simply sell to economics that are still growing in demand.

Thus the North American Free Trade Agreement was born. The only expanding population bases in the world arc in the third world. Europe is dying; its immigration riots are largely due to its need to import laborers front Southwest Asia to replace an aging work force. North America is moving in the same direction; only immigration maintains a positive population trend. But the demographics of Latin America, by way of contrast, are perfect as an export market (Figure 4).

Unlike the older economies of the U.S., Japan and Europe, the age-change data show not one age group lower in numbers than the one that precedes it. Latin American economics can look forward to five full decades of increasing populations in the workforce, and a delayed hit to their social insurance programs because of a relatively small elder population. Marketing planners in the U.S. realized that their proximity to this exploding marketplace, and the large number of Spanish speaking Americans, gives the U.S. company a marked advantage over its Japanese counterpart. Just as Japan needs to expand its overseas presence and influence, it finds its abortion-reduced productive workforce unable to muster the energy to do so. The United States has won this competitive battle before it begins, precisely because of its postwar population boom.

Population patterns never remain static. Decisions made decades ago in the “privacy of one’s conscience” have economic impacts well into the following century. Thus the United States economic juggernaut has only ten or fifteen years longer to run, as its largest generation begins to slow down and seek retirement. Then, as in Japan, the imprudent borrowing of human capital from the next generation begins to be felt in painful ways, particularly in the wrenching dislocation of the U.S. Social Security system. Because Social Security is a “pay-a-you-go” or Ponzi financing system, it relies on a large number of workers paying taxes to support a smaller number of retirees. It simply can’t work in any other demographic environment. In my article “The Slow Erosion of Social Security,” (Life insurance Selling, November, 1996 at 100), I have summarized the various strategies that Boomers need to rely on to prepare for the day when Social Security can’t pay all its bills. The childless or one-child couples have the worst problem, because they don’t have family members to rely on for living assistance or financial aid.

Ironically, the only sentence edited out of this article was my suggestion that life insurance agents should encourage their clients to have more children. Without that important sentence, it seems that my only suggestion is that the childless set aside huge sums of money for retirement funds, and buy long-term care insurance to pay for impersonal nursing home stays.

But as the last several Social Security Trustees’ reports implicitly admit, the only certain way to restore the American Social Security system to solvency is for the birth rate to rise back to 3.6 children per female. The same conclusion can be drawn about analogous systems throughout the developed world. If economic vitality in a system is a function of population growth, the only reasonable inference we can gather from the data, then even privatizing the various Systems of Social Security will not help, especially if populations stagnate across the globe. What person would have wanted his retirement money to be invested in the Japanese stock market over the last ten years? Equity markets follow economic trends; a lackluster economy will produce a moribund market. Thus, in the second decade of the next century, as American economic hegemony gives way to another power (perhaps China), American markets will be an uncomfortable place to have retirement savings piled up.

Clearly, it is contrary to the economic best interests of the United States to promote contraception anywhere in the world. By reducing the U.S. birth rate, government programs hasten the day when Social Security cannot meet its obligation. But by reducing birth rates in the third world, imperialistic population control schemes adversely affect the very foreign consumer markets that U.S. companies need to cultivate as substitutes for vigorous domestic consumption.

W. Patrick Cunningham teaches finance and risk management for The University of Texas at San Antonio.

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