Fewer Dollars and Babies Threaten Social Programs


Our major public policies are based on the assumption that America will continue to enjoy growth. Economic growth and population growth.

Through most of our history, this assumption has proved to be correct. These days, not so much.

Last week, the Commerce Department announced that the gross domestic product shrunk by 0.1 percent in the fourth quarter of 2012. And the Census Bureau reported that the U.S. birth rate in 2011 was 63.2 per 1,000 women age 15 to 44, the lowest ever recorded.

Slow economic growth and low population growth threaten to undermine entitlement programs like Social Security and Medicare. Despite contrary rhetoric, they are programs in which working age people pay for pensions and medical care for the elderly.

When Medicare was established in 1965 and when Social Security was vastly expanded in 1972, America was accustomed to the high birth rates of the post-World War II baby boom. It was widely assumed that the baby boom generation would soon produce a baby boom of its own.

Oops. The birth rate fell from the peak of 122.7 in 1957 to 68.8 in 1973 and hovered around that level until 2007. The baby boom, it turns out, was an exception to a general rule that people tend to have fewer babies as their societies become more affluent and urbanized.

Social Security had to be tweaked in 1983 when it became clear there weren’t enough working age people to fund benefits promised to the elderly. It needs tweaking again today for the same reason.

Medicare presents even greater problems. Health care costs have generally been rising at rates above economic growth.

By itself this is not necessarily a problem. Economic growth and market competition have enabled Americans to spend smaller percentages of their incomes on food and clothes, with more left over to spend on other things.

Spending more on health care is a sensible thing for an affluent society to do — especially as new medical procedures and drugs mean that health care can deliver more than it used to.

But in a society in which the elderly are an increasing share of the population and working age people are a decreasing share, it becomes increasingly difficult to fund these programs.

These problems are exacerbated when the economy fails to grow as rapidly as the working age population.

Birth rates fell sharply during the Depression of the 1930s. They have fallen significantly since the housing collapse, from 69.3 in 2007 to 63.2 in 2011. The steepest decline in births since 2007 has been among Hispanic immigrants, who were also hit hard by housing foreclosures.

We don’t know whether this trend will continue. But if it does, the consequences will resemble the subtitle of Jonathan Last’s newly published book, “What to Expect When No One’s Expecting: America’s Coming Demographic Disaster.”

Last points out that our fertility rate — the number of children a woman has over a lifetime — has been below the replacement level of 2.1. Over time, a below-replacement-level fertility rate means population decline.

To see what that means, look at Japan. Its fertility rate is 1.4, its population is declining, and it has had essentially zero economic growth since 1990.

We are not in such a bad position, yet. Since the end of the recession in June 2009, quarterly GDP growth has averaged 2.1 percent.

That has left job growth way below the historic trend line. Four years ago, the incoming Obama administration’s economists promised that we would be heading back up to the trend line, with unemployment down to a little above 5 percent now.

Instead, it was 7.9 percent in January, and that’s with millions no longer even looking for work. Labor force participation is the lowest it’s been since 1981.

The danger is that all this can come to seem the new normal. Low birth rates, as Last argues, can persuade others to want fewer children.

Low economic growth or even decline can shape expectations and become a self-fulfilling prophecy. “An economic recovery has begun,” Obama said in his inaugural speech last month. The implication: This is all you’re going to get.

In the 1990s, Canada and Sweden faced economic crises similar to ours. In response, they sharply cut public spending. Their economies have done well since, and their governments have been running budget surpluses.

We did something like the opposite. The consequences could be enduring.

Michael Barone, senior political analyst for The Washington Examiner (www.washingtonexaminer.com), is a resident fellow at the American Enterprise Institute, a Fox News Channel contributor and a co-author of The Almanac of American Politics.

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