Can America Avoid the Demographic Cliff?

| February 19 2013

By Dick McDonald

Last year, for the first time, the Japanese bought more adult diapers than diapers for babies. It is all a result of demographics. Japan’s birth rate has been falling since 1960. As a result fewer and fewer children have been born and the percentage of retirees to workers has skyrocketed.

Japan is therefore suffering a “demographic winter”.  Its birth rate is 1.3 children for every couple.  The replacement rate must at least be 2.1 children per couple just to keep a population from declining.

Because of its dismal fertility rate, Japan’s population peaked in 2008; it has already shrunk by a million since then. At the current fertility rate, by 2100 Japan’s population will be less than half what it is now and be comprised of a disproportional number of non-productive older citizens.

In the 1980s, everyone assumed the Japanese were on a path to owning the world. But the country’s robust economy concealed a crumbling demographic structure. As a result that glorious post-war growth orchestrated by two American consultants buckled under a demographic problem. Since 1991, its annual fertility rate has averaged 1.03%.

Presently America’s birth rate is 1.93. Fortunately it has not fallen as far as Japan’s.  It has relied on the immigrant population to bolster its numbers.  Unfortunately those numbers may also be in jeopardy.  In the three years between 2007 and 2010, the birthrate for Mexican-born Americans dropped by an astonishing 23%.

So how do we avoid the Demographic Cliff?

Americans are not reproducing enough, and the long-term consequences are dire, says Jonathan V. Last, author of What To Expect When No One’s Expecting. His solution is to have more babies.  To that end he suggests Social Security program incentives, college tuition cost reductions and the use of communication technology to enable the poor to work remotely in lower-cost areas.

With apologies to Mr. Last those are token solutions that don’t address the severity of the problem.  I suggest we take a look at some basics. The need for more babies is academic – how to reverse a trend like the Demographic Winter is a matter that deserves deeper thought. The problem is epic as 97% of the world’s population now lives in countries where the fertility rate is falling.

For starters let’s look at the marriage picture. In 1960, 72 percent of American adults were married. By 2010, this was down to 51 percent. The change is most pronounced among youths and blacks. In 1960, 45 percent of Americans between the ages of 18 and 24 were married compared to 9 percent today. In 1960, 61 percent of black adults were married, compared to 31 percent today.

Now blaming the government for underwriting unwed single mother pregnancies and other means-tested welfare programs misses the point. We are after solutions for a trend of fewer births world-wide. Let’s not waste time on critiquing political remedies and mistakes.

Let’s assume for a second that the lack of money, like it is in most equations, is the reason for the Demographic Winter.  The cost to rear a child has skyrocketed since the 60’s; college tuition has gone up 1,000%; the number going to college has ballooned; women now work and need expensive day-care; inflation caused by reckless government spending and the resultant printing of money has made the cost-of-living out of the reach of too many. These and many other factors have made having babies a serious financial burden.

Now there is an illustration of how the lack of money in the hands of potential parents in an advance society has led to a seriously low birth rate. The country happens to be Japan.  We can easily learn from Japan just what not to do financially. And hopefully you can deduce what we should do about it.

Right after World War II Japan’s exports were so poor that no one bought them.  To rescue them from financial implosion America sent two experts – one a manufacturing guru and the other a banking powerhouse to help solve Japan’s problems. The powerhouse had to find a way to fund the work of the guru and hit upon an idea we need to pay attention to today. He devised a scheme to make the poor wealthier. He formed the Japanese Postal Bank. If the people put their money in the bank they paid no income tax on the interest earned.

The rest is history. A historically obedient society invested enormous portions of their salary into the bank and the guru was able to finance the emergence of Sony, Toyota, Mitsubishi, etc. By the 1980’s Japan’s elite were buying up everything in sight including the Pebble Beach Golf Club and Manhattan skyscrapers.

By 1990 the bubble had burst and the elite were forced to sell their foreign holdings to cover their domestic debt problems. But let’s not concentrate on the elite. Let’s concentrate on why the ordinary investors in the Japanese Postal Bank never became wealthy enough to have babies.  Two questions arise in that regard.

First who benefitted by all the money that went into the Postal Bank? The answer to that is simple – -the Keiretsu.

A keiretsu (系列?, lit. system, series, grouping of enterprises, order of succession) is a set of companies with interlocking business relationships and shareholdings. It is a type of informal business group. The keiretsu maintained dominance over the Japanese economy for the greater half of the 20th century, but are beginning to lose their grip.[1]

In other words the elite 1% of the country borrowed the money and made an obscene amount of money. It did not benefit the poor or middle-class.

Secondly why didn’t the tax-free interest accumulate and make the ordinary citizen wealthier? The answer to that is also simple.  When Japan hit the skids they dropped the interest rate paid at the bank to 0% to 1%.  It has been that way for 20 years. Needless to say keeping the poor penniless has resulted in a 1.3 birth rate with no governor on how now to stop it from falling further.

If America is to stop its Demographic Winter it needs to devise a way to get the poor and middle-classes wealthier.  Ragging on gays and welfare mothers isn’t going to do it. That is what politicians do – the people need to get serious and demand a better solution.  Real wealth is what people need. They need to form families and afford to have children.

To that end I submit the USA Plan.  Its enactment will create millions of jobs immediately; cut our national debt from $138 trillion to $30 trillion; and fifty other important things.  Not the least of which it will make the average $50,000 a-year family worth $4 million at retirement and eliminate their need for Social Security, Medicare, etc. It will eliminate the need to fund 401(k)’s out of after-tax income leaving more money to enjoy life.

Important to the issue here is that a “USA” will generate the confidence in young people to become parents.  The wife will have the option of staying home, rearing the children and still retiring a millionaire without having to work a day in her life (a very family-friendly element of the USA Plan).  Watching their “USA” (Universal savings Account) nest egg grow year after year will provide the on-going financial stability and confidence missing in many of today’s marriages.

Whether or not we want to face it having children has been financially difficult for many and impossible for others. That has to change or we are headed for the chaos of a Demographic Winter. A “USA” will insure we don’t.   See www.theusaplan.com.

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