Families and the Economy
(editorial by Scott Burns)

“We’re not facing a nuclear war or a population bomb; we’re facing a depopulation bomb. This isn’t just Europe. It’s the entire world.”

That was one of the first things Phillip Longman said about his book, The Empty Cradle: How Falling Birthrates Threaten World Prosperity. Mr. Longman is one of the few economic writers whose economic vision includes families as something more than consuming units. He clearly recognizes that families are powerful economic institutions in their own right. Without families—and all they do to create and prepare for the next generation—our market economy and public service economy would collapse.

If the idea of falling population strikes you as odd, you need to update your picture of the world and the problems it faces. Less than 50 years ago, the U.S. birthrate hit a record and began to decline. From 3.7 births per woman—well over the 2.1 required to maintain a level population—our birthrate has been falling ever since. It is now hovering just below replacement rate.

In Europe, birthrates are even lower. As a consequence, the population of Europe will have fallen to what it was in 1950 by 2050. Longman says this is happening all around the world—women are having fewer children. It’s happening in Brazil, in China, India and Japan. Even in the Middle East. Wherever there is rapid urbanization, education for women and visions of urban affluence, birthrates are falling.

One of the reasons is that human beings have created an environment that is negative for childbirth. There is a demand for human capital, but there is almost no reward for it. So people have fewer children. On a farm, you can have children and they will be useful from age 5. But in an urban environment, children are liabilities. And 50% of all the people in the world live in urban environments.

People who are involved in raising the next generation are typically paid far less than they would make doing something else. You can earn more, for instance, selling real estate than being a schoolteacher.

Why does this happen? Think about it like this. When you go to a casino, you keep all the winnings. But when you have a child, you have to share the benefits of your investment with the entire society.

“So, we have a ‘free rider’ problem. You don’t need to have children to provide for your old age—but the pension systems need them” (referring to the coming Social Security crunch as the number of retired people rises faster than the number of workers).

When asked if the problem was that people were more self-centered, Mr. Longman replied, “This isn’t about selfishness. Surveys show that women haven’t had as many children as they wanted to have. The average woman in Europe, for instance, wanted to have 2.1 children, but only had 1.3. In the United States, the average woman wanted 2.3 children (enough for population growth) but only had 2.02.”

“People, particularly in Europe, aren’t producing as many children as they would like to have. The economy is asking them to do more and more in their best reproductive years. They’re expected to get educated, get a job, find a nice neighborhood, etc. By the time they do that, they’ve missed their best years for reproduction.

Basically, our societies have put a tax on nurture. Parents create value, but they get little of it. When asked how the nurture tax could be measured, Longman said, “Parents are effectively taxed in several ways. They pay the same Social Security taxes as others. But, at the same time, they produce the children that will secure the future of Social Security. And children are an enormous investment at about $200,000 in direct expenses.”

There’s also an enormous opportunity cost—the foregone wages. Even in the wife doesn’t stay home full time, the part-time work is an opportunity cost.

The Empty Cradle captures a lost truth: There’s more to life than investments. And there’s more to investments than money.