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The Demographic False Alarm

The Demographic false alarm
By Brian McGavin and Tim Murray

Global warming and the demographic challenge of ageing populations are never far from newspaper headlines these days.

Some governments are so worried they are now bribing parents at taxpayers’ expense to have more children and calling for more immigration to support us in old age. It seems the message is contagious.

The United Nations Population Division reported in its 2005 summary of population policies that three quarters of Governments in developed countries and 42 per cent of developing countries now say that the issues of greatest concern, along with HIV/AIDS, are lower fertility and a reducing working-age population. In Latin America and the Caribbean, about two-thirds of the countries now considered population ageing to be a major concern, reversing the view that their population growth is too high.

The International Monetary Fund claimed in March 2007 that the most developed countries face explosive debt in age-related spending without fiscal adjustments, calculating the potential gap in UK public finances caused by rising healthcare costs could be 4.8 per cent of gross domestic product - £58 billion at 2006 prices.

In 2007 the influential Davos World Economic Forum ran a seminar on The Price of Becoming Old. OECD countries are discovering how expensive ageing can be, it said, claiming that countries like Italy and Germany will have to spend between 25 per cent and 30 per cent of their GDP on pensions and healthcare by 2030.

Yet available data suggests an almost totally misplaced concern about ageing and concern needs to be focussed elsewhere. Increasing the number of young people and immigration to underwrite old age costs is unsustainable, leading to more and more older people who will need support. New immigrant citizens get old too. They are not going to conveniently leave a country at age 65 and say it's okay, I don't want my UK, US or Canadian pension.

Adair Turner, economist and then chairman of the UK Pensions Commission, says projections show that just to maintain the ratio of 15 – 64 year-olds at their current level would need the UK population to rise from 59 million in 2005 to 136 million by 2050. The European Union’s population of 372 million would need to rise to 1,228 million in the same period, in an ever-increasing spiral – both completely environmentally and economically unsustainable.

Similarly, a report by the C.D. Howe Institute, "No Elixir of Youth: Immigration Cannot Keep Canada Young"*, shows that for Canada to maintain its ratio of old-age citizens at 20 per cent, immigration levels would have to be 28 times their present level, bringing the national population to a staggering level of 165.4 million people in 2050.

In a report to the British Government in late 2006, Turner showed that Britain spent about 6.2 per cent of its GDP on state pensions. “If we keep our state pension as generous as today, but still with the retirement age of 65, that economic burden will rise to 8.5 per cent by 2050,” he said.

“If we increase the retirement age proportionately in line with life expectancy, as the government, following the Commission’s recommendations, now plans to, the rise is only to 7.75 per cent so that about a third of the problem simply disappears.”

Even though Germany and Italy have more older people than some countries, this is nowhere near the Davos seminar claim, in timeframe or GDP.

The EU average state pension is 60% of average working salaries compared to the UK's miserly 30.8% and some countries, like Greece and the Netherlands, give even more generous state pensions. There is plenty of scope for economic adjustment and compromise.

Turner points out that: “It is important to understand that this negative effect of low fertility is offset by some powerful economic benefits of smaller families and low population growth. Smaller families mean less expenditure on rearing children and on education: increased public expenditure on pensions partially offset by less on public education. And smaller families mean that people on average inherit more housing capital, simply because if you are one of two children, you will on average inherit one half of your parent’s house, whereas if you are one of three, you inherit a third. And that inherited housing capital is then available at least in part to fund consumption in retirement.

“The potential importance of housing equity is very large,” he adds. “The value of housing assets in the UK, even after mortgage debt, is considerably larger than all pension funds combined.

The British think tank, Optimum Population Trust (OPT), says the economic costs of supporting an ageing population need to be balanced against the economic costs of population growth. These include the billions of pounds in higher taxes needed to build housing and other infrastructure---to accommodate ever-rising population numbers. It points out that in the UK 43% of young people go into higher education and can be dependants well into their 20s.

Jill Curnow, of Sustainable Population Australia, says the spectre is presented of decreasing numbers of workers exhausted by their efforts to support increasing numbers of elderly. But in developing nations many children spend little time at school and as soon as they are able they assist in tasks such as grinding corn and attending goats. “To describe them as totally dependent until the age of 15 is false.”

The ratio also gives a distorted picture of dependency in industrial societies. Very few children, age 16 are employed and paying taxes. Many stay in the parental home, continuing their education. At the other end of life, many people at the age of seventy are physically robust, have their own income, assist in the family business, own their home, mind the grandchildren and give time to voluntary organisations. No two-year-olds do any of these things.

“Financial assistance is given down the generations (not up) on average until the age of 75. With less population growth, productive work can be aimed at improving quality of life, instead of building ever more infrastructure and housing.”

A study done by the US-based Centre for Immigration Studies also found that the average immigrant to America was actually four years older than the average American and that immigration would therefore be of little help in changing the national age structure.

British economist Phil Mullan, in The Imaginary Time Bomb, believes the preoccupation with an ageing population that will place intolerable strains on health and pensions plans has less to do with demographic fact and more to do with an agenda to cut back the welfare state.

Mullan cites “the dependency ratio” as a crude device for assessing generational burdens. “The implication that everyone between 16 and 64 works is an absurdity,” he says. “The unemployed, students, early retirees and housewives do not generate tax revenue. “The increased number and proportion of the elderly needs to be set against the decline of health expenditure on children as a result of the decline in the birth rate. And the falling birth rate rates…also free more women to work, which grows the economic pie. Dependency and support ratios have acquired an economic significance which they don’t deserve.

“Countries with much older age structures have out-performed those with younger ones, and business cycles and growth rates are demonstrably unconnected with the age profile of a nation,” he adds, “Wealth generation has nothing to do with either the average age of the population nor with demographic ratios.” By contrast, deployment of, or failure to deploy, new technologies massively affect output per worker.”

As fertility rates drop, the reduction in the ratio of youthful dependents to working-age adults enables countries to improve their infrastructure, productivity and education – a demographic window of opportunity, as happened in countries like South Korea and Taiwan which saw a rapid rise in living standards.

Mullan argues that industrial societies are already productive enough to provide for the present elderly population and with quite low growth could satisfy even the most extreme projections for the future pace of ageing.” Expenditure on health and pension services in the next 40 years will need to increase by only 12 per cent to maintain present levels and standards.

A report for the UK-based Institute of Public Policy Research confirmed that “there is little correlation between ageing and increased health care costs.” In short, according to Mullan, no one has come up with a compelling financial case why ageing is so burdensome.

He concludes: “There is no demographic time bomb. The anxiety about ageing that has become endemic in the 1990s is misplaced. It is entirely exaggerated. Sometimes commentators with particular obsessions or vested interests have manipulated it.”

Former UK minister Peter Lilley observes: “The government is obviously dealing in economies without prices and is certainly forgetting to account for the future accruement of pensions for immigrants. By allowing a large inflow of less skilled workers we will depress the pay of the workers that are already filling those jobs within the country, and will in turn discourage up-skilling. Once pay is depressed and lower skills are relied upon then they become permanent.”

Scaremongering to feed the short-term interests of pensions’ industry balance sheets is not a sound basis on which to call for a baby boom or large-scale immigration, with profound long-term economic and environmental consequences.

There is a huge raft of expenditure supporting young people that is being ignored. Child allowances, tax credits, an expanding sector tackling social exclusion of disaffected youth and the cost of years of education. Crime and the criminal justice system is another area where young people are disproportionately over represented.

Around 42 per cent of all first time offences in the UK were committed by18 to 20 year-old men, according to the UK Social Exclusion Unit in 2005. The 2005 Offending, Crime and Justice Survey in England and Wales found that a quarter (25%) of 10 to 25 year-olds admitted to committing at least one core offence in the last 12 months, and this doesn’t include those already in penal institutions.

Young people are also disproportionately reflected in unemployment statistics. The percentage of 16 to 24-year-olds in England classified as unemployed in 2005 was 9 per cent, but the percentage ‘not in education, training or employment was twice as high, according to a report for the Prince’s Trust charity.

Even worse, 15 to 24 year-olds made up 47 per cent of the total 186 million people out of work worldwide in 2003, according to the International Labour Organisation, while only making up a quarter of the working age population. The problem is even more pronounced in developing countries.

A brief examination of the UK Government’s 2007-2008 total expenditure on services (Table 6.5) shows around £76 billion could quickly be linked to support costs for young people, with around £71.5 billion attributable to supporting the over-65s. For example, tax credits to help families with children now cost £16.3 billion this year, while public service pensions cost 1.2 billion (net).

Health is another area where older people are considered a burden. In a study* of health costs, Professor Raymond Tallis of Manchester University found the total days of in-patient care for people who died at 90 was only about double that of people who died at 45. Eighty per cent of men over 85 are living at home, successfully looking after their personal care unaided. Even half the 95-plus age group were still independent and only one in five people ever need institutional elderly care. The prevalence of disabilities at older age is also falling, he says. In the 1980s it was predicted the number of strokes would rise by 28 per cent in 20 years, but by 2004 numbers fell by 29 per cent. Data from the UK Department of Health found it was only the 85-plus group where average health costs rose significantly. **

Social service’s support for vulnerable people in England in 2006/07 shows around £7.7 billion spent on adults under 65 and £5.68 billion on children and families, significantly more than the £9.04 billion to support people over 65. It is clear that our ‘demographic challenge’ needs to look further than ageing populations.

“The way we relieve the "burden" of an ageing population is we use the money that would have been spent on the extra infrastructure for housing, schools and health services, trying to accommodate rising populations and immigration,” says Canadian analyst Tim Murray.

“Why we need to replace our current exploding population level is a question never asked,” says Murray. “This is in a world of 6.7 billion people and rising rapidly, where each new child will likely produce more than 20 metric tons of green house gases annually and where “civilisation” everywhere, according to the International Panel on Climate Change, is in imminent peril as a result. All to serve a demographic Pyramid Scam that one day must collapse like a house of cards - our environment and any hope of a better life with it.”

*Is the ageing population a threat to health care: The good news: we are living longer, Professor Raymond Tallis, Manchester University, September 2003.
**Hospital and community health service expenditure, England: by age of recipient 2001/02. Age 0-4 £1,172; Age 5-15 £259; Age 16-44 £412; Age 45-64 £517; Age 65-84 £1,348; Age 85 and over £3,315; All £646.
*The CD Howe report is available at http://www.cdhowe.org/pdf/backgrounder_96.pdf
(2,200 words)

A QUACK REMEDY FOR AGING: SPANISH PYRAMID SCAM GONE BAD
Spanish Government burdens country with hundreds of thousands of unemployed, low-skilled immigrants in a misguided quest to offset ageing population.

The following abridged article appeared under a different title by Dutch columnist Syp Wynia in Elsevier, as translated by James Schipper

The Spanish Government is saddled with 100,000's of unemployed, low-skilled immigrants from Africa and Latin America. They have become such a burden that the government is offering them a $14,000 ‘departure bonus’ if they are willing to return to their country of origin and stay there for three years.

Four years ago, the Spanish Government gave resident status to 800,000 illegals from Africa and Latin America. This was such an encouraging signal that 10,000's of Africans took the risk of getting into rickety boats in the hope of benefiting from the policy. Now the unemployment rate among the non-Spanish population is 25%.

That's what happens when the wrong labor is imported for the wrong reasons. Spain thought that the boom would last forever and it did little to encourage its own unemployed to enter the labor force, allowing millions of foreigners to settle in the country in a few years. The socialist government believed in the fallacy that mass immigration is an effective remedy against the problem of ageing. Now that the construction sector, in particular, is being hit hard, the Spaniards are left holding the bag. Nobody is talking about ageing anymore."

What's all the more remarkable about this is that the Spanish fertility rate started to drop only fairly recently. When a country's fertility rate falls, it obviously first affects the population under 20, which consists of non-producers. The short-term economic effects of a decline in fertility are actually beneficial, although naturally there will also be some losers, such as schoolteachers.