One of the rationales behind this blog, and I make no bones about it, is that Italy is an important case for a phenomenon which has global significance: that phenomenon is known as the demographic transition. Barely a week ago Federal Reserve Chairman Bernanke made a major speech about just this topic. The whole speech is worth a read, but the heart of the matter is this:
This coming demographic transition is the result both of the reduction in fertility that followed the post-World War II baby boom and of ongoing increases in life expectancy. Although demographers expect U.S. fertility rates to remain close to current levels for the foreseeable future, life expectancy is projected to continue rising. As a consequence, the anticipated increase in the share of the population aged sixty-five or older is not simply the result of the retirement of the baby boomers; the "pig in a python" image often used to describe the effects of that generation on U.S. demographics is misleading. Instead, over the next few decades the U.S. population is expected to become progressively older and remain so, even as the baby-boom generation passes from the scene.
Now Bernake is talking here about the case of the United States, but the issue is far more generalisable, and note what he says: "over the next few decades the U.S. population is expected to become progressively older". Bernanke is talking about the *population* here (ie median ages) and where he says 'remain so' he could just have easily said and 'will continue to do so', since this process has, at the present time, no end point. Median ages are rising and will continue to rise so long as life expectancy continues to increase. And which are the three countires with the highest median ages to date: why Italy, Germany and Japan (please consult the full list of countries, to ger a clearer picture).
So we are in the throes of a transition, and this transition will, as Claus Vistesen suggests, have important economic consequences, and I think anyone trying to argue the contrary needs to measure their words very carefully.
So the first point I want to make is that I didn't especially chose Italy, Italy chose itself, since according to the UN 2002 population forcecast Italy is set - over the next decade or so - to become the oldest country on the planet in terms of median age.
Now why do countries get older? Well in the first place this ageing process is due to a drop in fertility to below replacement level, and in the second place it is a result of a continuing increase in life expectancy. The drop in fertility narrows the base of the population pyramid, while the increase in life expectancy elongates the upper end.
Now why is this economically important? Well in the first and most obvious instance because of the shift in dependency ratios. Countries with rapidy increasing life expectancy and lowest low fertility (below 1.5 tfr) face the prospect of not only a decreasing proportion of the population working, but also of an eventual decline in the absolute numbers of the working population, and this as the number of elderly dependents increases both absolutely and as a proportion of the total population. So this is why government income and expenditure becomes important, because at the end of the day all of this has to be paid for, and if you run up substantial deficits during the relatively good times, then how are you going to sustain the more difficult burden which lies ahead? This is the heart of the issue.
Of course there are many details to this picture, and that is why a group of us set up a special blog devoted entirely to the theoretical issues posed by this transition.
Now Paris argues: "demographers have a fairly poor track record. First they told us that we should worry about over-population (in the 1970s) and now they tell us the problem is the declinding birth rate and the aging population."
Actually this is not so inconsistent as it seems. In the first place countries with high birthrates like Mali, Senegal, Niger etc, do have a problem, they have far too many children, and their economies cannot get off the ground. So those demographers who said that it was a priority to get birth rates down were right, but the problem is they have now come down so far in most developed countires that populations are not reproducing themselves. And this is the issue we must address.
Personally I now think there is some sort of inevitability about low fertility, that it has a perfectly comprehensible economic rationale in terms of trading quality for quantity in children, and that the pattern is now so general (see this list) that trying to raise fertility is a bit like trying to make the oceans go back, I don't think it is doable. Of course fertility in Italy is not as low as it seems (since there is a statistical postponement effect as well as a real quantity one) and we should expect some sort of rebound, but the true number is well below replacement.
My main beef with Paris's 'everything is just fine in Italy' take, and with the 'demographers get everything wrong' part, is that people have been saying this for a long, long time, but if back in the early 90s there had been a real child friendly policy in Italy - this would have been worth investing some of that enormous government debt in - then instead of fertility around the 1.3 mark, it might now have been around the 1.7 one. Also a lot could have been done to make the education system more efficient and the labour market more effective for young women entrants, so that instead of postponing childbirth to 35 they could have been having their firts child at 27 or 28 and again that would have made a big difference.
But we now have what we have, and in the significant time horizon fertility isn't going to change sufficiently to make any meaningful difference to the outcome.
Another area of effective policy would be extending the working life upwards, but many people in Italy are still retiring at 60. In the US the decision to increase orking life up to 67 was taken long ago, 25% of the Japanese population are now working at 75, in Germany they have decided to increase the age to 67, and in the UK they are talking about it, but what is Italy doing, would somebody please tell me, since this is far from obvious.
Finally, there is immigration. This of course can help to improve the pyramid structure and as such is welcome. But it wasn't so long ago that senior Italian politicians were threatening to shoot boatloads of immigrants out of the sea. So the change of heart in Italy on immigration is a welcome move, and the Prodi proposal to simplify nationality acquisition is again a move in the right direction, but one more time we are back with the fact that to attract migrants you need jobs, and to have jobs you need growth, and this growth is precisely what has been lacking in Italy over the last decade or so (more on this in another post).
So the point is, there are things which can be done, and they are pretty urgent, but simply saying 'problem, what problem', 'no problem here' won't do anything to make it easier to address all of this.
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