Confused Keynesianism Informs Low-Birthrate Alarmism

What happens to “demand” if a billionaire lives in austere fashion? The answer is that thrift doesn’t shrink demand one iota. The same applies if a machine produces billions worth of wealth.

It doesn’t matter if the billionaire human spends very little of the wealth created, or if the wealth-producing machine spends nothing at all. Demand follows production, always, simply because demand is a certain consequence of production. They mirror one another.

Which is why we have absolutely nothing to fear with regard to falling birthrates. Those fearful are making Keynesian arguments.

Keynesians believe that as Americans produce fewer babies, the economy will shrink via reduced consumption. They also believe that lower birthrates will result in fiscal crises for governments. Look up Washington Post columnist Catherine Rampell and “birthrates” if you’re skeptical. But also look up Bret Stephens, Megan McArdle (“No matter how you slice the data, declining birthrates are bad news for retirees.”), Max Boot, AEI’s Nicholas Eberstadt, and countless other conservatives/libertarians to find commentary similar to that of Rampell’s. Most of the expressed fear can be found in worries about shrinking budgets that will result from greatly reduced government revenue borne of too few babies resulting in too few adults. Baseless fears, plus the angst is a bit odd.

Let’s start with odd. Since when are people supposed to produce babies to prop up government as is?

Next, the fact that government debt is presently growing is yet more evidence that the birthrate “crisis” will prove quite the opposite. If you’re confused, ask yourself if you’d lend at very low interest rates to a country that allegedly stares reduced growth and reduced government revenue in the face as a consequence of falling birthrates. Hopefully the question answers itself.

It’s just a reminder that love or hate the government debt, it’s a market signal pregnant with expectation that the amount of taxable wealth in falling birthrate countries will continue to grow, thus making debt service simple. All of which rejects the birthrate/deficit alarmism in the first place. In other words, to believe as the various economic religions do about falling birthrates signaling future revenue shortfalls for government is to think markets are pretty stupid. See the yields on 30-year Treasuries if you’re still confused.

After that, consider the meaning of machine and AI-style advances that are coming our way relentlessly. To say that they’ll multiply individual human effort is an all-time understatement. That they will explains why pundit fear of falling birthrates isn’t shared by actual markets reflecting reality. The simple truth is that an individual coming into the world today will enjoy individual productivity that will make that of the past seem centuries old by comparison. That’s yet again why long-dated Treasury yields in no way reflect the difficult fiscal future promised by McArdle et al.

Yet conservatives and libertarians who would decry an association with Keynes predict a dire economic and fiscal tomorrow thanks to fewer babies. Why? Beyond their inability to see that humans are the opposite of static in terms of their ability to produce, it’s useful to remember that contra their models wittingly or unwittingly rooted in consumption, the latter is but an inevitable consequence of production. Which means that even if pundits naively and unwittingly embrace consumption as the driver of economic growth, falling birthrates will in no way result in reduced consumption. That is so because consumption once again mirrors production.  

Which means the various economic religions can relax about falling birthrates. They won’t lead to reduced consumption, and they won’t simply because the only way to shrink consumption is to shrink production. Production is set to soar as automation soars, which means the biggest problem for future governments will be too much tax revenue enabling a great deal more debt.

Republished from RealClear Markets


  • John Tamny

    John Tamny is a popular speaker and author in the U.S. and around the world. His speech topics include "Government Barriers to Economic Growth," "Why Washington and Wall Street are Better Off Living Apart," and more.

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