Please turn on JavaScript

Brooks Wilson's Economics Blog: Samuelson on Population Growth and Deficits

Thursday, August 12, 2010

Samuelson on Population Growth and Deficits

Throughout most of my life, many social scientists have warned of a Malthusian population bomb that threatens our planet's limited resources. Thomas Malthus (1776-1834), an influential economist, observed that population tends to grow geometrically and food production, arithmetically. But here the similarity between many of today's demographers and Malthus ends. He concluded that mankind was not starving so other economic forces must be at work to extend life and that it was the role of the economists to study these forces.

With the aging of Western countries, economists are revising theories of population growth and finding that there is much to recommend at least stable populations. Robert Samuelson explores the impact of population growth on the U.S. economy and discusses tax policies to encourage birth in "Taxes, Fertility and Economic Growth."
...a budget is not just a catalogue of programs and taxes. It reflects a society's priorities and values. Our society does not -- despite rhetoric to the contrary -- put much value on raising children. Present budget policies punish parents, who are taxed heavily to support the elderly. Meanwhile, tax breaks for children are modest. If deficit reduction aggravates these biases, more Americans may choose not to have children or to have fewer children. Down that path lies economic decline.
Societies that cannot replace their populations discourage investment and innovation. They have stagnant or shrinking markets for goods and services. With older populations, they resist change. For a country to stabilize its population -- discounting immigration -- women must have an average of about two children. That's a "fertility rate" of two. Many countries with struggling economies are well below that. Japan's fertility rate is 1.2. Italy's is 1.3, as is Spain's...

The U.S. fertility rate isn't yet close to these dismal levels. In 2007, it was at the replacement rate of 2.1 children per woman, reports the National Center for Health Statistics...

While having a child is a deeply personal decision, it's also shaped by culture, religion, economics and government policy...

We need to avoid Western Europe's mix of high taxes, low birth rates and feeble economic growth. Young Americans already face a bleak labor market that cannot instill confidence about having children. Piling on higher taxes won't help. "If higher taxes make it more expensive to raise children," says demographer Nicholas Eberstadt of the American Enterprise Institute, "people will think more about having another child." That seems common sense, despite the multiple influences on becoming parents.

How to reconcile this with deficit reduction is unclear. From 2011 to 2020, the Obama administration projects budget deficits of $8.5 trillion. Other estimates are higher. Even if spending and benefits for the elderly are cut -- as they should be -- higher taxes will still almost certainly be needed. Parents ought to be shielded from the steepest increases.

Any tax system rewards some activities and punishes others. A case in point is the mortgage interest rate deduction that rewards people for buying larger homes with more debt. We might reduce this dubious subsidy and shift some savings toward children. Stein advocates combining pro-child tax breaks (the personal exemption, the child tax credit, the child-care credit and the adoption credit) into one generous credit. Whatever the details, policies should have a pro-family bias because parenting is, as he writes, "one of the most important services any American can perform."

No comments:

Post a Comment