Children are not being born in sufficient numbers to prevent the population from shrinking. But federal bookkeepers who track our nation’s finances are in denial about it. The birth dearth is a ticking financial time bomb that will hurt everyone unless our demographic decline is reversed.
The two largest social insurance programs, Social Security and Medicare, are on slightly firmer financial ground today than last year, according to the trustee reports released by President Joe Biden‘s political appointees this week.
This is mostly attributable to higher economic growth. Under accounting fictions, the Social Security and Medicare trust funds are now expected to run out by 2035 and 2036, respectively, compared to last year’s projections of insolvency in 2032 and 2031.
Expecting economic growth to continue through 2035 at its current high rate is disputable but not unreasonable. What is completely unreasonable, however, is the trustees’ assumption about the rate at which women will have babies.
Last month, the Centers for Disease Control and Prevention released its annual report, finding that the overall fertility rate fell to 1.62 births per woman in 2023, the lowest ever recorded by the federal government. Yet, Biden’s Social Security and Medicare trustees used a rate of 1.9 for their financial projections. There is a huge difference.
That 1.9 is still below the 2.1 needed for the population to replace itself and not fall, but it is far more optimistic than the reality of 1.62. The trustees explained that they used 1.9 because “historically, birth rates in the United States have fluctuated wildly.” But a quick look at any fertility chart shows a steady decline in birth rates starting at the end of the baby boom to a previous low of 1.76 births per woman in 1976.Â
Fertility rates briefly recovered during the 1980s, rising to 2.1 in 1990, at which they plateaued until the 2008 economic crisis. It has, unfortunately, been all downhill since then.
Declining fertility tracks the decline in marriage. Single women have far fewer babies than married women (1.15 to 2.12, respectively), and women who get married younger have more children than those who get married later. (Half of women who get married in their early 20s end up having at least three children, compared to just 33% of women who get married after 30). This means that as fewer women get married, and those who do marry do so later, the fertility rate will go down.
The trustees acknowledged the link between marriage and fertility in their report, writing, “Since the baby-boom era, women have had higher educational attainment, higher labor force participation, an older average age at first marriage, and a higher propensity to remain unmarried. All of these factors are consistent with continued lower total fertility rates.”
But if fewer and later marriages mean fewer babies, why do the trustees expect the trends to reverse? The report doesn’t say. It just magically expects birth rates to rise even as marriage continues to fall.
It is a nonsensical assumption that will cost taxpayers trillions of dollars. As the Congressional Budget Office noted in its long-term budgetary outlook, population growth is a key determinant of future fiscal health because it determines the size of the workforce and its productivity. The more young people there are in the country, the larger the workforce. The older a population is, the more money is spent caring for the old, and less money is invested in capital to make existing workers more productive. The difference between a shrinking population and a growing population is the difference between financial ruin and economic survival.
Some believe we can solve demographic decline with immigration, but as the CBO pointed out, low-skill immigration has costs. “Additional foreign nationals will initially work in sectors of the economy that have relatively low productivity, such as services, pushing down total factor productivity,” the CBO wrote.
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“Additional foreign nationals,” it continued, “are expected to work in sectors of the economy that pay relatively low wages, thus putting downward pressure on average wages. Second, the projected increase in workers reduces the amount of capital per worker, which also puts downward pressure on wages.”
Lower wages mean even fewer marriages, which means still lower birth rates, which undoes what little economic benefit immigrants brought into the country. Our nation’s accountants cannot assume away our demographic decline. And our nation’s leaders need to realize that family problems are fiscal problems.
