Practical Steps on Births, Benefits, Booms and Busts

World Congress of Families | Published on May 25, 2012

By John D. Mueller

Print Friendly


Remarks prepared by John D. Mueller, EPPC Lehrman Institute Fellow in Economics, for an Interparliamentary Forum at the World Congress of Families VI in Madrid, Spain, on May 25, 2012.

I’m pleased to participate in this Interparliamentary Forum. At noon, I am scheduled to chair the plenary panel on “The Demographic Winter (How We Got to Where We Are).” Later I am to participate in the panel on “Family and Social Government Policies.” Now I’d like to focus on “Practical Steps on Births, Benefits, Booms and Busts,” using the USA and Spain as examples.

Let me start by summarizing the findings of a country-by-country model of fertility.[1] Just four factors explain most variation in birth rates among the countries for which sufficient data are available (comprising about one-third of all countries, but more than three-quarters of world population.)

WC-Madrid-3.2

The birth rate is strongly and about equally inversely proportional to per capita social benefits and per capita national saving (both adjusted for national differences in purchasing power). Social benefits and national saving are inversely related to the birth rate because they represent provision by current adults for their own well-being.

When these factors are taken into account, a legacy of totalitarian government is also highly significant in reducing the birth rate (by about 0.6 children per couple).

WC-Madrid-3.3

Finally, the birth rate is strongly and positively related, in a linear fashion to the rate of weekly worship. On average in the world, a couple which never worships has about 1.2 children; but a couple that worships once a week averages about 2.4 more children, or about 3.6.

WC-Madrid-3.4

At the same time, the rate of abortion increases exponentially as weekly worship declines.

WC-Madrid-3.5

In nearly all developed countries, legal abortion is responsible for pushing the birth rate below the replacement rate of 2 children per couple. Spain is unusual in that the rate of children conceived is lower than the replacement rate before as well as after abortions. Spain has also suffered most severely from the housing boom and bust. And it has one of the highest unemployment rates in the developed world.

What practical policies could improve the Spanish and American birth rates, lower their unemployment rate, and render their real estate markets less vulnerable to boom-bust cycles?

First, as already mentioned, simply practicing one’s faith and encouraging others to join us is the most powerful antidote to demographic winter. Between 2001 and 2006, Spain’s rate of weekly worship fell from 25% to 15.8%, while that in the USA fell from 44% to 36%.[2] The steepening fall in Spain’s birth rate and its recent fall below the replacement rate in USA are close to what one would have predicted based on the fall in religious practice. Yet where the rate of religious practice is low, even small increases are associated with large declines in abortion.

Second, both Spain and the United States have decisively substituted “benefits for babies.” Public social expenditure in Spain rose from 15.5% of GDP in 1980 to [19.9% in 1990, 20.4% in 2000, and] 26.7% in 2010. In the USA, the figures are 13.2% in 1980, [13.5% in 1990, 14.5% in 2000,] and 20.4% in 2010.[3] As I will explain later today in a panel on government policy, the willingness or failure to reform social benefits has direct consequences for the birth rate and national survival of any country.

WC-Madrid-3.6

Third, the unemployment rate is determined by what in the 1920s and 1930s was called “Rueff’s Law.” Jacques Rueff was the French economist who first explained that unemployment is a function of the cost of labor as a share of total national income. I’ve shown that Rueff’s Law still holds: after adding social benefits and subtracting taxes, there is a near-perfect relationship between unemployment and cost of labor in the USA and Britain. I suggest that the same relationship will be found also for Spain.

WC-Madrid-3.7

The source of any rise in unemployment is proportional to the share of national income devoted to benefits conditioned on being unemployed. This is apparent in the rise in U.S. unemployment that coincided with doubling of the previous term of unemployment benefits.

WC-Madrid-3.8

 

WC-Madrid-3.9

Finally, Spain’s housing boom was part of a world-wide real-estate boom and bust caused by the dollar’s role as the world’s chief official reserve currency. Commensurate expansions and contractions of high-powered dollars–the World Dollar Base–preceded the gyrations not only of the oil price but also housing prices from 2000 to 2009. Therefore, I repeat a proposal I made at last year’s Moscow Demographic Summit: All countries seeking to end the boom-bust cycle should join in supporting a reform of the international monetary system, which would repay all outstanding dollar and other official reserve currencies and restore prompt settlement of payments in gold: a system that worked well for hundreds of years and can do so again.

John D. Mueller is the Lehrman Institute Fellow in Economics at the Ethics and Public Policy Center.

___________________________________________________________

[1] The model was first published in John D. Mueller, “How Does Fiscal Policy Affect the American Worker?” Notre Dame Journal of Law, Ethics and Public Policy Vol. 20 No. 2 (Spring 2006), 563-619; available at http://www.eppc.org/publications/how-does-fiscal-policy-affect-the-american-worker/. It was updated in John D. Mueller, Redeeming Economics: Rediscovering the Missing Element (ISI Books, 2010). The model was further developed for WCF IV in Warsaw: John D. Mueller, “A Family-Friendly Fiscal Policy to Weather Demographic Winter,” http:/ /www.worldcongress.org/wcf4.spkrs/wcf4.mueller.htm; for WCF V in Amsterdam: John D. Mueller, “How Do Nations Choose ‘Demographic Winter’? Is America Doing So?” http://www.worldcongress.org/wcf5.spkrs/wcf5.mueller.htm, and http://www.eppc.org/publications/how-do-nations-choose-a%C2%80%C2%9Cdemographic-wintera%C2%80%C2%9D-is-america-doing-so/; and for the 2011 Moscow Demographic Summit: John D. Mueller, “Babies and Dollars: Babies and Dollars: Implications for USA, Russia, and the World,” available at http://demographia.ru/eng/articles/index.html?idR=80&idArt=1946 and http://www.eppc.org/publications/babies-and-dollars-implications-for-usa-russia-and-the-world/.

[2] World Values Survey, 2001 and 2005-07.

[3] Adema, W., P. Fron and M. Ladaique (2011), “Is the European Welfare State Really More Expensive?: Indicators on Social Spending, 1980-2012; OECD Social, Employment and Migration Working Papers, No. 124, OECD Publishing. http://dx.doi.org/10.1787/5kg2d2d4pbf0-en; Table A.I.1.3: Public social expenditures as % GDP, 1980 – 2012, estimated for 2008 to 2012, p. 41.