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By Peter Coy
Opinion Writer
The baby bust that we all know about has gotten worse in a way that isn’t yet widely understood.
Birthrates, which have been falling for decades, declined even more during the Covid pandemic. And they have continued to fall since, according to a report to clients by James Pomeroy, a global economist for HSBC, the London-based bank. It’s titled, “The Baby Bust Intensifies: How Bad Could It Get?” (Sorry, no link.)
Pomeroy didn’t wait for the official data collectors such as the United Nations to assemble data trickling in from national statistical agencies. He went out and collected the numbers from them himself. Some are provisional or don’t cover all the way through the end of 2023, and “some are produced from very interesting back corners of government statistics offices,” Pomeroy wrote to me in an email.
While the final numbers may come in marginally different, they’re unlikely to change the message of this chart below, which itself is slightly updated from the one that appeared in the bank’s report. In most of the countries for which Pomeroy managed to get data, the total number of births continued to fall steeply in 2023. The United States did better than most, with a decline of 1.9 percent. The Czech Republic, Ireland and Poland all experienced declines of 10 percent or more.
To Pomeroy, the most “staggering” decline is the 8.1 percent drop in South Korea, because that nation already had the world’s lowest total fertility rate in 2022, at 0.78. (The total fertility rate is the number of children a woman would have over her lifetime if in each year of her life she experienced the birthrate that women of that age experience now. The total fertility rate required to keep a nation from shrinking over the long term in the absence of immigration is 2.1.)
Low fertility has become a national emergency in South Korea, where experts say that if the decline continues, the nation’s population could shrink by two-thirds by the end of the century. Korean newspapers are filled with stories about closing nursery schools, expanded baby bonuses and whether it will become necessary to conscript women into the armed forces to meet quotas.
If fertility in South Korea can fall so far, it’s “plausible,” Pomeroy said, to think that it might happen in other countries, including the United States, where the total fertility rate is still a bit above 1.6. The U.S. population is still growing slowly, mainly because of immigration.
What makes a baby bust so hard to fight is that its effects compound over the generations. Fewer births in one generation lead to fewer women in the next generation to give birth. A smaller population may put less stress on the environment, but an upside-down population pyramid leaves too few working young people to support the retired elderly.
The politically preferred solution to a low birthrate is simply to raise the rate. But pronatalist policies such as bonuses for having babies, free child care and so on haven’t met expectations where they’ve been tried. If policymakers can’t get birthrates up, they will be left with an unappetizing set of choices: raise taxes, raise the retirement age, cut retirement and health care benefits for older adults or increase immigration.
That last option, increasing immigration, has a lot going for it. It can benefit both the receiving nation and the sending nation. People who go abroad to work send remittances home. They may also bring back ideas for new businesses. The Philippines has a small but growing start-up culture that seems to have been energized by Filipinos who worked abroad, Pomeroy said.
The challenge for rich nations with low birthrates is to integrate new arrivals both economically and socially. That requires the public’s support for investment in housing, education and other things immigrants need. In the United States, a nation of immigrants, support for immigration remains fairly strong despite the chaos on the southern border. But it’s weaker among older Americans, as this chart shows:
Pomeroy views that chart as potentially good news. If today’s young people remain as pro-immigration when they get old as they are now — not a certain thing — then the United States (and perhaps other rich nations) will become increasingly receptive to newcomers, which would ameliorate the problems caused by declining birthrates.
I don’t want to play down what a mess immigration is right now. More needs to be done to stop unauthorized entry and bring the processing of would-be immigrants under control. But more legal immigration, if permitted, would relieve the shortages of people to fill low-wage jobs in agriculture, food service, construction and personal care, Giovanni Peri, director of the Global Migration Center at the University of California, Davis, told me. (I support restructuring such jobs to make them more productive and higher-paying, but even then they would be likely to appeal mostly to immigrants from lower-income nations.)
A generation from now, if current trends continue, people may look back at 2024 and wonder why Americans were trying so hard to keep people out instead of pleading with them to come in.
The pale line on this chart shows that on paper, the Federal Reserve’s Federal Open Market Committee hasn’t raised the key interest rate it controls — the federal funds rate — since July. The dark line shows that in reality, it has allowed borrowing to continue to get more expensive. That’s because the inflation rate has been falling.
A high inflation rate lowers the real cost of borrowing because a borrower can use inflated dollars to pay off the loan. A good example: The real federal funds rate was extremely low (deeply negative) in early 2022 because inflation was high, while the nominal federal funds rate remained close to zero.
Two things have happened since. The Federal Reserve has raised the nominal federal funds rate sharply, and inflation has abruptly declined. The combined effect has been to raise the real federal funds rate by nearly eight percentage points, a huge swing that could threaten the economy’s expansion.
“Hobbits delighted in such things, if they were accurate: They liked to have books filled with things that they already knew, set out fair and square with no contradictions.”
— J.R.R. Tolkien, “The Lord of the Rings, Part I: The Fellowship of the Ring” (1954)
Peter Coy has covered business for more than 40 years. Email him at coy-newsletter@nytimes.com or follow him on Twitter. @petercoy
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