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People walking at Valley Forge National Park in a foggy morning at Sunrise. (Aimin Tang/iStockphoto/Aimin Tang/iStockphoto)
People walking at Valley Forge National Park in a foggy morning at Sunrise. (Aimin Tang/iStockphoto/Aimin Tang/iStockphoto)

Chrystia Freeland

Demographics putting a squeeze on the debt dilemma Add to ...

It's the demography, stupid.

There are a lot of reasons this is turning out to be such a politically hot summer in so much of the Western world. But one way to understand the acrimony, from the street protests in Europe to the budget deadlock in Washington, is that it is diverse symptoms of a shared condition: The West is getting old. That fact is becoming a generational war, and there is every reason to believe it will worsen in coming decades.

As life expectancy increases and fertility declines, the population pyramid is being inverted - and in some countries that is causing the entire economy to topple. This is true in Greece and Spain, where the young are taking to the streets partly because state pension commitments have become so heavy they are suffocating the economy and depriving the seniors' grandchildren of any chance of a job. Likewise in the United States, where the budget battle is really a fight about the old. Programs for the elderly constitute almost half of non-interest government spending, about $1.6-trillion (U.S.) of a $3.3-trillion total in 2010. That figure will swell as baby boomers retire.

According to a paper by political economist Nicholas Eberstadt, who has done extensive research on the issue, "costs associated with population aging are estimated to account for about half the public-debt runup of the OECD economies over the past 20 years."

The demographic squeeze may also be contributing to one of the biggest dangers in international finance: the threat of sovereign default. Ali Alichi, an economist at the International Monetary Fund, argues in a recent essay that "old folks may be less willing to repay sovereign debt." According to Mr. Alichi: "As the number of older voters relative to younger ones increases around the globe, the creditworthiness of borrowing countries could decline - resulting in less external lending and more sovereign debt defaults."

This demographic crunch has transformed the way many think about the relationship between economic growth and population growth. Not long ago, the conventional wisdom was neo-Malthusian: For individuals, for families and for societies, one of the keys to prosperity was to have fewer children. That thinking has been turned upside down.

In a speech at the recent Aspen Ideas Festival, former Treasury secretary Robert Rubin cited the United States' "favourable demographics relative to Europe, Japan and even to China and Korea" as one of the principal reasons to believe the country has sunny economic prospects.

Even China, the most brutal apostle of population control, now fears it will get old before it gets rich. And India, whose fertility was once seen as its national curse, is touted as a rising investment prospect thanks to its "demographic dividend."

One solution to the demographic dilemma is immigration. But absorbing immigrants can be tough on a country, and it's a zero-sum game that can't work for everyone forever. As the world's poor countries get richer, their citizens have less reason to emigrate and they begin to suffer their own demographic squeeze.

Mr. Eberstadt points out that this is true not only of one-child China, but also of the economically prospering Indian south, where fertility levels are at, or already below, replacement levels.

The other answer is to persuade families to have more children. So far, that's something no developed country has really figured out. As women get richer, better educated and more autonomous, they have fewer babies. That decline in fertility is driven by harsher economic forces, too: Most middle-class families in the West need a mother's wage to survive, and women in industrial and postindustrial societies can't take their babies to work in the way their peasant great-grandmothers could.

Nor is there much evidence that a return to patriarchy would bolster fertility. After all, some of the societies where the birth rates are plummeting the fastest - such as Japan or Italy - are ones where women have made the least social and economic progress.

Yet there is one political movement that has long campaigned for societies to find a better way for women to be both workers and mothers: feminism. Until now, we have framed those efforts as being about expanding personal choice - and government and business have paid them lip service, but not much more.

As greying countries become angrier and more dysfunctional, this could change. We think the most pressing issues in the rich West are budget deficits and job creation. To fix our economies in the long term, what we should probably be talking about is parental leave and workplace day care.

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