Posts Tagged ‘US demographic risk’

In the last post, I wrote primarily about political risks from the allocation of money: the government’s budget on the one hand, and individual income on the other. I argued that political risk in the medium term (5-10 years) will depend on how these two factors combine. In addition, there is one certainty that will raise the risk profile no matter which scenario materializes. This is what today’s post is about: the certainty of America’s population profile.

One type of demographic certainty is rooted in what’s known as the demographic transition theory: As societies become richer, the death rate of its population falls fast, followed much later by a fall in birth rates. Emerging markets experience a surge in people of productive age, which helps them grow real fast when combined with capital accumulation. The mature markets, with falling birth rates, lose their dynamism as the population becomes grayer.

All advanced industrial countries now confront political risks from demographic stagnation. One aspect of this involves resource transfer. Young people need to be taxed more to support rising numbers of the elderly. The elderly tries to keep this support intact by coming out to vote in large numbers during elections. In the US, every general election between 1972 and 2008 elicited greater turnout (%) from the older segments of the population than the younger segments. In the 2008 election, in which youth participation was the highest, 56% of citizens in the 18-44 years age range voted. 66% of citizens in the 45 and above age range voted. The total citizen population in the second category, by the way, exceeds that of the first category. (Calculated from US Census Bureau data.) 

Generational tussle over transfer of resources, therefore, is a certainty. (A side point: the young has tended to vote more for Democrats, and the old for Republicans.

The second aspect of the demographic certainty concerns immigration. In order to remain economically productive, the richer countries have no recourse in the medium term other than importing people from labor-surplus countries. Even though immigrant workers expand the tax base, and therefore the welfare resources available for the older generation, the greater cultural conservatism of the older generation views immigration with hostility. The older generation has voting power. Younger immigrants usually have no voting rights.

Look at Arizona, for example. 83% of the elderly in Arizona are white, and 42% of people under 25 are Hispanic. If they become citizens–a giant “if” for many of them–will they tolerate yielding a good chunk of their income to pay for the hostile elderly? Conversely, as the Economist wonders, will the old want to surrender some of their earnings to pay for public education and state universities where most of the immigrants go? While the outcome of these questions is uncertain, what is certain is that immigration politics will become nasty in an increasing number of states. Arizona, in my opinion, is the tip of the iceberg.

Demographic trends have shifted economic and political power among the states as well. As the Economist notes, “Of the 20 oldest states in 2009, 14 were in the north-east and Midwest. The sunbelt, in contrast, was home to eight of the ten states with the highest concentration of youth.”  The northeast will have fewer congressional seats and less say in presidential elections. Will the sunbelt continue to tolerate federal resource transfers to support the growing elderly in the north? The north will have to keep immigration-friendly policies to ensure an adequate economic base.

The south and the west will experience rapid population growth. The typically more conservative south will experience greater political clashes rooted in both generational and cultural gaps. So these regions will be economically more vibrant but also politically more volatile. The result will be polarization rooted in demography. Let me quote again from the Economist’s article, “One nation, divisible”:

All these conflicting interests are helping to polarise further America’s politics. In the 1976 election … 26% of voters lived in counties where one party won by 20 points or more. In 2008 a whopping 48% of voters did so. Strikingly, less than 400 of America’s 3,141 counties switched parties at the 2008 election. Politicians, like marketers, have become adept at identifying likely customers. “Bringing out the base” is the key to winning. As a result of this polarisation, satisfying a range of constituents is becoming harder. The federal stimulus revealed this well. The bail-out gratified some Wall Street bankers. Aid to state governments mostly helped workers in capital cities. But voters in places with battered housing markets got little benefit from either. James Gimpel, a political scientist at the University of Maryland, notes that areas with high rates of foreclosure, such as suburban Atlanta, were hotbeds of tea-party activism.

To me, greater political conflict, in localities around the US, between an influx of young immigrants and a larger proportion of graying population is a certainty in the medium term. During the national voting season every two years, what will transform the myriad local conflicts into election results is the voting pattern of younger citizens. They have tended to lean slightly closer to their immigrant friends than to their parents and grandparents. Will they continue to do so?

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