Fertility, Estonia and Milton Friedman
By RedShift Comments (5) / Email this page » / Leave a comment »
Strange as it may be to see all three in the subject line, Estonia is being watched by a very nervous Europe for these very reasons. Identified in a 2001 UN world-population report as "the fastest shrinking nation on earth," Estonia is taking matters into its own hands. With a population growth rate of -0.65%, and a fertility rate of 1.3 in the 1990s, estimates are showing that Estonia is possibly reversing the trend. Current estimates suggest a fertility rate of 1.5—still below replacement levels, but an improvement since the 1990s.
Government intervention is no doubt playing a role. In 2004, the Estonian government began paying women to have babies. But we suggest that optimism started this trend before the government did.
Australia, facing the same problem, instituted the same policy in 2004. But economist Harry Clarke suggests that optimism drives fertility:
"Interestingly [Treasurer] Costello also links the number of births to optimism about Australia’s future and feelings of improved economic security. Historically optimism has increased fertility."
It is no coincidence that Estonia, Europe's little fertility experiment, is experiencing a reversal of its fertility trend at the same time that optimism is sweeping the country. Estonia was on the brink of economic collapse when it was finally freed from the chains of communism. Now it is thriving under the economic policies of none other than dearly departed Milton Friedman:
"In the 1990s, just after Estonia won its independence from Soviet rule, Mart Laar and other reformers pledged they would 'turn Estonia from the East to the West' and 'make that turn irreversible.' That's exactly what they did. Mr. Laar, who has served as the country's prime minister twice, openly espoused the concepts he found in the only economic textbook he had ever read up until that point: 'Free to Choose,' by Milton Friedman. The country soon enjoyed several years of an economic growth rate of 7% or more and quickly moved 90% of its formerly state-run economy into private hands. In 2004, Estonia joined the European Union and last year it entered the ranks of the top ten most economically free nations of the world for the first time. 'Today, the chief concerns are what to do with the budget surplus and how to deal with a labor shortage,' reports the New York Times."*
For a good laugh, re-read the sentence "The country soon enjoyed several years of an economic growth rate of 7% or more and quickly moved 90% of its formerly state-run economy into private hands," but substitute any other European nation for "The country." Can you imagine both a budget surplus and a labor shortage in the rest of Europe's stagnant states? Why pay women to increase fertility when French and German boys and girls cannot get jobs as it is? One cannot reverse Europe's fertility problem merely by adding another layer of bureaucracy and subsidies. There has to be both economic opportunity and economic freedom. Milton Friedman provided them both for Estonia. The results have been dramatic.
We propose this only to suggest that subsidies alone are not enough (though the tax breaks in the US, and the subsidies in Australia and Estonia certainly help). What makes these countries fertile is that they share both optimism and economic freedom.
Why post this on RedState? Because we have elsewhere opined that Blue State infertility and Blue State tax policy and union membership are creating a Eurostagnation in Blue States, which states would do well to emulate Estonia (and Red States, for that matter). We note, for consideration, that residents of all US states enjoy the same economic incentive to have children (e.g., tax deductions). But Red State and Blue State fertility rates vary dramatically anyway. It is proposed here that state-level economic policy contributes to this measurable disparity.
Hillary thinks it takes a village to raise a child, but it takes economic freedom and optimism to make people want to create a child. Unless Blue States recognize that, we shall continue to see a decline both in Blue State population, and in Blue State birth rates, no matter how many subsidies Blue States may offer.
Thank you, Milton Friedman, for all you did.
RedShift
* This is cited from OpinionJournal.com's "Political Diary." To subscribe, click here.
I don't believe declining birth rate is about taxes. It is about affluent young families making selfish choices -- yuppies who want to take ski holidays and buy BMW's, their free time unburdoned by children. And thus the blue-state correlation.
This is not good, because these are intelligent and educated people who should be producing the next generation of engineers and scientists and businessmen to lead our country.
The idea of paying people to have babies is frightening. What kind of people would decide to become pregnant to get a payoff? It's not like we need more crack babies.
DonPMitchell writes,
"I don't believe declining birth rate is about taxes. It is about affluent young families making selfish choices."
But there is ample evidence to suggest that economic affluence (and economic optimism) actually increases fertility rates, while a reduction in affluence can decrease fertility rates. For example, see Alicia Adsera's 2002 Changing Fertility Rates in Developed Countries: The Impact of Labor Market Institutions, in which she suggests a labor market link to low fertility (i.e., when the labor market is poor, fertility declines--the opposite of what DonPMitchell suggests):
"First, the reversal of the fertility and participation correlation occurred precisely at the time when unemployment rates climbed to stubbornly high levels, mainly in Southern Europe... In that context, high unemployment rates and unstable contractual arrangements for young workers, particularly in Southern Europe, entailed a negative income effect stemming from a lower expected income not only for women who were in the labor market but critically for young men. The uncertainty of stable employment for young men delayed marriage and childbearing even for women outside of the labor force." (p. 31)
Take into consideration, then, the impact that higher taxes have on employment rates, and the fact that Blue States typically have higher tax rates than Red States, and thus slower economic growth (see our posts on this topic from earlier this year under "Blue State Exodus"), resulting in lower fertility rates in economically stagnant states. Note, for example, how blue the following list is:
Bottom 20 States in Fertility (live births per 1000 population)
Vermont , Maine , New Hampshire , District of Columbia, Pennsylvania , Rhode Island , Massachusetts , West Virginia , Connecticut , Wisconsin , New York , Washington , North Dakota , Michigan , Maryland , Oregon , Montana , Alabama , South Carolina , Tennessee
Let's consider Michigan for a moment. It enjoys the highest unemployment rate in the nation, and a governor who wants to raise taxes, which is making Michigan less and less family friendly, and making Michigan families less child-friendly. In light of a recent Cato Institute study, would you say that Michigan is heading toward higher or lower fertility rates?
A Cato Institute study compared 10 tax-cutting states to 10 tax-raising states between 1990 and 1996, and found tax-cutting states generated 1.84 million more new jobs, family incomes grew by $1,600 more, economies grew 20% faster, and state governments averaged four times the budget reserves.
If family incomes grow, families can afford children. There's nothing like a low-tax, free-market system to do this. But with Euro-style unemployment rates, and tax rates that discourge businesses from moving to Michigan, can we really assert that tax rates (and their correlating economic effects) do not have a direct relation to fertility rates?
We end this entry with this observation: Canada had a booming economy after World War II, followed by the systematic establishment of national socialism.
In the twenty-five years after the war, there was an immense expansion in the Canadian economy. Unemployment remained low and the end of wartime production was quickly turned over to making consumer goods. Canada built an impressive welfare state with publicly-funded health care, the Canada Pension Plan, and other programs.(emphasis added)
Guess what happened next? A precipitous decline in Canada's fertility rate from which it has never recovered:
The fertility rate for Canadian women fell substantially in the past 20 years compared to that of American women, Statistics Canada said... "From 1979 to 1999, the fertility of Canadian women aged 20 to 24 decreased nearly 40 per cent and fertility among those aged 25 to 29 declined about 25 per cent. In the United States, fertility rates among women in these age groups remained relatively stable," the agency said.
Lesson: Blue State socialism, with its accompanying high tax rates, reduces fertility rates, and contributes to a state's (or nation's) demographic decline.
RedShift
Rather I think the issue is that it takes people a fairly long time to reach a point where they are secure enough to have children. And by then they have lost half (or more) of their (the women's at least) most fertile years. Hence fewer kids. This seems be true almost everywhere that a modern, post-industrial economy is taking hold: only the lower classes (who can rely on welfare and the like) tend to have kids when they are young. The middle and upper classes wait until they are out of college, out of grad school and are settled in their jobs.
Previous generations had kids in much more economically tenuous circumstances. My parents were not in a secure financial position. My grandparents were in an even worse financial position... especially for the crazy numbers of kids they raised (23 kids between the two pairs).
I think the real cause is that it has become 1) much more acceptable to have sex and shack up outside of marriage, 2) much more acceptable to remain single for any reason and 3) much more acceptable to remain childless for any reason and 4) much more acceptable to get divorced for any reason.
It doesn't surprise me that you are seeing more of all those things as a consequence. Any lack of stability in relationships is mostly self inflicted. There's no need to really commit to another person, so who wants to have kids and deal with that mess when you get tired of your spouse and want to move on?
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
Great post. Estonia is especially close to my heart. My wife lived there for a couple of years and she brought back some amazing stories of the resolve of the Estonian people. Russia had a one way ticket on the Siberian express for any political dissident. The attractive young people were shipped off to Moscow and brainwashed into thinking they were Russian. They would hide photographs in insulation of the house or in the attic to keep the Soviets from confiscating them. They couldn't wear white, blue, or black because those were the colors of the former national flag. Many of the political and military officers would commender homes to use them as summer homes. The Soviets tried to "even out" the population by bringing in Russians. The stories keep going and going....
I just wish I could send some professors I know to a former Soviet Bloc state during that time. Oh how their point of view would change.