Demographic Changes

October 2016
Ivan Obolensky

Shifting demographics are not just a modern phenomenon. The Roman Empire had a similar problem. Demographic change formed the backdrop against which the exile of one of Rome’s most scandalous and widely read poets played out.

In the year 8 CE, Publius Ovidius Naso was exiled by the Emperor Augustus to Tomis, Romania. Tomis, modern Constanta, is located on the Black Sea, approximately one thousand miles from Rome.¹

At the time of Ovid’s exile, the Roman population, particularly those of the upper classes, was declining at an alarming rate while the empire was reaching its height. Governors, legislators, jurists, and generals were needed, but there were fewer qualified candidates coming up through the ranks to fill available positions. In addition, the youth of the time preferred to remain in Rome enjoying the hedonistic lifestyle rather than submit themselves to the hardships of military service or the rigorous apprenticeships in lower administrative positions required to qualify for high public office. This preference added to the scarcity of competent administrators and precipitated a crisis.

When the lack of qualified candidates reached critical proportions, the emperor intervened. The birth rate amongst the upper classes had been plummeting for some time as more Romans opted not to have children. Marriage boundaries had become more flexible. Divorce, abortion, and contraception were in common use. To halt this decline and reestablish a moral superiority, Augustus passed the Julian Marriage Laws, or Leges Juliae between the years 18 – 17 BCE. These laws encouraged matrimony and bearing children, and bestowed a special status on those producing three sons. Celibacy was discouraged by prohibiting unmarried males and young marriageable widows from receiving inheritances and attending public games. Included in this legislation was the Lex Juilia de Adulteris Coercendis. This law made adultery both a public and private crime punishable by banishment, to discourage casual and therefore, less productive relationships.²

Exactly what precipitated the personal involvement of the first emperor of Rome in Ovid’s exile will likely never be known. Ovid himself gave two reasons. The first was his Ars amatoria, a poem on the art of intrigue and seduction that was highly popular but viewed as subversive by the Emperor given his attention on procreation and moral reform. The second reason Ovid insists was a mere indiscretion as opposed to a crime. It was his unspecified involvement in the adultery of Augustus’ granddaughter, Julia, the younger. She was banished at the same time but to a different location. It should be noted that Julia, the elder, the daughter of Augustus as well as Julia’s mother, was also banished six years earlier for immorality about the time when the Ovid’s Ars Amatoria was published. Lightning striking twice so close to home was all it took for the Emperor to send the poet packing to a remote and more provincial portion of the empire. Ovid’s wife remained in Rome to handle his affairs and attempted to intercede on his behalf, but Augustus and his successor, Tiberius, never relented and in Tomis he remained far from the empire’s glamorous and cultured center until his death.

Whether Ovid’s banishment was deserved or not, the measures instituted by Augustus proved futile in the long run, and the decline in the numbers of those who built the empire continued. In desperation, the mantle of citizenship was extended broadly so that the pool of potential managerial candidates was made sufficient in quantity but lacking in quality. Administrative capability declined, its overall competence never restored, other than temporarily, under such leaders as Diocletian. Eventually, the empire’s capitol passed eastward to Byzantium, later named Constantinople, where it remained until it too fell to the Ottomans in 1453 CE.³

Population declines in the number of working adults are not a past phenomenon specific to the Roman times. Today it is widespread amongst developed countries and is the root cause of much of the polarization we see today.

The size of any given population segment depends ultimately on two factors: the birth rate and the death rate. Death limits the size of a population, especially the oldest portion, but does not establish the numbers that will be moving into the workforce in the future. It is the birth rate that determines this.

The average birth rate for a given thousand women is represented synthetically by a number called the Total Fertility Rate (TFR). For developed countries, 2.1 is considered the TFR that allows for a stable population that neither increases or decreases. The rate is higher than 2.0 because there are approximately 1.07 males born for every female. It should be noted that the TFR is ultimately dependent on the size of the female population, therefore the equilibrium determining value is set at 2.07, which is rounded up to 2.1.⁴

Another way to look at the TFR is to consider it the average number of children born per family. Nations with TFRs less than 2.1 will have declining populations in the key age segment of those who work.

In the US, the TFR is 1.87. European nations have TFRs even less than this number. Many underdeveloped countries such as Niger, Mali, Burundi, and Somalia have TFRs in excess of 5.0. This is one of the key differences between the developed and developing nations. Their potential workforce populations are expanding and will continue to do so. The developed world’s are not.

To illustrate, here are TFRs (average number of children per family) for a number of countries:

Country	TFR
Germany	1.44
Netherlands	1.78
Belgium	1.78
Spain	1.49
Italy	1.43
Sweden	1.88
Ireland	1.98
United Kingdom	1.89
China	1.08
India	1.09
Singapore	0.82
Colombia	2.02
Japan	1.41
Australia	1.77

An adult workforce population is constantly in flux as members die or retire and are replaced by those old enough to work. How fast new members are added is called the replacement rate.

All countries in the above list have populations with insufficient replacement rates (less than 2.1).⁵

To governments in search of revenue, this demographic change is a significant problem.

Government revenue depends on the available tax base. Although they have other sources of revenue such as corporate taxes, customs duties, tariffs, as well as transactional taxes such as VAT, ultimately it is the size of the working population and the taxes they generate from the income they produce that determines the amount of money that comes in.

In the long run, a decreasing workforce population means less future government revenue.

With populations in developed countries living longer, we have the demographic shift in aging we see today. Japan is the most notable and mature example.

To illustrate an aging demographic shift, imagine the number of 20-30 year olds decreasing year by year because the replacement rate is less and less while the number of 40-50 year olds remains the same. Now imagine that the fastest growing segment of the population is 85 and above as people live longer lives. That in its simplicity is the situation facing governments in the developed world, and will continue to be for some time. How it has been handled, and how it will be handled has been the source of much friction.

The Industrial Revolution of the 18^th century shifted populations away from farming to factories. Urban populations boomed and factory workers became dependent on wages. When there were layoffs, pay stopped, and people starved. The plight of those affected was a theme that ran through Victorian England, but it was not until the Great Depression of the 1930s that most federal governments took an active financial role to support those who could not work and those in retirement. Today it is expected that one works until old age and that one’s later years are paid for by either state-sponsored, corporate, or individually-funded retirement plans.⁶

Looking at the developing demographic shifts, the aging of populations, and public expectations, government officials in the developed world have anticipated increased demand for benefits on top of a shrinking tax base.

From a planning perspective this translates into less money available when more is needed. To add to the severity of the situation is the current interest rate environment and state of global economics.

Pension funds in the past were funded by the purchase of conservative interest bearing obligations such as government bonds. When the bonds matured, the principal was repaid and then reinvested in similar bonds earning similar interest amounts. Today, with interest rates approaching zero and in some cases less than zero, pension fund managers also have a problem. Growth projections of pension assets have been overstated because money lent out even for long periods earns next to nothing. They will either have to reduce future payouts, take on more risk to earn more, which in many cases they are not allowed to do, or fold altogether.⁷ The only remedy is to add more money, but where is the money to come from?

Global economics has seen anemic growth and that affects everyone. From a government point of view, tax revenues will come under pressure, and that means they must come up with new revenue sources. In some cases, as in the US, tax revenues have expanded, but not sufficiently to exceed spending. As a stop gap measure, governments on both sides of the Atlantic have turned to raiding big corporations for taxes; however, this is only a temporary remedy. Their longer term solution is to increase the tax base, which means confronting the shortfall in the numbers of existing and future working adults. The solution many governments have hit upon is immigration. The refugee crisis seemed at first glance an answer to their prayers; now, not so much.

Refugees may be a subset of immigrants, but fundamentally they are not the same because immigrants decide to immigrate through their own volition. Refugees have no such freedom of choice, making assimilation problematic at best.

In addition, immigration policies may not in the end reshape the existing demographics simply because low TFRs may be a symptom of a more widespread issue rather than its cause.

Governments, particularly those of the EU, have made immigration the answer. Unfortunately, such measures are likely to fail for the same reasons they failed the Roman Empire. Early Romans indoctrinated their children with the values of hard work, practicality, veneration for the traditions and values of the past, and a life of public service with little regard to compensation. When citizenship was broadened to include those in other lands, the values that built the empire were diluted by those brought up elsewhere, particularly from the East, where a less rigorous standard prevailed. The result was the dilution of cultural identity and ultimate failure.⁸

Such is happening today. Existing populations see the rise in the number of immigrants as a breakdown in their cultures as well as competition for fewer jobs. Resident populations are pushing back in protest, which has given rise to populist movements that reject the immigration solution as well as the governments that proposed them. This is reflected in the worldwide election angst we see today.

One of the reasons for low developed world TFRs may be due to population densities and the changes in individual behavior they cause. Once certain density levels are approached, behaviors change and population growth seems to decline. This occurs in many social animals such as bees, squirrels, mice and others. For humans, high population density means competition for fewer opportunities, longer work hours, exhaustion, stress, sexual ambiguity, fewer marriages, less interest in sex, and fewer families created. Japan has been at the forefront in this manifestation.⁹ This may be a natural phenomenon that no amount of intervention can control, making immigration policies ineffective over the long term.

Immigrants will either assimilate and take on similar values and behaviors of the existing population, or they will not. In the latter case, this defeats the purpose for the immigrants from the point of view of the country accepting them. At worst it creates areas of people who cannot or will not participate in the surrounding economy, and who ultimately will have to be either expelled or subsidized, creating further issues rather than less.

In addition, demographic shifts are not just a governmental problem but a corporate one as well. Faced with sluggish growth, businesses, to remain profitable, must concentrate on cost-cutting. With payroll being the largest line item and the potential scarcity in the size of the workforce eventually leading to wage increases, corporations looking toward the future have been forced to automate to remain competitive.

Ultimately, we are all immigrants regardless of the country involved, but selective immigration is important to maintain the cultural identity and resources that currently exist.

Demographic shifts are not new. They have happened before and will continue. If immigration is not the answer, then what is? Perhaps we need to examine our lifestyles and realize that high population densities may make economics easier but ultimately do more harm than good. While that investigation is carried out, it is infrastructure that must be invested in to make immigration, even as a temporary holding solution, workable. Language schools, trade schools, and apprenticeships are necessary. Without available infrastructure, assimilation is doubtful even for those who choose to enter a new country with enthusiasm.

Ovid’s Metamorphose was completed around the time of his banishment. It is a long poem about change from which much of our knowledge of Classical Greek mythology originates, and influenced the rise of courtly love developed in France in the later Middle Ages.¹⁰

Change, according to Ovid’s poem, must be embraced. We may not have a say on how rapidly or how it happens, but to resist it is futile. Sometimes we simply have to lean into it. Continuously trying to solve the problem of demographic aging with immigration policies that take little account of the infrastructure available is a solution that will ultimately lead to ruin.

Central banks are pouring billions of dollars into asset purchase programs that show no tangible results other than maintaining an uneasy status quo. We need to do something different. Real changes need real actions in the real world. It’s time to put our money where it counts and build the infrastructure required. This may be a temporary solution, but it is a start toward finding a better one.

Ovid (2004). Metamorphoses (C. Martin Trans.). New York, NY: W. W. Norton & Co.
Scullard, H. H. (1959). From the Gracchi to Nero, Fifth Edition. London, UK: Routledge, Taylor and Francis Group.
Durant, W. (1944). The Story of Civilization Part III, Caesar and Christ. New York, NY: Simon & Schuster.
A. (N.D.). Total fertility rate. Retrieved October 14, 2016 from https://www.measureevaluation.org/prh/rh_indicators/specific/fertility/total-fertility-rate.
A. (N.D.). Country Comparison: Total Fertility Rate, The World Factbook. Retrieved October 14, 2016 from https://www.cia.gov/library/publications/the-world-factbook/rankorder/2127rank.html.
Lambert, T. (2012). A Brief History of Unemployment. Retrieved October 14, 2016 from http://www.localhistories.org/unemployment.html.
Smith, C. H. (May, 2016). Here’s Why All Pension Funds Are Doomed, Doomed, Doomed. Retrieved October 14, 2016 from http://www.oftwominds.com/blogmay16/pension-doomed5-16.html.
Gibbon, E. (1776). The History of the Decline and Fall of the Roman Empire. Kindle DX version.
Baer, D. (July, 2015). Japan’s huge sex problem is setting up a ‘demographic time bomb’ for the country, Business Insider. Retrieved October 15, 2016 from http://www.businessinsider.com/half-of-japanese-people-arent-having-sex-2015-7.
Ovid, cit.