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Europe’s Real Crisis

The Continent’s problems are as much demographic as financial. They won’t go away soon.

By Megan McArdle
Since the invention of birth control and antibiotics, country after country has gone through a fairly standard shift. First, the mortality rate drops, especially among the young and the aging, and that quickly translates into a bigger workforce. Then, birthrates drop, as families realize that they no longer need to birth a basketball team to ensure that a couple members will survive to adulthood. A falling birthrate means that parents can invest more in each child; with fewer mouths to feed, more and better food can nourish each of them, and children can spend more years in school, causing worker productivity to rise from one generation to the next. As the burden of bearing and rearing children lightens, mothers can do more work outside the home, boosting both household resources and the national economy.In 1984, when Ronald Reagan spoke of “morning in America,” he was at least demographically accurate. The youngest members of America’s vast Baby Boom were in college; the oldest were on the brink of their peak earning power. America was about to reap what the economists David Bloom and David Canning have dubbed the “demographic dividend” of rising labor supply and productivity. Bloom and Canning’s analysis of East Asia and Ireland attributes a substantial fraction of the recent economic booms in those places to this dividend.

“The problem,” says Canning, “is that aging is a new thing. We know quite well what the effects of going to low fertility are—but we’ve never seen this sort of aging before, so it’s hard to make predictions.”One prediction is safe, however: aging will present challenges that, as of now, no nation has adequately prepared to face.

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