Show me someone who is strongly in favor of ObamaCare and strongly prochoice and I will show you a strong liberal. Big government solutions on economic policy and a strong preference for personal freedom on matters of sexuality define the American left more reliably than anything else.
Unfortunately for the left, the latter has been relentlessly undermining the former. This is the (unstated) implication of Meagan McArdle's brilliant piece on the European fiscal crisis in the Atlantic.
A fiscal crisis isn't hard to understand. For decades, the European governments have been doing what the U.S. is now doing: spending far beyond their means. Deficits occur when government expenditures exceed revenues. The deficit must be covered by borrowing, thus adding to the public debt. Lenders charge interest. As the debt grows, so also grows the portion of the budget going to interest payments. At some point the interest payments begin to put a squeeze on other spending and begin to grow so fast that a government cannot hope to slow that growth down, let alone pay down its debt. That is called insolvency.
McArdle notes that Italy is facing such a situation. That is a bigger deal than Greece or even Spain, as Italy has a much larger economy.
Consider Italy. It is no exaggeration to say that the fate of Italy is the fate of the euro zone: if Italy can keep its debt under control and its banking system solvent, the euro zone will probably make it; if Italy defaults, the resulting panic will probably force Portugal, Ireland, Greece, and Spain to follow suit.
This linchpin is under a great deal of strain. Italy's public debt stands at $2.3 trillion, roughly 20 percent larger than the country's GDP. If not for that debt, Italy would have run a slight budget surplus in 2011. But interest payments alone soaked up nearly 5 percent of the GDP, creating a deficit of about 3.6 percent of national income and increasing the debt even more.
There are only two ways to restore fiscal stability. One is to reduce expenditures. This is called "austerity" in the coin of the times. It hurts. Sometimes it reduces economic growth thus further reducing revenues. The other way is to increase revenues by means of genuine economic growth. Therein lays the problem.
Economies grow when workforce output grows. That can happen when workers become more productive or when you get more workers. In actual fact, it is usually the latter. Italy and Europe are going in the opposite direction.
Everyone agrees that rapid growth would be much nicer than higher taxes and slashed pension payments. The hitch is that over the past five years, growth in the Italian economy hasn't averaged even 1 percent a year. Soaring growth will be tough to achieve, because more and more Italians are getting too old to work—and fewer and fewer Italians have been having the babies needed to replace them.
Italy's fertility rate has actually been inching up from its 1995 low of 1.19 children for every woman, but it is still only about 1.4—well below the number needed to replenish its population (2.1). As a result, even with some immigration, Italy's population growth has been very slow. It will soon stall, and eventually go into reverse. And then, one by one, the rest of Europe's nations will follow. Not one country on the Continent has a fertility rate high enough to replace its current population. Heavy debt and a shrinking population are a very bad combination.
Why did Europeans stop producing Europeans?
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.
As medicine makes it possible for people to live longer, they focus more on their golden years than on the next generation. The result is that we kill and cook the goose that lays the golden eggs.
For more than a half century the left has relentlessly encouraged policies and celebrated lifestyles that result in population decline. This now undermines their desire for the growth of government spending. Europe is now facing the reckoning. We are only a little bit behind.