Wednesday, June 14, 2006

Ireland's Debt Rating Under Threat?

by Edward Hugh

Hi everyone. I've been away for a time. Basically deep in thought, trying to sort out some long-standing puzzles. They still aren't properly sorted-out, but I am coming back to blogging even while I continue to struggle. As a warm-up issue this piece in the Financial Times caught my eye:

"The ageing Irish population is threatening to put severe pressure on the country's public finances and its AAA credit rating, Standard & Poor's, the rating agency, warned on Tuesday.....

S&P said Ireland needed to put into effect concerted policy and fiscal reforms to avoid a deterioration of its public finances stemming from rises in age-related spending. Without them, Ireland's credit rating could head into the "junk" or sub-investment grade in the next couple of decades."

Now I think we can leave aside the issue of how S&P have arrived at their specific assessment, or how realistic the scenario they were running actually is. I think what is news here is the fact that Ireland - which used to be Western Europe's fertility 'champ' - is now about to face the ageing consequences of a rapid fertility decline. Of course, in the short term, fiscal measures are available to bring this back to some sort of order, and it isn't the end of the world, or anything like that. But it is worth noticing that it is happening, and that Ireland used to be one of the typical 'anglo' fertility societies (with the US and the UK), characterised by high levels of teenage pregnancy, which many thought would provide an 'anchor' against upward displacement in average first birth age. I do think there are lessons for the US in what has happened in Ireland, and I do wish more people would start to draw them.

On another front the FT also has a piece today (subscription only unfortunately) which explains how Japanese politicians are desperately looking for ways of turning round their 'baby bust' situation. Apart from the fact that it is now a little late in the day for this (Japan went below replacement fertility in 1975, so its a bit like rushing to put the fire out after the building has burnt down), what strikes me is the way so many people still seem to find all this news.


Scott said...

Your comments with respect to Japan here are spot on. How can the Japanese economy show consistent growth going forward when its population will likely shrink most years? An aging workforce will make productivity increases difficult, and a shrinking workforce will make achievement of GDP growth whether measured in real or nominal terms very difficult.

Anonymous said...

Ireland and the US have not had similar demographic profiles or trajectories.

Specifically, Ireland has (relatively) high fertility in European terms because it has declined more slowly from a previously high level.

The US has high fertility by developed-world standards, and increasingly simply by world standards, because its fertility has been _increasing_ steadily for about 30 years, going from a low level to a higher level.

This is, globally, a unique pattern for a population of this size.

Currently the US TFR is about 2.09 -- almost exactly replacement. This compares to about 1.7 or a little less around 1975-80.

The increase has been very slow, but also quite consistent, allowing for year-to-year fluctuations.

And if you eliminate all the immigration since 1970, it only drops the level to about 2.0, so it's not a byproduct of immigration, which has only amplified the trend a little.

Anonymous said...

And vs. a vs. teenage pregancy rates, the US overall TFR has continued to increase despite more than a decade of steeply _falling_ teenage fertility, which is now at levels lower than at any other period since we began keeping demographic records.

Admin said...

"Ireland and the US have not had similar demographic profiles or trajectories."

I'm sorry if I implied that it wasn't my intention. I was simply drawing attention to the way in which Ireland previously shared the common 'anglo' characteristic of significant single parenting (Kaplan suggests that this is even compatable with a 'matriarchal' kinship component, as females reproduce within the maternal home, with mum herself being single (or at least not living with a man, or possibly not living with her dad).

This phenomenon virtually doesn't exist in eg European Latin Countries or the Asian Tigers and Japan.

As you say in the US case teenage pregnancy is now dropping steadily.

This may have a double impact on fertility since those who have children when young, may also have them again later in life when they form a second (or third etc) partnership.

On the broader issue of what may happen as Afro-americans continue the postponement process, and Hispanos really get seriously into it, we obviously differ, as we already well know. The data as we move forward will prove either one or the other of us right.

You seem to have an 'ideational model', I am more in tune with Hillard Kaplan's 'embodied capital' approach, with two important trade-offs in human capital investment decision making - reproduce now/reproduce later, and quality/quantity.

"Specifically, Ireland has (relatively) high fertility in European terms because it has declined more slowly from a previously high level."

Yep, but is is declining very rapidly as postponement operates. This is a pattern we are seeing replicated across the globe. Those who come down from high fertility later tend to do so more rapidly, and bottom out at ever lower lowest-low TFRs. Ireland will be interesting to watch here. Especially if at some point the 'Irish Economic Miracle' hits a snag, and short term, Easterlin/Macunovic economic adversity factors, start to influence the timing of reproduction decision.

Admin said...

Incidentally, given the close economic association between the US and China these days, any big problems emmanating from China, say in the middle of the next decade as the pyramid problems start to influence, may well feedback into the US in the form of these Easterlin/Macunovic timing decisions as the impact on global and US prices of surplus Chinese capacity makes its presence felt.

This is also exactly the moment when India is likely to be going 'full speed ahead'.