April 10, 2012
It’s the day of the Easter Bunny – the ancient sign of fertility – and “breeding like rabbits” is exactly what we are up to.
Traditionally, fertility is celebrated around the spring equinox and, given the fecundity of rabbits, they became a symbol of fertility and of Easter.
The census, which came out last week, reveals that fertile is exactly what we Irish are right now.
First the good news: the population is rising rapidly. This is quite an achievement in the light of the huge levels of emigration. The census revealed that the natural increase in the population was more rapid than at any stage since the beginning of this state.
Now, obviously there is always going to be an echo of the last great demographic surge – the generation born around the time Pope John Paul II visited. These Pope’s Children are now having their own children. As they are a commuter generation, catapulted out to the new commuter counties in the credit binge period, the increase seems to be largest in these commuter areas – a place I refer to in my book The Pope’s Children as the Babybelt.
Unambiguously, new babies and population growth are great signs. Young societies are vibrant, creative and buzzing. Old societies, in contrast, tend to be dull and risk-averse.
One way to look at it is that it is a sign of hope. It is a major thumbs up by parents to the future of the country. Given the financial trauma that this generation, possibly more than any other, has suffered in the past five years, it is a wonderful development. One of the most depressing reactions of a country following a major upheaval is that would-be parents are so traumatised they stop having children. They don’t want to bring children into the world because they have given up hope that the country might provide a decent life for the next generation.
We saw such a reaction across the former Soviet bloc after the fall of communism. In eastern Europe, populations fell rapidly in the 1990s and the birth rate stagnated. I spent time in this part of the world in the 1990s and many people I met, and am still in contact with, are childless by choice. For some, it wasn’t so much a view about the future as the reality of the slump in the economy. They simply couldn’t afford to have children and, as state supports for childcare and schooling fell away, the idea of having a child might have seemed irresponsible to some. But for whatever reason – and these are complicated decisions – birth rates fell.
Thus we should rejoice, as the census revelations are much more important for this society than the promissory note or what the ECB thinks of us, or any of the other economic conundrums occupying our minds. But – and there’s always a but -one needs to look at two of the most important indicators in any economy.
The first indicator is the number of people working relative to the total population. The ratio is collapsing. From 1998 to 2007, the ratio rose, meaning more and more working people supporting fewer and fewer dependants. Now that trend has reversed.
The second indicator we need to examine is how wages fare as a share of total income. Here too, the trend is now going the wrong way for working people. Between 2002 and 2008/9, a full 10 per cent of GDP was transferred from profits to wages. Now this is reversing.
Both these developments have significant ramifications for our ability to pay debts and mortgages in the year ahead.
It is hard to remember right now, with all the recrimination that is going on, but the biggest positive of the credit binge period was the extraordinary surge in the number of people at work and the fact that wages went up rapidly. High wages should be the aim of all societies where people work. Otherwise what would be the point?
The ratio of people working to the overall population in Ireland is plummeting. This is very worrying, particularly in an economy where it seems to be the conventional wisdom to suggest that corporation tax can’t – or, at least, ought not to – rise and where the state has difficulty raising a household charge. If the ratio of workers to dependants is falling, it means that income taxes will have to be higher and higher.
Why is this? Well, because fewer and fewer working people are shouldering the burden of more and more dependants, whether they are the young, the old or the unemployed. This is how a country goes bust because it is trying to squeeze more and more out of fewer and fewer pay packets.
The more you try to tax people and keep welfare payments the same, the sooner comes the point where it’s not worth going to work. At the rate at which the ‘workers to dependants’ ratio is deteriorating, we will approach such a tipping point -without question.
The second trend is the fall in wages relative to total income. Income is shared between wages and profits. As wages go up, profits go down and vice versa. We can see that, throughout the credit binge period, wages as a percentage of output kept rising. This put more and more money in people’s pockets.
Now wages are falling relative to profits. But if wages are falling, where will people get the money to pay back their debts? Indeed, if wages are falling and taxes on wages have to rise because the number of dependants is rising, what will happen to the ability and willingness of people with young children to pay back their mortgages, now in negative equity?
This brings me to the recent statements from the banks about mortgage arrears, which are rising rapidly. The above mentioned trend will continue. We know the banks don’t have enough money to cover these ongoing losses, so what will they do? As for the rise in profits, this means that the return on invested capital is higher now in Ireland than it has been for years – but there is no capital because the banks are not lending. The opportunity cost of the credit crunch couldn’t be greater.
As everyone who has young children knows, the weekly household budget rarely survives the impact of a new arrival.
In the end, the choice for many of the Pope’s Children might come down to paying the mortgage or paying for the children’s lunches. I know which I’d choose.