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11/21/2005
Victor Niederhoffer Reviews Fewer

The book Fewer by Ben Wattenberg has lessons for all investors and observers of human trends. The main point of the book is that all countries are expected in the next 50 years to lose population and age. The key variable he uses to support the argument is the fertility rate, the number of children born to women throughout their child bearing age of 18-44. If it falls below 2.1, then we expect the population to decline and age, because the number of men and women who ultimately must die, adjusted for death before 18, would surpass the births. There have been some shocking falls in the fertility rate over the past 50 years, typified by Europe and Japan at 1.7 in 1950, down to1.35 now, and lesser developed countries moving from 6.2 in 1950, down to 2.9. Surprisingly, the only Western country with a fertility rate above 2.0 is the US, due to the high fertility of the immigrants.

The book has chapters on the implications of this phenomenon for business, the environment and geopolitics, the implications for aging of the populations, and a review of the main reasons for the declines. The chapter on business is written from the standpoint of the layman with no investment or economics background. The main point he makes is that larger population means larger sales, and this is something that all businesses should keep in the forefront, especially in the location of their retail stores. He boldly states that because of the graying of the population "cruise lines, cardiology, geriatric care, reverse mortgages, health care and cemeteries receive a boost. On the other hand, orthodontists and youth clothing retailers lose out".

The chapter on Aging entitled The Graybie Boom traces the demographic impact on aging of declining birth rates and increased longevity. In a typical chart, he shows that the proportion aged 65+ in Europe will go from 15% in 2000 to 28% in 2050.The main cause of this is declining fertility rather than increased life expectancy. The author concludes that this will put much pressure on health care costs and on pension systems such as our Social Security System. To his credit, the author balances the usual doomsday scenario of the declining worker/pensioner ratio, by the hope of technological and scientific progress and economic productivity. "What workers may lose in pension and health benefits they may gain by growing richer in the private sector. Indeed they may well come out ahead. Remember that the basic idea is to provide for its citizens, not balance the books."

The explanations for the decline in the fertility rate are the weakest part of the book because Wattenberg doesn't fit it into an economic model. He lists contraception, urbanization, education, availability of work for women, abortion, divorce, homosexuality, and the rising age of marriage as the key factors. He doesn't relate it to the opportunity cost of having children, which rises with income as well, or the direct cost of having children versus their contribution to revenue, as most economists would.

The author makes reference to the work of Julian Simon in deploring the fact that there may be one fewer Picasso or Einstein or women who invents a cure for cancer in the world, but does not consider the question of whether an individual birth adds or subtracts from world prosperity and happiness. Indeed, the book is largely a hodge-podge of disparate facts, often without sources or balance, and references to UN studies. It's a mix of conservative, liberal, and libertarian thought about the deplorable conditions and outcomes that had led to the decline in fertility, as well as a paean to the Bush doctrine of spreading American values of liberty, democracy, rule of law, and ability to control one's own wealth, throughout the world, without any model or framework to tie it together.

Nevertheless there are numerous excellent, thought provoking passages. Here's a favorite: "Think about your friend, Amanda, the woman in the ad agency who delayed having children, then delayed further because she was getting a good promotion. Think about your friends Chris and Jennifer, who have been divorced, once, twice, or more, thus reducing the fertility rate. It's easy to see the demographic problems in Europe, but it's happening in America too. We may see a lonelier world. Will friends become like family?" There will be no grandchildren, siblings or cousins to allay the misanthropic tendencies of these lonelies.

Fewer provides an excellent overview of demographic factors that every thoughtful investor should consider in planning for the future.

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