Vatican Economist: Recession Caused by Low Birthrate
Blames Small Families, Poor Savings Habits
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ROME, FEB. 8, 2010 (Zenit.org).- Bankers are not the cause of the global economic crisis, according to the president of the Institute for the Works of Religion. Rather, the cause is ordinary people who do not "believe in the future" and have few or no children.
"The true cause of the crisis is the decline in the birth rate,” Ettore Gotti Tedeschi, said in an interview on Vatican Television's "Octava Dies."
He noted the Western world's population growth rate is at 0% -- that is, two children per couple -- and this, he said, has led to a profound change in the structure of society.
"Instead of stimulating families and society to again believe in the future and have children […] we have stopped having children and have created a situation, a negative economic context decrease," Gotti Tedeschi observed. "And decrease means greater austerity."
“With the decline in births,” he explained, “there are fewer young people that productively enter the working world. And there are many more elderly people that leave the system of production and become a cost for the collective.
“In practice the fixed costs of this economic and social structure increase. How dramatically they increase depends on how evidently unbalanced the structure of the population is and how much wealth it has. The fixed costs however increase: The costs of health increase and the social costs increase."
When this happens, the economist stated, "taxes can no longer be reduced.”
Gotti Tedeschi went on to say that another phenomena impacting the economy due to the stagnation of the population is a decline in savings.
"Young people who do not have jobs upset the cycle of accumulation of savings that has gone on for years; families are not formed; often families are not formed that have a certain number of commitments to children and so savings are liquidated," he explained.
The Vatican official said a decline in development due to a lack of population growth is worrying.
"An effort is made to compensate for this decline in development through financial activities and above all through de-localization -- we try to move all production to Asia to bring the goods back at a lower cost, and with greater productivity, but greater productivity has its limits," he said.
The economist reflected on the growth of debt in American families over the last decade.
He noted that it was "already quite high" at 68% of the Gross Domestic Product around 1998; and it "went from 68% to 96% of the Gross Domestic Product in 2008, an increase of 28 points."
"If you take 28 percentage points of growth over 10 years and divide it by 10 years, you have a median growth rate of 2.8% per year due exclusively to the consumerism of debt of American households," Gotti Tedeschi said.
"In practice," the economist contended, "this was the origin of the crisis, which eventually led to the so-called 'sub-prime' excesses. The financial instrument of debt leverage, the expansion of credit, was used to compensate the lack of growth in the economy caused by the 0% birth rate."
"The origin of the crisis is not in the banks or finance," he affirmed. "The banks and financial firms helped to aggravate the crisis, trying to compensate for problems that were already there, namely, the decline in economic development, which some tried to camouflage through financial instruments.
“If I might, indeed, be quite polemical, I would say that certain government leaders had more responsibility than the bankers since the former pushed, supported and justified the expansion of credit that was used to sustain a growth rate that was recognized as fictitious."
Gotti Tedeschi asserted that debt must be reduced -- in governments, households, financial institutions and non-financial institutions and industrial corporations.
"In developed countries like those of Europe and the United States this debt reduction will take about five to seven years to be re-dimensioned, to return to acceptable criteria," he theorized.
The economist further recognized that "the United States, as we know, has also had complex times -- we think of Sept. 11, 2001 -- having to rebuild an attitude with regard to terrorism, as the great guardians of humanity, probably having to notably increase defense spending too."
"Here we see where the demand for growth in the GDP comes in," he pointed out. “Major defense spending for weapons after Sept. 11, which grew in the succeeding years by a rate of 14% [or] 15% per year, had to be sustained by growth in GDP.
"And how was the GDP supposed to be increased? Here we have the American habit: leave it to the individual to take care of; he is given the conditions to do it: low and attractive rates to stimulate consumerism.
"After 10 years the American households became poor, they lost a large portion of their liquid investments, their houses lost a great deal of value -- houses that they had not yet paid for, they lost part of their pension -- which is notoriously private, they built up debt for two or three years and risked losing their jobs."
Now, Gotti Tedeschi confirmed, "the only way to rebuild economic-financial balance is austerity."