The Birth Dearth: Panic or Celebrate?

Where have all the babies gone? In more than half the countries in the world, the United States included, women are no longer having enough children to hold population steady. As a result, we are on the brink of a dramatic shift from a growing to a declining global population.

To be sure, when we look at the whole long history of humanity, steady population growth has been anything but the norm. For the first 100,000 years or so, periods of growth were punctuated by big dips, like those caused by global cooling following the Toba volcano eruption 70,000 years ago, or the Black Death pandemic of the 14^th century. But by 1800, the number of humans on the planet had reached a billion people, and the next couple of centuries brought us to 8 billion.

Now, seemingly suddenly, the end of population growth is in sight. Projections vary, but most demographers expect average human fertility to drop below the replacement rate by mid-century. Once that happens, there will be only a short lag before population begins a gradual decline stretching into the indefinite future.

Many observers contemplate the falling population with dread. Elon Musk calls it a “bigger risk to global civilization than global warming.” Others see lower population growth as a boon. So, should we panic, or celebrate? Take a closer look at three issues divide population pessimists from optimists: economics, geopolitics, and quality of life.

Why a War on Trade Deficits Won't Reindustrialize America

President Donald Trump and his team are out to reindustrialize America. Our steelworkers and auto workers, the president says, have “watched in anguish” as “foreign cheaters have ransacked our factories.” But they know the way out: a tariff-led war on the trade deficit.

It seems simple: If we make imports more expensive, people will buy fewer of them. If imports decrease, the trade deficit shrinks. If we smelt our own steel, build our own cars, and stitch our own track shoes, we make America great again.

Unfortunately, this notion is as fantastical as Ron Vara, the character White House trade guru Peter Navarro represented in some of his books as a real China commentator.  The connections among the many moving parts of the economy are such that pulling the tariff lever to cut imports is more likely to hinder reindustrialization than to help it. This commentary explains why, with special attention to the linkages among trade deficits, budget deficits, investment and saving.

Why Tariff Inflation Won't Be Just a Blip

 I am a Tariff Man,” declares Donald Trump. But what about inflation? In his 2025 State of the Union, he admits There mightl be "a little disturbance, but we are OK with that. It won’t be much. 

I'm less optimistic. To understand why, we need to look at the inflation that followed the end of the Covid pandemic. Although it began with supply-chain disruptions that were only transient, the resulting inflation had a distressingly long tail. Three lessons learned from that painful episode suggest that any inflation driven by tariffs on the scale Trump has promised will be more than a blip. 

Lesson 1: Inflation has both a demand side and a supply side

A good place to start is a Panglossian view enunciated by Scott Bessent, now Treasury Secretary, in a December radio interview. “Tariffs can’t be inflationary,” explained Bessent, “because if the price of one thing goes up, unless you give people more money, then they have less money to spend on the other thing, so there is no inflation. … Inflation comes through either increasing the money supply or increasing the government spending, and that’s what happened under Biden.”

There is a smidgen of truth in that, but just a smidgen. Yes, inflation is caused by too much demand chasing insufficient supply. Yes, policymakers can moderate demand by using monetary and fiscal policy. But those tools works best if excess demand is the origin of the inflation in the first place. The post-Covid inflation was different. The latest studies show that demand played only a small role in the upward surge of prices that began in the winter of 2021. Supply-chain disruptions played a much larger role. Tariffs, too, would mostly cause supply-side inflation.

When faced with supply-driven inflation, whether caused by factory closings and shipping bottlenecks or by tariffs, it is not enough just to hold the line on monetary and fiscal policy. To fully control inflation, the Fed would have to substantially crank up interest rates, preferably while Congress cut spending and/or raised taxes. In that case, we might get the Bessent result in which decreases in some prices offset increases in others. But such a strategy would come at the cost of falling real output and rising unemployment – even a major recession. Not what Bessent had in mind.  

Could a new misery index help explain the election outcome?

In 1970 everyone was feeling bad about the economy. How bad? To put a number to the pervasively negative vibe, Arthur Okun created the “misery index:” the sum of inflation and unemployment rates.

But now everyone is puzzled. Why was the economic vibe of 2024 bad enough to get the Democrats thrown out of office? After all, Okun’s misery index for the quarter leading up to the election stood at just 6.8, which was actually a whisker below its average of 6.9 for the Trump years. What is more, it had been falling almost continuously for nine quarters after peaking in April 2022.

Already six months before the election, when Okun’s index was still at 7.2, Paul Krugman wrote that for most Americans, the answer to the question, “Are you better off than you were four years ago?” should clearly be, “Yes.” But Krugman ruefully added, “for reasons that still remain unclear, many seem disinclined to believe it.” What went wrong?

Maybe part of the problem is that we need a new misery index. Maybe the Okun version just doesn’t capture what makes people miserable these days. In the many postmortems asking what Krugman and many others might have been missing, four factors come up repeatedly. In what follows, I use them as the building blocks of a 21^st century misery index.

Populism, State Capacity, and Why It Pays to Play by the Rules

 

Populism is on the rise around the world but the forms it takes can vary widely. Populists can align with the traditional left or right and can be liberal or conservative in their social values. What holds this diverse ideological family together is a sense that the will of the “true people” is being stymied by a corrupt elite — and that strong leadership is necessary to break that system. As tracked by a recent Ipsos poll, populist thought includes beliefs that “the system is broken,” “the economy is rigged to advantage the rich and powerful,” “traditional parties and politicians don’t care about people like me,” and “to fix our country, we need a strong leader willing to break the rules.”

This commentary focuses on the last of these beliefs, the need for a strong leader willing to break the rules. Ipsos found that 49 percent of respondents in 28 countries agreed with this sentiment. In the United States, the breakdown was 40 percent “agree” vs. 27 percent “disagree.” (See page 27 of the report.)

Climate Inflation is Coming. How Should Central Banks Respond?

The impacts of climate change are visible everywhere — wildfires in California, preseason hurricanes in the Caribbean, insufficient water in the Panama Canal, populations on the move everywhere from North Africa to Central America. Inflationary shocks are another looming worry. Food prices will become increasingly volatile, while property insurance rates will escalate — or insurance simply won’t be available. Labor costs will rise as employers spend to shield workers from hotter weather or raise wages where workers balk at heat exposure.

It all points not only to more inflation, but also to greater variation and less predictability across sectors and regions. In fact, that’s already happening. The figure below uses data from the Atlanta Fed to divide prices into half that are “sticky” in the sense that they rarely change and half that are “flexible,” meaning they go up or down with every bump to supply or demand. Since the late 1990s, the volatility of flexible prices has exceeded that of the “great inflation” of the 1970s. Even sticky prices are showing some ominous wiggles.

In the years ahead, more volatile inflation will make it harder for the world’s central banks, America’s own Federal Reserve Bank included, to meet their commitments to stabilize prices. Will they be up to the job? Not without some changes in strategy.

Good data on good government: Reformers should take note as political philosophy meets statistics

Good government has been a focus of political philosophers for centuries, but times change. Today’s thinkers, unlike Plato or Ibn Khaldun, can draw on abundant data to test and refine their theories on the merits and drawbacks of various regimes. And data is not just for theorists. Good data can provide would-be reformers with practical insights in their day-to-day efforts to make government more effective and strengthen democracy. A profusion of indexes compete to measure quality of government, state capacity, state fragility, liberal democracy, electoral democracy, varieties of democracy, and more. Which one is the best? Or are they all so alike that the choice doesn’t matter? 

But where to start? This paper offers a map through the thicket of governance data. The first section deals with some key terms and concepts. The second develops a pair of benchmark indexes that are closely aligned with the theoretical categories of state capacity and liberal democracy. The third examines the similarities and differences among a sample of widely used quality-of-government measures, and their implications for the relationship between liberal democracy and state capacity. The fourth section looks at what we can learn by looking beyond statistical regularities to specific country outliers. Finally, the conclusion takes up the question of how best to integrate theoretical, practical, and quantitative approaches to the study of good government.