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One of the core arguments for a deflation has been demographics. Declining population, or an increasing number of over-65s is tied to slowing growth and deflation. However, the more I research it, the more complicated it becomes. As I have been talking about a potential baby boom, I thought I should lay out some of the complicating data, so you can at least be aware of the issues I am trying to deal with. One of the first things I discovered was that the post-war baby boom, was driven by women starting to give birth much younger than previously, and that the reversal of this was driving a baby-bust. I found evidence that this preference for becoming a mother later made we think we could be at a turning point in fertility rates.

However, I recently found that Scotland has even better birth statistics than the UK has a whole. In fact they have birth data going back to 1855. Amazingly total number of births peaked in 1900 (if we ignore a post World War I boom). The Scottish data still shows a post World War II boom, but in the longer term context, it is apparent that the number of children been born in Scotland has been on a downward shift for well over a 100 years. That is, the baby bust is not necessarily a modern phenomenon. In fact, it does suggest industrialisation and falling birth rates do go hand in hand.

Scotland’s population has been boosted by immigration from within the UK and from elsewhere, but saw a sizable decline in the 1970s, a period marked by inflation. I originally was approaching the demographics as an argument for much higher inflation going forward. That is if I could prove a baby boom was going to happen, then bonds would remain a short. The data I am looking at seems to argue that inflation and birth rates may have no relationship at all.

The second part of the argument was that improvements in IVF (or ART - Assisted Reproductive Technology) were going to drive a boom in births by older women. I got very excited by data from Australia that showed a surge in treatments.

However UK data from the Human Fertilisation and Embryology Authority (hfea.gov.uk) is not showing a similar surge, even with a Covid catch-up, IVF cycles are running at levels seen in 2019

Even more disconcerting is that 2017 saw a peak in total cycles.

One area that the HFEA data is interesting is that success of IVF with donor eggs is now at 30%, even for women aged 45 to 50. What this does suggest is that countries with liberal laws towards the use of egg donors, and who can receive free IVF treatments (single women, same sex couples etc) are likely to see higher birth rates. Denmark is such a country, and with similar population to Scotland, has seen an increase in birth rates recently (63,000 for Denmark compared to 48,000 for Scotland). It should be noted that Denmark introduced free IVF for any woman under 40 in 2018.

I still think a baby boom is possible, but it will need to be driven by governments policy making. A combination of higher wages, easier work conditions (working from home make child care much easier and affordable), liberalised IVF regime, and liberal attitudes to IVF would create an environment that could reverse much of the baby bust. One country I think that could surprise the most on birth rates is China. How easy would it be for the government to set policies to benefits families with three children? China also is a leader in IVF cycles. I am less sure we are about to have a baby boom, but I am more convinced government policy could lead to a baby boom if they chose to implement them.

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Capital Flows and Asset Markets

DEMOGRAPHICS IS NOT DESTINY - PART II