Saturday, January 25, 2014

Demographic Window. How to get out of the crisis in one generation

According to the Merriam Webster, Demography is the study of changes (such as the number of births, deaths, marriages, and illnesses) that occur over a period of time in human populations.

A Demographic window is instead that period of time in a nation's demographic evolution when the proportion of population of working age group is particularly prominent. This occurs when the demographic architecture of a population becomes younger and the percentage of people able to work reaches its height.

When the number of births decreases, the age increases, consequently, the number of retired people grows. Who will take care of them? This is called the financial stress of retirement.

 Those countries that belongs to the demographic window have a greater labour force, greater consumption and a steady growth.

Most of the global wealth is in the baby boomer's hands. Baby Boomers are those people who were born in the decade following the end of the second World War. Today they are all retired or next to retirement. Who's going to support them? How are they going to survive?

How can we stimulate the economy?

In Europe 5 million babies are born each year and the birth rate is a little less than 10%.

If we would stimulate the birth rate, for example by doubling it, we would wipe off the chance of an economic crisis for the next 40 years.

As a matter of fact, history tells that when the birth rate overcame the 20% we had an economic boom.

The following are a few strategies that could solve the crisis of the European System.

First Strategy: Provide the families an economic reward of €1000 per year for each newborn for the first three years of life. If we reach 10 million births, the amount would be €30 bn. These are petty numbers if we consider the whole European Economy. Besides, these resources would be spent anyway, hence a 20% of VAT would be recovered right away, while the left 80% would feed the economy.

The mothers would spend money in businesses that pay taxes, retail shops would hire clerks who would receive a salary that is going to be taxed, these same people would buy a home, a car and they would spend the money for their daily needs.

Second Strategy. Provide tax credits for the costs needed to support each baby. How much a baby costs a family? In Italy it could be €7000 per year. The budget would be mainly for drugs, doctors, clothing, food and toys... We would provide a tax credit for each child in a way to reward those families with more children. For example for the first child it would be enough to provide a tax credit of €1000.

With two children we could provide a tax credit of €3000. With 3 children it would be of €5000 with 4 it would be of €7000 and so on. The whole system would provide benefits for the children until the 6th year of age.

The maximum exposure it would be when 10 million births are reached. In the case we reach that peak the total fiscal budget would be of €70 bn. Even in this case, the greater financial resources of the families would be spent and it would go back to the government without great effort.

Third Strategy. Making a deal with all the private and public schools to build kindergartens by providing a contribution for every child of €100 a month with the rest being on the Government.

Fourth Strategy. Making a deal with the retirement homes in order to have in the same building the nursing homes and the kindergartens. It's good both for the children than for the elderly citizens.

Fifth Strategy. To increase safety and security in the streets by doubling the number of policemen. Increase the present labour force.

As we just saw it here, the crisis can be easily solved by developing a tax regulation. Even if on a continental level there won't be the chance to do it, a Prime Minister of any given country could easily make it with 2 months of work.
Two months to get rid of the crisis.

Why don't they do it then?

Luigi Foscale

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