Benjamin Studebaker

The austerity policies racking the economies of the European Union have had an interesting negative externality–they have put to flight vast swathes of the populations of entire countries. The sheer scale of the flight, as I will shortly show below, is on par with the kind of mass exoduses normally associated with the wars Europe has tried to forget, and will have devastating long-term consequences for European prosperity and growth.

It’s happening all over the place. Portugal has lost 240,000 people–2% of its population–in the last two years. Ireland lost 42,000 people last year–1% of its own population. Even Latvia, that poster child among supporters of austerity for it’s remarkable “recovery”, it has lost 200,000 people in the last decade and continues to lose 1% of its population each year, with most of those leaving being its most skilled workers. People are fleeing these countries because their economies are riddled with high rates of unemployment caused by decreased state spending, which combined with the lack of spending generated by the global economic crisis to produce persistently low demand and, consequently, low economic activity.

Why is this a concern? Countries with fewer people are capable of producing less stuff. If you imagine a village of 2,000 people and a city of 200,000, the latter will certainly produce more total wealth than the former, and, in the long-run, is likely to grow faster and produce a better standard of living for its people because of its capacity to support a larger population of intellectuals, scientists, innovators, and so on. More people is almost always a good thing–it only becomes a concern if population growth outdistances the growth of the given society’s productive capacity such that the average citizen consumes more resources than he produces.

There are, broadly speaking, three groups of people who, regardless of the society’s level of productive development, consume more resources than they produce–children, the elderly, and the unemployed. These groups are dependent upon the economic production of a given society’s employed working age population. Societies run into serious trouble when the ratio of working people to dependent people grows unsustainable, in so far as the former is not large enough to support the needs of the latter. When this happens, we have a demographic problem–usually the problem of an ageing population. There are two ways to get the problem–one is emigration, which we have just noted is now happening. The other is a low rate of birth combined with higher life expectancy.

The trouble is compounded because many European countries have had the latter problem for a while, and the recession has only intensified it by causing people to put off having children. The replacement rate (the number of births per woman which a country needs in order to maintain its population) is 2.1. In the Portuguese case, the figure is down to 1.5. Many other European countries are doing similarly poorly–Latvia manages 1.33, Greece 1.39, Italy 1.4, Spain 1.48.

When taken together, emigration and poor fertility rate can be catastrophic. Bulgaria loses 2.84 people per 1,000 to emigration and only maintains a birth rate of 1.43. The result, as posted by economist Edward Hugh on Facebook, has been catastrophic, with the population down 7.5% from 2005 levels:

Bulgaria’s situation has become so dire that its government has just announced its resignation.

We’re hearing no mention at all of this problem from Brussels or Berlin. Long-term unemployment has very negative consequences–it permanently alienates large chunks of the citizenry and reduces long-run economic potential. In and of itself, it was sufficient to seriously question the austerity agenda. However, coupled with the extremely adverse effect of mass emigration, the long-run damage because not merely potential-reducing, but structurally crippling to the economies of the effected nations. A country that faces a permanent population reduction simply cannot support the same level of welfare spending, production, or growth. The long-term unemployed may perhaps one day be employed again in some capacity. People who emigrate rarely come back.

It should now be abundantly clear, whether our priority is alleviating the pain of the unemployed in the short term or preventing long-term demographic problems, that austerity is not the answer in Europe. The sooner the European leadership comes around to this view and changes its policy, the sooner the terrible damage being inflicted on the European future every day can begin to be lessened or stifled.