Thursday 17 October 2019

David McWilliams: Our children won't be able to pay cost of our debt folly

If any country embodies the notion that demographics are destiny, it is Israel. So it seems appropriate to be writing about how demographics will shape the world in the next few years from a small terrace overlooking Deizengoff Street in central Tel Aviv. The street is teeming with life, the liberal, tolerant life that has made this city almost a state within a state.

While much of the rest of Israel has become increasingly religious, zealous, intolerant and atavistic, Tel Aviv remains open and tolerant. The headlines in the paper today are condemning religious Jewish settler youths for terrorising Arabs in the West Bank. But the tone of the article is admonishing ordinary concerned Israelis for only paying attention to these youths when they injure a member of the Israeli army, as happened on Monday, rather than when they attack defenceless Arabs, which is a daily occurrence. The debate rages with most in this city embarrassed by, and fed up with, the settlers.

In the street, the shops and malls, you regularly hear Arabic but you also hear Russian, French and English -- evidence of the extraordinary diversity in this city. Far from being a dull uni-dimensional, conformist place, the city is full of all sorts -- Jews who have come from as diverse places as Yemen and Somalia, Lublin and Dublin.

And each wave of immigration gave Israel an economic boost, changing the nature of the place. Without immigration there would be no Israel, but when there is not a huge wave of immigrants -- whether into this place or indeed Ireland -- it is easy to forget that the population is always changing.

While it is obvious that demographics are destiny -- because without demographics you have no destiny -- sometimes population changes happen slowly so we don't realise things have changed until it is far too late.

On the other hand, sudden changes in population have immediate effects on the future growth rate of an economy and the society. For example, our mass immigration from 1998-2008 has changed Ireland profoundly and the effects will manifest themselves for a generation to come.

Worldwide, the key long-term determinant of economic performance is population, both in terms of the numbers of the people and the productivity of these people.

This is why thinking, secular Israelis are worried. A recent OECD report told them the message they least want to hear, which is that this year, for the first time ever, 50pc of all schoolgoing children are either Israeli Arabs or ultra-orthodox Jews. This means that the secular Israelis are witnessing what they have always feared, which is that they will be out-bred on one flank by the local Arabs and by the religious Jews on the other flank. They conclude that these trends mean the country will become politically more right-wing and more isolated while their ability to defend the place will diminish because the orthodox Jews don't go to the army. All the while, the Arab population will rise which will obviously mean that the very Jewish nature of the Jewish homeland will diminish.

This is their conundrum and one for which there is no obvious way out. For many here, the conclusion would be do an honourable deal now with the Palestinians because if the Arabs just wait, they will ultimately win by sheer force of numbers. So even though many Israelis feel more secure now then they did in the intifada, the Israelis are at their most powerful and yet their most vulnerable at the same time.

As there is unlikely to be another wave of huge Jewish immigration such as there was when the Soviet Union collapsed, people argue that the best thing to do is to cut a deal now.

Others have suggested that if the crisis in Europe becomes really chaotic with a messy break-up of the euro and then the EU, the subsequent depression, which could ensue, will lead to anti-Semitism and result in a mass flight of French Jewry to Israel. This view seems fanciful, but not impossible. However, whatever probability you put on that outcome, you are still playing the numbers and, ultimately, the demographic game.

In Europe too, the numbers game matters. Just think about why there is a debt crisis in Europe. It is because the governments and people have chosen not to live within their means. If you think of debt through a demographic prism, it's nothing more than borrowing from tomorrow to enjoy stuff today. So one generation is actually stealing from the next, particularly if the debt is incurred for silly things such as to pay bank debt which itself was incurred to buy plasma screens. It is one thing to owe money yet have hospitals to show for the debt; it is quite another thing to have huge debt and have Anglo to show for it.

Obviously, as the population changes and gets older, the chances that those coming next will be able to pay for the bloated excess of those who came before diminishes. This is the nub of the European problem. It is yet again a demographic issue.

Globalisation accelerates this demographic dilemma because if a computer programmer from Brazil is prepared to work for 30pc of the salary given to a programmer in Bray, then the ability of the programmer from Bray to pay the inherited debts and compete in the international market falls. Why should the programmer from Bray be "entitled" to or expect to earn more than the guy from Brazil indefinitely? Global demographics which lead to debts being unsustainable also force the wages of the next generation downwards.

So we have a problem, the irresistible force of increased globalisation will smash into the unmovable object of stagnant populations.

Here in Israel you would expect that, at the very least, knowledge of changing demographics should be bringing forward a peace deal, but it is not. Similarly, in Europe, knowledge of debt dynamics and demographics should be bringing forward a debt deal, but it is not. This is because humans, including leaders and decision-makers, tend to wait until a major crisis to react in panic rather than sort out issues when we have the time and the capability to do so.

www.davidmcwilliams.ie

Irish Independent

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