The Human Bubble, Reprised

Rookie: Hello, Mr. Bishop.

Mr. Bishop: Hello, rook.

Rookie: Say, I've been thinking about our conversation about bubbles and in particular about the idea that the current low birthrate is itself a bubble. I've decided I don't follow your logic fully.

Mr. Bishop: How so?

Rookie: Your argument went, in summary, that the current low birthrates of industrialized societies are, firstly, insufficient to maintain population levels (or else soon will be) and, secondly, due mainly to the rising economic cost of raising children up to the standards of industrialized society. Even if parents' and potential parents' incomes remain as high as they are now, then, or so you argue, the rising cost of child raising leaves less income disposable to other purposes. Your conclusion is that everyone having, on average, less income available for non-child-raising purposes will lead to a deflationary spiral that, presumably, will collapse the high-cost-of-children bubble.

Mr. Bishop: Yes. What is your objection to the argument?

Rookie: Firstly, I'd like to object that you're assuming incomes will not continue to increase. What if they do?

Mr. Bishop: Then the bubble is merely prolonged, that is all. I suppose we could speculate that incomes will inexorably rise to infinity and we'll all have Star Trek replicators that create limitless wealth for every individual, but I for one imagine that there is a real cap to recent centuries' income increases—at least for a “short term” that will likely outlast a typical human lifespan. Call it a local maximum, if you will.

Rookie: I figured you would say as much. I suppose that goes hand in hand with the idea that bubbles are difficult to time.

Mr. Bishop: Indeed. But if you already knew my response, then why did you pose the objection?

Rookie: I just wanted to make sure of the point. And because it's not my real objection. My real objection, which is a question, is this: how do you jump from parents' having less disposable income to deflationary spiral?

Mr. Bishop: I make the jump by assuming that a decrease in demand equates to deflation.

Rookie: I assume that by “demand” you are referring not to how much a good or service is desired or wanted but instead by how much customers are willing to pay for it. Am I correct?

Mr. Bishop: Yes, you are correct.

Rookie: And so you're suggesting that without a continuing, sustaining increase in income, which happens to be the point at which the bubble pops, the rising cost in raising children and the subsequent decrease in disposable income will decrease demand, on average, for all goods and services not having to do with raising children.

Mr. Bishop: Exactly. A lower birthrate due to economic factors is necessarily self-limiting.

Rookie: Wait a minute, here. First of all, how does a decrease in demand equate to deflation? Why couldn't it lead to inflation? Why not have the banks monetize the world's debt, so to speak, and have the government mail a million million dollars to every citizen? In that case, you'd still have, on average, non-increasing incomes (in real terms, which is what we're interested with here) and decreasing disposable incomes (again, in real terms), yet you'd have exactly the deflation's opposite: inflation.

Mr. Bishop: Not really. In that case, you'd have hyperinflation, which is not the opposite of deflation. Though obviously dissimilar to deflation in other ways, hyperinflation is similar in that it destroys monetary wealth. And that's my main point: lower birthrates will eventually lead to the destruction of monetary wealth and thus self-limiting.

Rookie: Okay, I get your point about not being too hung up on the method that monetary wealth is destroyed but rather focus on that monetary wealth will be destroyed someway or another. Here's another objection, though: why can't both incomes and child-raising costs level off and stabilize?

Mr. Bishop: I suppose that's possible, but it's so unlikely as to have negligible odds. Dollars spent towards raising a child are seen, sometimes directly and more often indirectly, as an investment with the intended end result of creating a productive and self-sustaining adult. There exists a constant race, cumulatively, towards outdoing your parental peers, or at least keeping up with them, and this pressures child-raising costs upwards. If total child-raising costs stagnate, then it is because the cost per child continues to increase and the birthrate has decreased, which is exactly what we're seeing today.

Rookie: So you're saying that, on the one hand, a lower birthrate will lead to the destruction of monetary wealth but that, on the other hand, parents feel a continuous pressure to keep up with or even outdo other parents, expenditure-wise.

Mr. Bishop: Yes. Hopefully, it's obvious that that is necessarily self-limiting.

Rookie: It does bring to mind how despite the cost of college outpacing inflation, people today generally regard college as a better investment than ever before. Usually their word for it isn't “better” so much as “necessary”.

Mr. Bishop: Indeed. That's a good example of some irrational bubble-thinking that's going on these days. As a college education becomes more expensive relative to average income, its value as an investment drops substantially. You don't think most people go to college to learn, do you?

Rookie: Your last sentence might be a bit too cynical for my taste, but yes, I agree that college's viability is largely determined by economic wherewithal—thus, treating college as a means to an end—rather than being determined by idealistic notions about the intrinsic value of education.

Mr. Bishop: Indeed, I wonder how many people saddled with immense student loans and income-earning prospects worse than those of a plumber are beginning to question the value of their degree. And it's not just the cost of college in money; there's also an associated opportunity cost, as measured in time, which is not so insignificant as to be discounted entirely.

Rookie: So are you suggesting that a college education will be less common in the future?

Mr. Bishop: Yes, though this is a big, multi-generation bubble and will take a long time to pop. Also, people do not always act rationally and prudently. Possibly already we've reached the inflection at which a college education is no longer worth it, financially speaking, but people may continue pursuing it for a long time for the perceived prestige and social-class-elevation it awards them. Also, sometimes people within groups lack imagination, and this stifles change.

Rookie: Surely there's room in that cynical heart of yours for supposing that people might, just might be pursuing a college education for improvement of the mind and soul!

Mr. Bishop: Have you not seen the tripe that constitutes Internet dialogs these days? Most of this supposedly originates from college-educated brains. Where's the improvement?

Rookie: An ironic and self-referential point taken all too well, I'm afraid. So college-as-a-bubble is likely one manifestation of the lower-birthrate bubble?

Mr. Bishop: Yes, though another way of looking at it is that popping the college bubble might lead to a partial relaxing of the low-birthrate bubble. But a long-standing tradition or way of thinking can be hard to break. It's difficult not to extrapolate onto the future the trends of the past. Say, how about I promise to give you $1 million in thirty years?

Rookie: That sounds great! With that money, any children of my own will surely make fine plumbers! … Though, I suspect that you're not going to keep your promise.

Mr. Bishop: Indeed, I won't. You've demonstrated aptly an understanding of how someone making a promise about paying money at a later date does not necessarily make it so.

Rookie: Only the most gullible believe otherwise.

Mr. Bishop: You would think that, and yet how many people are pursuing government jobs for the security of a stable and secure retirement package decades later? This despite the fact that governments are dangerously broke.

Rookie: Another bubble, I presume?

Mr. Bishop: I think so. It has many of the signs of a divorce from fundamental value. People are trusting the authority behind the promise and not looking into the feasibility of delivering on that promise.

Rookie: Sure, I understand that there are many bubbles out there waiting to pop. Some will happen soon; some won't. I guess we could sit here and discuss that whole heat-death-of-the-sun thing that's due in a short 4 billion years, too. That looks pretty formidable. But isn't there a point at which increasing one's foresight returns little real value in return? At what point should a person simply stop worrying so much about tomorrow and take things as they come?

Mr. Bishop: Ah, a foresight-and-planning bubble!

Rookie: Oh dear …