Monday, June 6, 2011

Bernard Salt abandons his “baby bust” claim

In one of the most sudden retractions in recent Australian political debate, KPMG’s Bernard Salt has abandoned his central thesis: that the impending retirement of Australia’s baby boomers will create a “Baby Bust” or a “Big Tilt” that only high immigration can prevent.

This was supposed to occur in 2011 when “of  a sudden baby boomers born in 1946 exit the workforce at a faster rate than Generation Y can enter the workforce.”

The retraction is bound to re-open debate about whether Salt is a demographer. He has on at least one occasion emphatically stated that he is not, and implied that media carelessness is responsible for him being so described; yet the back cover of his latest book calls him “Australia’s number one demographer”.

Salt had been arguing his “Baby Bust”  line for months, but recently it reached a crescendo. He persuaded the ABC to put his claims to air, unopposed and as simple fact, in the ABC TV evening News program on May 24. Then on 28 May his Facebook page told his fans: “Beware the Baby Bust. See the central thesis to my new book out today The Big Tilt in The Weekend Australia at”.

Indeed this Australian article “Baby boom to baby bust” claimed that “The baby bust, the big tilt, whatever you want to call this bold new demographic world, is like nothing we have experienced before. It works silently, eating away at the consumer and the tax base.”

Salt ridiculed those opponents of Big Australia who could not see that, “This is no ‘growth-ist plot’ to ramp up the level of immigration. If 30,000 more people turn 65 and exit the productive phase in the life cycle than 15-year-olds enter, who is going to pay the taxes to support the lifestyle to which we have all become addicted?”

Over the years Salt has offered many different arguments for population growth, but of late this one has been his bedrock. It was music to the ears of the pro-growth lobby, which is well aware that it has lost round one of the Big Australia debate.

Polls show that about 70% of Australians believe we do not need more people. They can see that rapid population growth destroys other species and makes our cities crowded. Yet folk might be susceptible to the argument that we need to go on rapidly pushing up population through immigration --- just  as an emergency measure for the next 15-20 years to counter “the baby bust”. Bernard Salt was emerging as the growth lobby’s ace in the hole.

Yet less than a week later, in an article in the Australian on June 2, Bernard retracted. He admitted that there was no such generational imbalance – or rather that it was the other way. Gen X and Gen Y are not smaller than the baby boomers. They are larger! In his words
There are 4.1 million boomers, 4.4 million Xers and 4.6 million Ys in Australia.

With those words, Salt’s “Baby bust thesis” was caput!

Two questions arise.

1. How did he get his calculations so wrong? and 2. What woke him up to his error?

The first is easily answered. Here is Salt’s miscalculation, in his own words [with my comments in square brackets], from his article of 28th May 2011 in The Australian:

"THE Big Tilt is the proposition that from 2011 onwards there will be a fundamental shift in the demography of Australia.

"This is the idea that over the past 60 years the number of people entering the workforce has exceeded the number exiting through retirement. But with what some demographers are calling "the baby bust", and with the first baby boomer born in 1946 turning 65 in 2011, this means that during the 2010s more people will exit than enter the productive stage of the life cycle. [In point of fact, untrue].

"This is best demonstrated through the interplay between the 15 and the 65 cohorts. [He means that if you can count 15-64 as working years, and if you know the number of people who turn 15 in a given year, and if you subtract the number who turn 65, that gives you the number by which the potential workforce has grown. So far a demographer would agree.]

"Between 1981 and 1985 the number of 15-year-olds increased by 23,000 to 271,000, whereas the number of 65-year-olds increased by 7000 to 122,000. This means that in the early 1980s the working-age population expanded by 16,000.

[Excuse me!!

[Bernard, you should have studied demography. The correct calculation would be more like this: 271,000 15-year olds joined the workforce in 1985, and 122,000 65-year olds left it. An overall gain of 149,000 potential workers in one year alone.

"This is good news for the economy: more workers, more consumer demand, more tax. [That’s typical Bernard. Punchy but tendentious assertions that enliven his argument. Yet note his failure to distinguish between per capita GDP (which is a rough indicator of standard of living) and total GDP (“the economy”, which is not).]

"Fast forward 30 years to the 2010s. Over the four years to 2015, the number of 15-year-olds will increase by 3000 to 290,000, whereas the number of 65-year-olds will increase by 33,000 to 246,000. This means that in the early 2010s the working-age population will contract by 30,000."

[Excuse me!!
[Bernard, you’ve done it again! The correct calculation is that in 2015 the working-age population will increase by 290,000 minus 246,000 = plus 44,000.

One of the most basic skills required of a demographer is the ability to distinguish between a decline in the size of something (in this case Australia’s potential workforce) and a decline in its rate of increase. It’s the same elementary error as in the claim, quoted above, about how 30,000 more people turn 65 and exit the productive phase in the life cycle than 15-year-olds enter”.

As one demographer commented to me, “Salt does not do any labour force projections. The only data he has is an unsourced table from ABS purporting to show the net growth in the 15-64 year old group. Broadly, he is right that the numbers aged 65 are converging on numbers aged 15 -- though it will take longer than he claims.” ]


That comment “He does not do any labour force projections.” – surely one of the first things a real demographer would do  – is crucial.

It’s not just that Salt made a howler in mathematics. If Salt had tried to do a properly documented demographic calculation, with defined assumptions, he would have been forced to notice his error. And of course real demographers don’t just get their sums right. They also stay in touch with their peers, and notice if others are getting results very different from their own.

For instance Salt, in his June 2 piece in the Australian, claims as a supporter the pro-growth demographer Professor Peter McDonald. It’s true that McDonald’s first degree was in Economic Statistics, and he remains a passionate believer in economic growth. Yet McDonald publicly stated as recently as 13 May 2011 that Australia’s labour force is growing, even without immigration, by something under 100,000 a year. If Salt were properly aware of the academic demographic community, then he would know of McDonald’s calculations, and be aware that they contradict his theory.

Now to the second question.
What was it that forced Salt to admit that “Gen Y” is bigger not smaller than the boomers?

Academic demographers don’t commonly comment on what a populist like Salt writes, so he had long flown under their radar and received little criticism – yet much adulation from the big end of town and the Australian newspaper.

Yet my May 19 posting Bernard Salt is not a Demographer contained a detailed refutation of his “Big Tilt” theory. (This became a separate post on 26 May as “Baby boomers retiring. Is there really a crisis?”)

To add to his troubles, the book Dick Smith’s Population Crisis appeared in the same week as The Big Tilt. Salt found himself head to head with Dick Smith in two major ABC interviews. Dick Smith pursued him on both issues: not being a demographer, and mistaking the baby boom for a bulge in generation size rather than a bulge in the fertility rate. Salt gave ground considerably, and then published in the Australian on June 2 his admission that Gen X and Gen Y are larger than the boomers.

At this point I would draw the curtain of charity -- except that Salt did not admit that he had previously claimed the reverse. Instead he stridently titled his article Let Dick have his say, but case for growth is overwhelming

Salt also made it sound as though he was originating the discovery --- rather than being forced to concede it -- that there is not and will not be any sudden decline in labour-force due to Gen Y being too small to replace the boomers.

By my measure,” he wrote magisterially, “there are 4.1 million boomers, 4.4 million Xers and 4.6 million Ys in Australia.” He even suggested that he had not been particularly prominent in propounding the Baby Bust theory: “The idea of holding up net overseas migration to offset the retirement impact of the baby boomers is not a Bernard Salt invention.”

Salt then dug a deeper hole for himself by arguing that if he is not a demographer then neither is Bob Birrell, whose results Dick Smith had cited: “Professor Birrell's CV shows degrees in history, economics and sociology, not in demography.” Salt ought to be aware that in the academic world demography is a category within sociology, and that Birrell has been publishing detailed research articles on the interactions of demography, economics, and society in peer-reviewed journals for several decades.

Salt then tried to resile from his admission last year that he is "not a demographer at all" and suggested that if people accept him as a demographer then he can be considered one. He even offered the odd argument that:

I... was admitted to the Paris-based International Union for the Scientific Study of Population three years ago. The IUSSP is a professional body for demographers.

Sorry Bernard, No. The IUSSP includes many demographers, but I am reliably informed you don't need to be one to join. You just need to get a member to nominate you. The main obstacle is that you do need to pay a very hefty fee.

One might also ask why, two years after this supposed elevation, he was stating publicly that he was "not a demographer at all".

Salt also uses another odd argument: that it's alright to call yourself a demographer when you're only writing for the business community: "Business calls anyone who deals with population, workforce or market numbers a demographer, including pollsters." Similarly on his Facebook page he told Kate Case who asked about him being called a demographer "The Australian column is pitched to the business community so the editor gives me the tag of demographer. I tag myself as KPMG Partner."
Perhaps it's all the Australian's fault?

From there Salt passed to arguing, “I have advised business and government on demographic issues for 25 years and have written a national weekly column on the subject for eight years.”

This, though intended as a self-recommendation, is perhaps better taken as a reflection on the way business, government, and Murdoch’s Australian newspaper favour the belief that population growth is good.

And without admitting that his main argument about the baby boomers was in ruins, Salt tried to transpose back into the old plain-vanilla variant of the aging population scare:

The issue is not the 10 per cent jump from boomers to Xers; it is the 60 per cent jump between pre-boomers and boomers. We are used to providing services to, say, 2.5 million retirees now; the funding required to deliver the same services (let alone to ramped expectations) to boomers in retirement will be 60 per cent higher. Who's going to pay for that?

The answer is of course that this is largely an imaginary problem, as Dr Ben Spies Butcher recently pointed out in his , “The myth of the ageing ‘crisis’” and as the government’s recent report on sustainable population makes clear. 

We are moving towards a “normal” population in which there will be roughly equal numbers of people in each ten-year age group (up to those ages at which people begin to die off). Yes there will be more people too old to work --- but fewer too young. That is no economic disaster, since the young are far more economically dependent than the old. (In simple terms, grandparents mind children; children don’t mind grandparents. And remember that even now Australia each year has twice as many births as deaths.)

Many in the Property Council, and among those big employers who demand a surplus of workers to keep down wages, believed the aging population argument would prove that current or somewhat higher levels of immigration are needed and justifiable. Justifiable because they will significantly solve our aging "problem".

But they won't. The government's Productivity Commission has already looked into this argument, and has reported its findings in a recent submission to the Minister for Population.

The Commission says that to delay the aging of Australia's population for 40 years to deal with baby boomer retirements "would require a net migration-to-population ratio of 3 per cent per year, leading to a population of around 85 million by 2044-45." (!!!!! ) That's more than twice the Big Australia figure of 35.9 million in 2050 that so alarmed Ken Henry. They add, "It follows that, rather than seeking to mitigate the aging of the population, policy should seek to influence the potential economic and other impacts." Professor Peter McDonald has produced a similar calculation. How come Bernard doesn't know about this?

In any case, this older and simpler version of the aging population scare is one over which Salt has no special ownership. The failure of his Baby Bust theory threatens to leave him a guru without portfolio.

Back in 2004 when the Property Council asked him to explain his success as a “property guru”, Salt obligingly explained that the secret was to be impartial and fearless:

In order to be a property guru you cannot have a vested interest. A guru must be an advisor, not a developer.... I do think that gurus can set the agenda. All you need is a genuinely good and new idea that has a commercial edge. And all the better if that concept is pitched to a rising market.

Well Salt’s Baby Bust idea was certainly pitched to a rising market, or at least to a property and developer audience that wanted to believe any reasons he could offer them for thinking it was not selfish to demand a continuation of Big Australia.

But, to paraphrase Dr Johnson, the parts of Salt's big idea that are true seem not very new, and the parts that are new now seem not to be true.

- - - - -
Nola Stewart on the Online Population Forum points out that in concentrating on Bernard Salt's dubious demography I have passed over his tendentious economics. This is deliberate, since he has got public attention by claiming to be a demographer rather than an economist. However Salt commonly uses tendentious economic assumptions that tend to conceal the holes in his demography. Thus his June 2 article shows him sliding out of discredited demography to take cover in tendentious economics.

Salt invites us to believe our prosperity depends on the number of taxpayers we have.  (See also his “Big Australia is a taxing problem”). This might be true if Australia had limitless resources, so that our productivity and wealth depended simply on the number of workers. Yet, as Nola puts it:
Nowhere does his argument touch on environmental limits or the fact that all money to support the retirees comes from the environment, by the productivity of the Earth in agriculture, mining, forestry and fisheries.  He presumes it comes from work alone.  It comes from work plus these Primary Industry 'resources', which are finite.  If population in a given area goes up exponentially then, since the area is finite, resources per capita must decline like the mirror image of the population graph.  Our worry then is not how many people exist in what age groups but what the resource depletion graph looks like. 

Dr John Coulter adds that the extreme simplicity of Salt's populist writing makes it difficult to know if he could grasp such issues:
The fallacy is, as is usual with Salt and others of his kind, the bald assertion with no justification that, "Economic prosperity in this era has been delivered and ensured by population growth derived from the 1950s baby boom and by a program of intercontinental immigration.”

Typical of Salt's economic confusion is his claim that "We have become addicted to a tax subsidised lifestyle." Probably what he means to say is that we need to pay high taxes to maintain our level of infrastructure. However the infrastructure argument is deadly for him, since Jane O'Sullivan and others have shown that the cost of expanding our infrastructure for an expanded population is the main reason we have trouble covering the costs of infrastructure! (For instance the main reason everyone’s electricity bill is going up is the need to extend the electricity networks to more suburbs.)

As well, we don’t in fact have a surplus of jobs (let alone desirable jobs) over workers, so the number (or even the proportion) of  Australians in their working years may not be crucial.  And it’s not only workers who pay taxes. Everyone who consumes pays GST. And so called skilled immigrants (a bureaucratic category that in fact includes the dependants the alleged skilled workers bring with them!) may not on average be any more skilled than the existing workforce. And in many or perhaps most cases they do not even work in the trades or areas for which their skills were allegedly in short supply.

I could go on, but “Who breaks a butterfly upon a wheel?”