Infamously, the British economist John Maynard Keynes told people not to worry about inflation. In fact, the apologist for inflationary central banks encouraged people to adopt short-term thinking because “in the long run we’re all dead.” He should have said, “In the long run, we’re going to vanish.”
The mindset that Keynes upheld has a name: the inflation culture. It’s here, and it’s leading to an understandable pessimism about the future. Nobody doubts that housing, education, and healthcare are going to get increasingly costly – and with good reason. According to the American Enterprise Institute, medical, schooling, and home costs have all risen by more than 6 percent every year since 2000.
During the same time, the Federal Reserve has taken action to keep interest rates at historic lows. What this means is that for poorer families planning to save for the future, the measly 2.08 percent they would have earned in a typical CD is making them fall further and further behind.
Of course, these expenses are at the center of household life – especially for the middle class and poor. They instinctively realize that an inflationary world is no place to raise a child. The inflation culture and its fixation on the short-run and its dread of a bleak future isn’t just a problem for Americans.
Throughout the western world, from South Korea to the South Side of Chicago, this sense of foreboding – driven by unrelenting inflation – has been a major factor that has led to the baby bust. The consequences of the inflation culture have had an enormous impact on family formation and birth rates.
According to Nicholas Eberstadt, because of the worldwide collapse in fertility, we are now in the “age of depopulation.” The Lancet reports that 76 percent of countries will have below-replacement fertility rates by 2050. On top of this, Eberstadt has observed a global “flight from marriage.” Taken together, falling marriage rates lead to lowered lifetime fertility rates and are sure markers of civilizational decline.
On the other hand, not everyone is hurt by inflation. Some are, in fact, made better off.
In the U.S., the Federal Reserve’s inflationary policies have fueled a decades-long boom in housing prices. In fact, the Fed’s massive purchase of mortgage-backed securities grew to over $2.7 trillion in 2022. This policy move pushed home prices even higher, benefitting older purchasers at the expense of younger Americans who are hoping – and failing – to form new marriages and households. In fact, the average age at first marriage for men has now topped 30, and the average age of first-time home-buyers is now a staggering 40 years old.
Ironically, it’s the older generation who are pining for grandchildren that are nowhere to be found who seem blissfully unaware that their bulging home equity has a tradeoff: fewer baby bumps.
So, how many babies is enough? What’s the “optimal” number of kids per couple? Some on the political Left who have long predicted a population explosion, leading to planetary doom, have claimed that the right number of kids is precisely zero. They form the so-called “voluntarily childless” movement. Some on the Right claim that the proper number of kids is always one more!
Economists, for the most part, attempt to remain value-free in making assertions about the correct number of children per household. The same goes for this author. I make no claim that there is a supposedly optimal number of kids. However, we can explain why so many are having fewer and fewer children.
What is certain, however, is that the inflation culture – driven by the Federal Reserve, and the U.S. dollar’s status as the world’s reserve currency – is spreading these cultural habits around the world.
So, what’s to be done?
To be clear, this economist’s ultimate hope is that central banking will be swept into the ashbin of history and that competitive banking as envisioned by Ludwig von Mises and others would be realized.
Even better would be the banking approach upheld by his most famous student, Murray Rothbard. He called for sound money, backed by gold, and a permanent ban on fractional reserves.
Some of their modern-day disciples, like Saifedean Ammous, point to Bitcoin as a viable alternative. Any of these solutions would chip away at the inflation culture and its many ills.
But if these solutions aren’t yet on the immediate horizon, there are steps that can be taken to slow the relentless inflation in housing markets that are contributing to the inflation culture and its consequences.
For starters, if the U.S. Congress would develop a spine and forbid the Federal Reserve from ever purchasing assets of any kind, from mortgages to even U.S. Treasuries, that would be a good beginning. In doing so, there would be some temporary pain, mostly for those who have already benefited from the Fed’s inflation.
But with these simple steps, we would see the causes and consequences of the inflation culture begin to recede. When it does, it will likely lead to more marriages and kids. And for those boomers who lose out on some of that home equity, they might just see more of those grandkids that they’ve been longing for.
Dr. Jeffery L. Degner is an economist, associate professor of economics, and dean of the School of Business & Innovation at Cornerstone University. His research explores how inflation and monetary policy shape family formation, fertility trends, and the long-term health of society.
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