How Demographics Perpetuates Inequality - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 3 August 2013
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- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani
Demographics and population growth are a major concern for India and other developing nations. The same holds true for income inequality. While both of these are important, it is not immediately obvious that they are fundamentally linked to one another. If we examine demographic patterns, it becomes clear that population growth and income inequality are closely related to each other.

The basic pattern we see in India and around the world is that fertility rates go down when income goes up. This means that the richer you are, the fewer children you will have on average. India's fertility rate is 2.4. This means that each woman has 2.4 children on average. In order for the population size to remain constant, you need a fertility rate of 2.1. India's population is growing due to its high fertility rate. Many Western nations have fertility rates under 2.1, and this implies a falling population.

There is considerable variation in fertility rates across Indian states, and this is closely linked to income. Rich Indian states such as Maharashtra, Goa, and Delhi all have fertility rates ranging between 1.5 and 1.8. Poor Indian states such as Uttar Pradesh and Bihar have fertility rates of 3.3 and 3.5 respectively. This is a huge gap. It means that the average family in Bihar has twice as many children as the average family in Delhi or Maharashtra.

What is the link between fertility rates and inequality? Unfortunately, fertility patterns perpetuate income inequality. A simple example will help illustrate this point. Imagine you have 100 couples, of which 50 are poor and 50 are rich. Each of the 50 poor couples has 2 children and each of the 50 rich couples has 1 child. What happens to the next generation? Well, there are now twice as many poor children as there are rich children. However, we started out with an equal number of rich and poor people.

The current demographic situation perpetuates inequality because the poorer you are, the more children you will have. Thus, there are relatively more poor children as compared with adults. And poorer states in India have higher population growth rates than richer states.

There is no easy solution to this problem. The best we can do is provide good opportunities for individuals to climb the economic ladder. The more this occurs, the smaller the problem of inequality will be. For income inequality to fall over time, we need good enough opportunities to more than offset the rise in inequality caused by demographics.

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is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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7 Responses to "How Demographics Perpetuates Inequality"

Dinesh K / Bassein 401201

Aug 6, 2013

How true, and so simple to understand is the analysis made by the you sir, but why not the people governing this country understand this glaring truth. Ulterior utter selfish vested motives of the ruling few who in spite of understanding all this are exploiting their powers not for the betterment of all but increasing sufferings of the majority of people of India. Request to send this copy of your understanding to each and every MP and MLA of every state, but don't expect miracles to happen because a politician of any party is worse than anything that can cause human being harm on this earth.Lord Krishna should take birth in any avatar to put an end to this politically rotten corrupt non functional utterly failed government and the systems imbibed by them just to cause more and more pain to the miserable helpless poor.

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M.R.Borkar

Aug 5, 2013

As it is said no analogy is perfect. There is fallacy in what is said here. Maharashtra's indicator would have been the highest say to 0.95 or so but because of continuous inflow of people from BIMARU states the index is as it is. Now, may be, as Hon.Nitish Kumar is at the helm of aFFAIRS, PEOPLE THERE MIGHT BE WILLING TO SAY PUT THERE. But rich n "STRONG" there, do not want people to stay in the state but to go AWAY so that they can control the land, products and everything there as .... whatever u call them but as commonly known AS bahubalis.

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Murali Pitchai

Aug 4, 2013

Dear Sir,
your analysis is true, the richer the status, the poorer the fertility rates (and vice versa). It is statement of fact about the fertility rates but i feel not the cause. Actually this analysis should go with the educational status and religious beliefs. normally there would be an inverse relationship between educational status and fertility rates. In India religion also plays a role in determining the fertility rates, as some religion publicly
advocate more children for the family.

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Manoj Kumar Mondal

Aug 4, 2013

A very relevant issue placed in right perspective. The small illustration needs some extension. If a poor family has two or more children their wealth is subdivided into smaller fragments making new poorer families and putting the odds of them rising on economic ladder even lower. Hindustan times recently cited an interesting anecdote: certain religious leaders have encouraged their followers to produce at least three children rather than earlier dictated two as they observed that followers of another religion are growing faster in the state. No wonder quantity is of utmost concern to them not quality. Wonder if god created religions to hold us back.

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Satish

Aug 4, 2013

Mr.Asad Dossani has stated most important concern , very well known to all non-economist. He has put it in techno-economic- statistical terminology ,that surely helps in bringing this glaring fact to the awareness of ' very important persons' like Economist, Planners, Policy Makers.Presently this looming concern is also missing from popular media, which is very busy in petty squabbles continuously.

He has sampled Macro models but in individual (large v.small) families the devastating different in (economic and social) problems versus benefit is glaring. Overpopulation will lead to economic and social chaos.

I considers China's biggest success was regulating population growth and the results are obvious to see.

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sunilkumar tejwani

Aug 4, 2013

as an old adage, he is a poor, who spends more than his income. and more population eats away all the fruits of prosperity. we need to control population in order to grow economically. Western nations were once rich, due to their low population, but their spending habits brought them to their knees.

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randhir singh, commodore (retd)

Aug 4, 2013

Good study sir. Thanks.
Education is therefore important.
Given the level of corruption in India, things don't look good for the country. sorry to be a bit pessimistic here.

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