Global Trend

By definition, economies require people! They are the producers, consumers, and innovators.

And as demographers have shown, a sustainable and healthy economy needs an appropriate mix of age groups and genders.

Unfortunately, the world is experiencing an unprecedented and frightening demographic distortion which few policymakers have fully acknowledged, because it doesn’t fit the conventional narrative.

For roughly 600 years, the world’s population has been growing on an upward curve.

In fact, about 75 percent of the world’s population growth has occurred over the past 100 years, more than 50 percent of it since 1970.

During that interval, per capita wealth, health and happiness have soared and we haven’t even begun to deplete the world’s natural resources.

But that era of growth and enhanced quality-of-life is behind us.

Last year’s global population growth was the smallest in half a century.

And according to the United Nations, population growth is on course to drop to near zero in the decade ahead.

Importantly, a majority of the world already lives in countries with fertility rates well below 2.1 births per woman, the level at which a country’s population can remain steady.

By 2050, UN data suggests that 75 percent of countries will have fertility rates below replacement level.

And, some UN demographic projections now forecast that world population will peak in 2086, with the global population shrinking to about one billion below today’s level by 2100.

Under that scenario, ours will become a rapidly aging planet.

In 1970, the median world age was 20.3 years.By 2020, it had increased to 29.7 years, and in 2100 it is expected to be 42.3 years.

This is not idle speculation.

In fact, it’s now no longer a question of if global populations will start to decline, but when!

That means humanity is entering a new epoch.

One in which we experience the first large population decline since medieval plagues halved Europe’s population between 1346 and 1460.

However, the primary causes of this decline are not war or disease, but social evolution.

That evolution includes the decline of the family and religion, as well as diminished economic opportunity and a soaring cost of living.

Already, most rich countries have to contend with birth rates well below the replacement rate.

Japan, which has a fertility rate consistently 50 percent below replacement, is likely to see its population drop from 126 million in 2021 to under 90 million by 2065.

Consistent with this forecast, Japan recorded twice as many deaths as births last year.

Similarly, Europe’s population growth has been tapering for a generation.

European fertility rates fell from 16.4 babies born for every 1,000 persons in 1970, to 9.1 in 2020.

Last year, the UK’s birthrate hit a record low, with fertility rates for women under 30 at the lowest levels since record-keeping began in 1938.

A fifth of all British women are now childless by middle-age.

The decline in fertility rates has also become evident in North America, traditionally a bastion of strong demographic growth.

US population growth, according to the Federal Reserve Bank of St Louis, has fallen to the lowest peacetime rate since America’s founding.

China’s birthrate has also cratered, causing its workforce to shrink by 41 million in just the past three years.

That’s equal to the entire German workforce.

And China’s workforce is now slated to drop by a further 20 percent by 2050.

And we see the same pattern across most countries in Asia.

Over the past few decades, fertility has dropped precipitously across east Asia, including in Taiwan, South Korea, Hong Kong and Singapore.

This demographic decline is already reshaping the world economy.

As economist John Maynard Keynes warned as early as 1937, eliminating overpopulation, “may, if we are careless, only serve to loose another still fiercer and more intractable” problem in the form of demographic decline.

And that decline is being felt most quickly and crucially in how it changes the workforce.

The US population aged between 16 and 64 grew by 21 percent during the 1980s, but in the 2010s it grew by less than three percent - shrinking as a proportion of the total population.

As a result, the personnel consultancy Korn Ferry projects a deficit of at least six million workers in the US by 2028.

Even greater shortfalls in the workforce can be seen in the UK, the EU and east Asia.

The shrinking of the labor force combined with growing numbers of the elderly is already generating political unrest.

Consider the widespread protests over pensions in France.

Strikingly, it’s not the elderly who are protesting, sometimes violently, in the streets.

The protests are driven by working-class voters who are themselves a decade or two from retirement.

While more than 63 percent of the total population favor the protests, more remarkable still is that 71 percent of those aged 18∼24 favor the them.

These citizens fear that they will lose the secure retirement that was once considered a natural right in France’s statist economy.

French president Emmanuel Macron justified lifting the pension-qualifying age from 62 to 64 by pointing to the fact that France’s retirement population is due to rise from its current level of 16 million to 21million by 2050.

Other countries, like Germany, are confronting the new demographics both by raising taxes as well as raising the pension age.

Other countries across the OECD will be faced with similar dilemmas.

Depopulation and aging don’t represent new problems.

Trends warned of this inevitable crisis in its first issue.

However, these are now urgent problems which nations and businesses can no longer ignore.

Fortunately, extrapolating demographic and economic trends into the future is much like Scrooge confronting “the ghost of Christmas Future”.

The outcomes depend on the choices we make.

And notably, Americans have some of the best alternatives of any nation around the world.We just can’t afford to let ourselves be misled.

Given this trend, we offer the following forecasts for your consideration.

First, aging and depopulation will require wholesale transformation of social welfare systems around the world.

Consider the implications for the top economic superpowers, the United States and China.

America’s social-security system is on track to be depleted as soon as 2034.

In 1970, there were 18.7 persons aged over 65 for every 100 of working age, but this had increased to 26.4 in 2022.

The UN projects it will increase to 57.1 by 2100 if current rates of fertility and mortality continue.

Or consider China, which once boasted a huge, growing and youthful population.

It has seen its labor force decline since the 1990s, and it will be fully one-third smaller than now by 2035.

More importantly, the “senior population” in China is expected to more than triple by 2050.

That’s one of the most rapid demographic shifts in history.

Meanwhile, former superpower Russia faces a particularly dire situation.

Even before the Ukraine war and the COVID pandemic, deaths in 2019 were running about 50 percent higher than births.

Standing at 145 million in 2022, the Russian population is expected to drop to 133 million by 2050, according to the UN.

Combined with its out-migration and social dysfunction, that means an economy which lacks the workers needed to fund its social services.

Second, in an aging, slow-growth world, young people will have even fewer opportunities.

In virtually every high-income country, notes Pew Research, the vast majority of parents, including 80 percent in Japan and over 70 percent in the US, are pessimistic about the financial future of their offspring.

Young people have a similarly negative outlook, including in the US.

And that helps explain the psychological problems cited in trend #2 this month.

Notably, for those entering the workforce as “middle-level earners,” the chances of moving to the “top rungs” of the earnings ladder over a lifetime have dropped by approximately 20 percent since the early 1980s.

Third, unless economic growth accelerates, resentment of the Baby Boomer generation will increase during the coming decade.

Boomers will hold the largest share of wealth in the US until well into the 2030s.

And though many of them are well into their 70s at this point, they still account for almost 40 percent of new homes bought in the US.

That’s more than Millennials and vastly more than Generation Z.

Fourth, without a major change in prospects, this alienated young generation will become more radical and less tolerant than the ones raised with expectations of expanding opportunity.

Today, barely half of Democrat Party voters believe that hard work actually pays off.

In recent years, younger voters have tended to favor ideologically left-wing candidates, such as Bernie Sanders, with his promises of debt forgiveness and permanent subsidies.

In the 2016 presidential primaries, Sanders won more votes from people under 30 than Donald Trump and Hillary Clinton combined.

Fifth, unless derailed by misguided political decisions, North America will resolve this demographic crisis via an AI-enabled productivity surge.

North America is blessed with a uniquely business-friendly culture, extraordinary natural and human resources, and unparalleled access to intellectual and financial capital.

Now, just when it faces a looming manpower crisis, computing power, networks and software are reaching levels of price-performance at which automation can fill key gaps created by declining demographics.

As we discuss in trend #4 this month, combining technology, retraining, and reshoring will enable a new economic “Golden Age.”

Healthcare, transportation, manufacturing, construction, entertainment, and retail will all be transformed by innovations which will make our lives better.

Sixth, shrinking and aging populations will redefine, but not curtail aggregate demand.

Why?

Because total human needs and wants are insatiable!

Almost everything we now spend money on was not available 150 years ago.

That experience illustrates that once people have “something,” they want “something more.”

Furthermore, as we cross the “dematerialization frontier” traditional resource constraints related to scarcity will vanish.

Since people in rich, middle class and poor countries will always want more, our challenge is to invent it and deliver it to them, affordably.

Seventh, eliminating pseudoscience-based, productivity-inhibiting Federal regulations will play a major role in unleashing the productive potential and minimizing the burden of demographic decline.

The key is to mandate rigorous and objective cost-benefit analysis which puts the burden of proof on regulators rather than private sector innovators.

In the United States this will be accomplished by down-sizing Federal regulatory powers and returning control to the 50 states.

Eighth, in many countries, the demographic crisis will be reduced by higher birth rates in the coming decades.

Birthrates can be enhanced by family-friendly communities, more religion, and other incentives.

In the United States, this will become a clear differentiator separating Red states from Blue states.

Pro-life changes to laws in Red states postDobbs will make a significant contribution in this regard.

Ninth, as North America and the EU re-shore industries, they will locate facilities where there are low labor force participation rates.

According to a recent study by demographer Nicholas Eberstadt, the mismatch between America’s human resources and opportunities is not homogenous.

Despite the use of technology, both society and businesses will reap huge benefits as new facilities are deployed where human resources are still abundant.

At the same time, K-12 schools as well as colleges will prioritize delivering adults with vocational skills.

K-12 school choice and replacing Federal student loans with university-guaranteed student loans will help assure that education delivers real value to students and society.

And, Tenth, a wholesale change in global development policies will enable the few areas of the world with sustained population growth to rise out of abject poverty.

Between 2022 and 2050, UN projections indicate that nearly 55 percent of the world’s population growth will occur in Sub-Saharan Africa.

And between 2050 and 2100, Sub-Saharan Africa is projected to account for all of the global population growth.

However, Sub-Saharan Africa desperately needs new energy sources, growing export markets and capital investment, which the OECD has been unwilling to provide.

Finding common ground between aging countries in the OECD and still youthful populations will be critical.

At this point the West is more obsessed with gender ideology, domestic racial reparations and climate change than with the economic growth desperately needed by the developing countries of Africa and South Asia.

In a sensible world, the West, as well as China, would find a way to harness this emerging labor surplus by integrating these countries more fully into the world economy.

If not, the demographic crisis will lead to ever more conflict, and a world even more unstable than today’s.