Demography and Economic Destiny

Phillip Longman – Big Questions Online

Copyright Big Questions Online
One day in 1999, I went to visit the billionaire financier Peter G. Peterson in his office high above Park Avenue. In those days, Peterson surveyed a city booming with leveraged deals and paper profits that hourly added to his wealth. Yet he was worried about the future. He warned of a world going gray and predicted that the aging population of the industrial world, particularly in Europe, would tank the era of prosperity then being called “the long boom.”
As I quoted him back then in a cover story for U.S. News and World Report: “The scenario I see is that one or more developed countries . . . is going to decide that the political cost of reforming their pension systems is just too high.” When that happens, Peterson continued, “they will try running high deficits — much higher than the limits set by the European Union’s monetary authorities — in an attempt to finance their way out of the problem. When the financial markets wake up to this news, there will be a broad realization that we have a global aging crisis that is going to be unrelenting in its economic consequences.”
At first, the global recession that began in 2008 seemed to have nothing to do with changing demographics. Economists and politicians pointed instead to the excesses of unregulated capitalism. Many thought that the prophesied demographic-driven entitlements crisis was still years away. But today it is becoming more apparent that Peterson was right: Europe’s demographic problems are not only forcing startling cutbacks in the welfare state but also are damaging the Continent’s prospects for sustained growth and economic recovery. Worse, Europe’s today is the rest of the world’s tomorrow.
We have now entered a radically new phase in human affairs. Due primarily to the global decline in birthrates, such population growth as remains is mostly in the form of increasing numbers of old people. The absolute supply of children is already in steep decline, not only in Europe but even in once highly fertile places like Russia, China, Mexico, and Iran.
Over the next 40 years, according to the UN, world population will grow from 6.9 billion to 9.1 billion, which may sound like more of the same robust growth that we saw throughout the 20th century. But this will be a very different kind of population growth from anything humankind has seen before. The rate of growth is perpetually diminishing toward zero, and more than half of the remaining increase in population (56 percent) will be among people over 60 — among people, that is, who have already been born.
This may seem impossible, but when calculating population growth, declining death rates are just as important as rising birthrates. Today’s children are more likely than their parents to live to advanced ages. Even without any new children being born, this decline in mortality by itself would add to the number of people on the planet. Today’s population explosion among those over 60 will be echoed in twenty years by a population explosion among those over 80. Most of the predicted 2.2 billion in world population growth between now and 2050 will not come from children. Indeed, over that period, the population of young children (0 to 4) is expected to fall by 49 million.
Perhaps there is an economic system that can preserve prosperity even in the face of an aging, stagnating population, but it has not yet been devised. It is no coincidence that modern industrial capitalism emerged amid the population explosion of late 18th-century England or that it flourished most in the rapidly growing United States. A young, growing population creates more demand for products and a larger supply of labor. By encouraging people to look for more efficient ways to provide food, energy, and other essentials, it also spurs innovation and entrepreneurism.
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