Demography, the Global Emergency

It is not an exaggeration to say that world demographics are entering uncharted territory. For the first time in a very long time, perhaps the first time ever, the dependency ratios (loosely, the ratio of dependents to workers) of all rich nations and of several emerging markets have started rising and will continue to rise for several decades.

This alone would be enough of a challenge for the world economy. But making things more complicated, it is taking place at the same time as the other big demographic transition of our age, the great population boom in some of the poorest nations of the world. Read more

US GDP: Is 4% Growth Achievable?

The Wall Street Journal and The Financial Times say no.

While announcing his presidential campaign Monday, Jeb Bush said:

There is not a reason in the world why we cannot grow at a rate of 4% a year. And that will be my goal as president—4% growth, and the 19 million new jobs that come with it.

As a cruising speed, 4%+ GDP growth is achievable but only under very favorable conditions. Read more

NIC: Global Trends 2030

The US NATIONAL INTELLIGENCE COUNCIL released a study GLOBAL TRENDS 2030: ALTERNATIVE WORLDS.  The talking points about demographics are as follows:

Rapid extensions of life expectancy likely: global deaths from communicable diseases projected to drop by more than 40 percent.

Some countries, particularly in Sub-Saharan Africa and South Asia, will still have youthful populations, but demographic arc of instability will narrow on both east and west flanks.

“Aging” countries face the possibility of decline in economic growth. Increased migration will spread to emerging powers.

Urbanization set to grow to almost 60 percent.

Starting at page 20 of the FULL REPORT is Megatrend 3: Demographic Patterns.

On page 24 is a table on the ‘Demographic Window of Opportunity’ for various countries.

U.S. Birth Rate Hits Record Low

STEPHANIE CZEKALINSKI writes in NATIONAL JOURNAL:

The U.S. birth rate dropped to its lowest level since the beginning of the Great Depression, led by a drop among immigrants, according to a report data released Thursday by the Pew Research Center.

In 2011, the overall birth rate was 63.2 per 1,000 women of childbearing age, the lowest since at least 1920, Pew reported, citing numbers from the National Center for Health Statistics. The birth rate reached 122.7 in 1957, the peak of the Baby Boom. After the mid-1970s, the birth rate stabilized at about 65 to 70 births per 1,000 women annually, until the beginning of the Great Recession. READ MORE.

NYT: Slower Growth Seen in a Graying World

FLOYD NORRIS writes in the NEW YORK TIMES:

AS the world grows older in the coming decades, economic growth will slow.

That forecast was issued Friday by the Organization for Economic Cooperation and Development, a group of 34 countries that includes all of the major industrialized nations.

“Aging will be a drag on growth in many countries,” said the report, titled “Looking to 2060: Long-Term Global Growth Prospects.” It also projected that while the aging of the population would be offset to some extent by better education in many countries, global growth in gross domestic product, which averaged 3.5 percent a year from 1995 through 2011, would rise to 3.7 percent through 2030, but then fall to just 2.3 percent over the next three decades. READ MORE.

Belarus Population Declined by 6% in Two Decades 1989-2009

Emigration and aging of the population are main causes.

From BELARUS DIGEST:

Official population censuses in Belarus conducted in 1989, 1999 and 2009 reveal a number of interesting trends.

They show that the population declines, the proportion of those who identifies themselves as Belarusians increases and the role of Belarusian language weakens. The period of Lukashenka rule coincided with the sharpest decline of population since the collapse of the USSR.  READ MORE.

Bulgaria: Population Decline Continues

Bulgaria’s population has been in decline since 1988.  The country faces a demographic challenge resulting from a high rate of emigration towards other EU countries and from the aging of its remaining population.

From QUEST (BULGARIA):

The population of Bulgaria has been in decline since 1988 and has continued up  to the present day. The most recent census conducted in 2011 revealed that the  population of Bulgaria stood at 7.4 million people showing the lowest figures  since the 1988 peak when the country was home to 8.98 million. Women in Bulgaria  outnumber the men by 2.6%.

It is said that a staggering third of Bulgaria’s inhabitants live in the cities  of Sofia, Plovdiv and Varna which are the largest cities in the country.

There is much concern regarding the population of Bulgaria due to its rapid  rate of decrease and reports state that over half a million people left Bulgaria  over the last 10 years and over 1.5 million since 1988.This number is gathering  pace at an alarming rate.

In addition to the dwindling numbers there is an added problem which Bulgaria  is faced with, and that is it’s ageing residents, many located within the  countries 5302 villages. More and more villages are being left uninhabited as  the older generation pass away.

Read more: http://www.questbg.com/news-a-events/mish-mash/2084-the-population-of-bulgaria.html#ixzz28ofrPrGp

Half the British population think immigration ‘is bad for the economy’

STEVE DOUGHTY writes in the DAILY MAIL ONLINE:

Half the British population think immigration ‘is bad for the economy’ as public support for welfare state falls to record low.

  • 62% believe benefits are too high & discourage work
  • Shift in attitudes on welfare recipients over 20 years
  • Low-paid workers have more immigration resentment

Public support for the welfare state has fallen to record lows, according to a Government-sponsored research report.

The popularity of the taxpayer-supported safety net for the unemployed and the sick has plunged amid growing fears that millions are cheating the benefit system, it found.

Nearly two thirds of the population, 62 per cent, think unemployment benefits are too high and discourage work, the British Social Attitudes survey said. READ MORE.

The Economy’s New Boss: Demographics

The next President will have to contend with unfavorable demographics.

An enormous amount of money will be spent in the last few weeks of the Presidential campaign. Each side will promote its candidate and his platform with much passion and conviction. In the end, one side will treat victory as the road to salvation and the other will see defeat as an unprecedented and largely irreversible calamity. But in reality, this time around, the identity of the winner will probably matter less to future growth prospects than in previous contests. This is because the demographic input in the economy for the next four years is already programmed on an immovable trajectory and it is less positive than in the past.

Because of the overhanging debt and a poor demographic picture, the next four years will continue to be challenging (though not necessarily recessionary), regardless of whether Barack Obama is re-elected or Mitt Romney replaces him. Like it or not, the boss of the economy, and therefore to some degree of all of us, will be demographics. One could argue that this boss has been with us since at least 2005 when the dependency ratio started to rise again in the United States.

Among all the important factors which drive economic growth, the demographic factor is now weaker than it has been in decades and as a result, domestic demand for most goods and services will be weaker than it has been in a long time. The most telling numbers are as follows:

– The US population grew by over 1% a year until 2007 and is now growing by less than 1% per year. Its rate of growth will continue to decline as the number of baby boomer deaths rises relative to the number of new births.  Since 2008, the US total fertility ratio (TFR) has fallen below the replacement level of 2.1 and is now approaching 1.9 children per woman. See the data here and here. (Note that the TFR is an imperfect measure and a decline may only mean that more women are delaying, not altogether foregoing, having children.)

– The total number of Americans aged 30 to 60 years, the most economically active bracket, grew by over 1% per year for 30 years, from the mid 1970s to around 2005.  It has levelled off and will essentially remain flat at around 120-125 million until the end of this decade. Stagnation in the size of the most economically active bracket combined with growth in the young and elderly brackets will result in lower economic growth. I made a case here that the resulting effect on housing will not be positive.

– The US dependency ratio, which is the sum of people under 14 and over 65, divided by the number of people aged 15-64, has declined for several decades from 0.67 in 1960 to 0.49 in 2005 but, according to UN estimates (see pages 478 and 479 of this UN report), it is now expected to climb back to 0.53 by 2015, 0.56 by 2020, 0.64 by 2030 and 0.67 by 2050. Discretionary spending is bound to come under pressure as more funds are diverted to take care of dependents. (Note that the dependency ratio as defined by the UN and others considers any person under 14 and over 65 to be a ‘dependent’.  This seems antiquated on both ends. In the US, a young person is still a dependent until at least 18, and in some measure as late as 25. And an older person may not become a dependent until the retirement age of 67, or more likely 70.  I ran the numbers for these brackets here and they show that raising the retirement age from 67 to 70 would buy us some time and help the economy.)

– Assuming a run rate of 1 million newcomers per year, immigration, though a clear net positive in the long run, will be insufficient to neutralize or reverse these negative effects in the short run. It would take a much greater number of immigrants to offset the slack. But as noted by some demographers, citizens of any given country become less welcoming of immigrants when that country’s fertility ratio declines or when the economy is weak.

Although much frustration is expressed on the stagnation of the economy, in particular the unemployment rate and the rising deficit, pinning the blame on one or the other of the two political parties ignores a stronger underlying dynamic. The next POTUS will be similarly constrained as POTUS 43 (Bush) in his second term and POTUS 44 (Obama) and will have to implement some steps to mitigate the negative demographic effect. If demographics are failing us, there are other levers to stimulate  growth but we will need to work them harder.