The world’s population is expected to hit 7 billion sometime today. And the biggest part of the story, for me, is that we’ve reached this figure in large part by extending lifetimes rather than by having more babies.
Check out these two graphs — the first is from the Washington Post and depicts rising life expectancies at birth; the second is one I generated on Google with data from the World Bank, and it depicts falling birth rates:
These trends suggest some serious implications: for the use of resources, for the future strength of today’s strongest economies, etc. For today, I want to focus on what they mean for the systems the United States and other rich countries have built to redistribute wealth from the young to the old.
(And before someone objects, “Hey, I paid for my Social Security and Medicare! There’s no redistribution!” No, you didn’t; and yes, there is. You paid for your elders’ Social Security and Medicare, in exchange for the promise that future generations would pick up the tab for you. And that tab will be greater than the amount you paid in, just as your elders ran up a larger tab than they paid in. It is how the system was built, and the chief reason it is not wrong to liken it to a Ponzi scheme. How we reconcile past promises made and present/future financial realities is the question before us.)
The top five economies in the world are, in descending order: the U.S., China, Japan, Germany and France. In 1960, the fertility rates of all but Japan were above the so-called replacement rate of 2.1 children per woman. In 2009, the latest year for which data are available, the closest any country comes is the American rate of 2.05. China is at 1.77. Japan and Germany are both below 1.4. For most of these countries, fertility rates have been below the replacement rate since the 1970s. World-wide, the fertility rate is 2.52 — about half the rate a half-century earlier.
The trend lines for the largest emerging economies — Brazil, Russia, India, China and South Africa, aka the BRICS — are similar. Russia alone is experiencing a bit of a baby boom…all the way up to a fertility rate of 1.55.
Simply put, leading economic powers will be less able to direct their resources toward economic growth as their populations age and their pension systems are strained. Modern medicine has made great strides and is expected to continue doing so, but it has yet to enable 75-year-olds to be as productive as 35-year-olds.
Where’s the economic growth going to come from?
The irony is that our allocation of resources is getting out of whack in large part because of “population bomb” fears. Malthusians have long preached that the world’s growing population would sap the planet of resources. Societies have slowed their birth rates partly in response to such predictions, China’s one-child policy being the most dramatic example.
But it is more reasonable at this juncture to ask whether the problem isn’t that we will have too many people using up resources, but that we will have too few prime-age people working to produce innovations in the types of resources we use and the ways we use them. The trend for innovations in the energy sector, to name one example, is to make available resources more expensive in order to encourage the use of resources that are harder to harness. Working-age people stand to be ever-more burdened as they are asked to maintain old-age welfare systems built for a differently proportioned population.
In a way, the Occupy Wall Street crowd has cottoned onto this problem, with their emphasis on college debts (to the degree the OWS crowd can be said to have an emphasis, that is). But there’s no indication that they want to deal with this problem by making a college education cost less, only to make students less responsible for paying the cost of a college education. Nor is there any indication that they recognize the seriousness of the problem at the other end of the spectrum, that younger Americans will also be asked to pick up a larger and larger tab for their elders.
Speaking of Wall Street, it’s possible that the aging of the population will undermine equity markets’ ability to continue generating the wealth retirees need. If pensioners each consume less while, as a group, representing more of the population, it will be more difficult for companies to produce the profits needed to make investments in them pay off. That goes for private retirement accounts as well as public-sector pensions.
Absent a series of technological breakthroughs and/or a sudden, large uptick in birth rates, the growing-yet-aging population will be one of the political conundrums of the coming decades, here and abroad. And there is little evidence that elected officials and policy makers are prepared to deal with it.
– By Kyle Wingfield