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“Demography is destiny.” – Auguste Comte

Of all the “Killer De’s” I have discussed to date, no force will be as impactful and widespread as depopulation. Indeed, our shrinking populace is a primary driver behind the decoupling, deglobalization and deindustrialization I have commented on previously. 

Wait, I thought we had too many people on earth?

In contrast, to the dire prognostications in the 1960’s of a massively overpopulated and famine-stricken world, we now face a stark reversal in circumstances as we pivot from decades of dramatic global population growth to the sudden onset of precipitous population decline. 

In addition to the demographics trends of a rapidly aging baby boomer generational cohort, per the Economist, “nearly half of the world’s people live in countries with fertility rates below replacement level (2.1 children per woman).” 

In 1950 there was an average of 5 births per woman worldwide. Today it is 2.3 and the trendline is nosediving.

So, isn’t that a good thing? 

A smaller population is certainly a positive factor in the context of a finite planet with limited resources facing environmental stress. Slower population growth also means increased opportunity for groups who have been historically underrepresented in the economy such as women and minorities. It also exerts upward pressures on wages, especially for unskilled labor, and theoretically raises productivity on a per worker basis.

On the other hand….

The few upsides are dramatically outweighed by the long-term negative economic implications. Demographics is the engine that drives growth so, by definition, declining labor forces and aging populations will experience slower, and, in some cases, contracting economies.

The same statistical superpowers that deliver exponential growth also drive exponential shrinkage on the other side of the tipping point. 

Academics argue when exactly that time will arrive on a global scale, but there is no denying it is coming in the next few decades. Forty-six countries around the world, including major powers like Japan, Russia and China, now have shrinking populations. This number is projected to rise to 67 countries by 2040.

A few numbers to contemplate using China as a proxy:

• This month the National Bureau of Statistics announced China’s population fell by 850,000 in 2022 to ~1.4 Billion (the first decline in 60 years). 
• The UN projects that China’s population will fall to 1.3 Billion by 2050 and 767 Million by the end of the century. 
• Projections for 2040 show China’s working-age population falling by 114 million. 

So what are the takeaways and consequences we need to be aware of?

• If fewer workers enter the labor force in the wake of falling fertility rates, while more older workers leave the labor force via retirement, the workforce will shrink and GDP per capita will be reduced. 
• A scarcity of care workers is already stressing healthcare systems as baby boomers age. 
• The fiscal math just doesn’t work for large social programs like Social Security, Medicaid and Medicare that are dependent on funding paid for by taxes derived from future working-age adults (The size of the working age population in the US has been stagnant for the past 15 years and set to decline this decade).
• Maintaining adequate investment spending to achieve optimal employment gets tricky when a lack of workers disincentives building new factories, housing, infrastructure, etc. Economists refer to this circumstance as “secular stagnation.”
• The sustainability of our government debt load comes into serious question (and if you worry about the solvency of the US, avert your eyes from the grotesque capital structures in third world and emerging markets, especially now that Russia, China and Iran are no longer viable debt sources). 
• Fertility rates tend to be persistent and governmental schemes to reverse them are ineffectual, which means government fiscal, monetary and immigration policy will have to adapt accordingly.

It is important to reinforce the notion that the single best gauge of economic growth is growth in GDP per person, not total GDP. 

GDP per capita is a rough proxy for average living standards. In theory, a country can increase its average living standard even though its population growth is low or even negative.

So there is certainly hope to maintain our current lifestyles but, as in the previous missives I have written, there will be winners and losers in this new age.

A depopulating world characterized by slower growth, persistent inflation and a higher cost of capital will be a huge challenge for economic and social systems globally. Only countries with cohesive federal policies, effective immigration strategies and a commitment to invest heavily in technological advancements will be able to maintain and grow GDP per capita and avoid structural collapse and civil unrest.

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Brian’s Linkedin: https://www.linkedin.com/in/brian-c-adams/