While the stock market shows a steady long-term rise it sure looks like we are about ready for a decline back to the trend line. Note that it can take a decade or more to return to the levels when the regression began.
Here is the disturbing demographic trend. This looks at the ratio of dependents to the productive workforce, the dependency ratio, which these days is mainly being driven by the elderly.
We are entering the era of deteriorating age demographics. For the next 50 years, without an increase in immigration the productive work force will have to support a rapidly increasing number of elderly. I’m guessing this will mean less money will be put in stocks as more is spent supporting aging family members.
For comparison here is US vs China dependency ratios, historical and projected. US is older, but China is projected to rapidly catch up. November 2014 – populyst
China’s dependency ratio begins rising about 2010. Coincidentally (maybe), that is about when China began its economic slowdown, well before Covid. My non-expert, totally naive guess is that China will not be able to support GDP growth above 2-3% from here on out and that a Japan-like stagnation is probably the best case scenario. https://www.weforum.org/stories/2015/10/4-things-to-know-about-chinas-growth-slowdown/
A case can be made that demographics is driving the economic ship. If so, then keeping America White by restricting immigration may not be a good economic strategy.
An easier case is the law of large numbers. Where the US used to notch 5% growth rates multiple times in the 60’s, even with worldwide domination of the internet and chips (until recently) we haven’t done it recently, save one quarter when the pandemic checks hit.
While demographics can certainly play a part, I believe you overestimate what the effect may be going forward. Japan, which you often cite, has had a more-or-less moribund economy since the 90’s, yet the birth trends only began showing up a couple of years ago.
Yes, they face an even more uphill climb now, but that can hardly explain the flat economy for the past 20 years. I’m guessing if I looked around a bit I could find several countries where the population has exploded, but where the economy hasn’t. There’s more to it that this simplistic explanation (although I reiterate, it is one input that can’t be entirely dismissed.)
What matters is how the birth trends impact the dependency ratio, in particular the ratio of elder dependents to workers. Money spent on young dependents can be seen as an investment for higher future productivity. Money spent on the old, not so much.
Japan’s (blue line) growth in the elder dependency ratio began to accelerate in the 1990s and passed the US during that decade. Japan’s Lost Decades of stagnant GDP/capita also coincidentally began in the 1990s. China’s elder dependency ratio began accelerating in the later 2010s and is now about where Japan’s was when Japan’s economy stagnated. China’s economic growth rate has been rapidly declining since about 2010.
There are several reasons why a country with good age demographics might have a poor economy. War, pestilence, climate, unequal tech (e.g., Europe subjugating Africa) to name a few. But it takes something at that level of significance to counter the benefits of a young population.
On the other hand, I think it is very difficult for a country with poor age demographics to have a consistently growing economy. That would require most wealth being generated independent of the human workforce. Perhaps OPEC countries approach that.
My bad. I didn’t mean to say global average. The 3.3% is the total global GDP growth so it is weighted toward the bigger economies. In any case, there is a plethora of research demonstrating the inverse correlation between aging and the dependency ratio and economic growth.
An aging population puts budgetary pressure on society as a whole because the number of workers declines relative to the number of consumers…This means that by 2050, unless the labor supply increases, consumption must drop by 25 percent in China, 9 percent in the United States, and 13 percent in other high-income countries. https://www.imf.org/external/pubs/ft/fandd/2017/03/lee.htm
From the Fed reserve board on Japan, Germany, and USA.
We find that demographic changes account for a significant portion of the downward trend in economic growth of these countries during the past decade, including in Japan and the United States. Moreover, the continuation of the shift toward an older population is likely to be an important factor dampening GDP growth in OECD economies over the next couple of decades.FRB: IFDP Notes: The Effects of Demographic Change on GDP Growth in OECD Economies
No doubt that some countries do better with an aging demographic than others. But I don’t believe any country does well without applying something like immigration to reverse the aging trend.
The scary part is that IMO, the country most capable of dealing with an aging demographic is/was Japan. Highly educated, technologically advanced, homogeneous culture (very stable), low health care costs, strong safety net for the elderly, and the achievement of high per capita wealth before the age-induce stagnation began. Plus, at the time Japan was the world leader in the automotive, automation, and electronics industries, with close cooperation between industry and government.
Yet Japan has had a pretty lackluster couple of decades. The one thing Japan was not good at was immigration. That suggests that immigration may be the most effective mitigation tool against a rising dependency ratio.
