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When ever-decreasing demand stops

Changing population patterns are creating a threat to growth
January 17, 2019

Where have all the young men gone? They haven’t gone for soldiers and what not as the folk song goes. Mercifully, we haven’t had a global war since the late 1940s, although we’ve had plenty of skirmishes along the way, usually tarted up as great battles by politicians of the time. The Unites States’ record – Korea, Vietnam, Somalia, Iran, Iraq, Afghanistan, Syria...is especially dispiriting considering the amount of men and money spent.

Again this month, in my quest to untangle the threads and understand the consequences of demographic changes over the last 30 years or so, I’m thinking of employment, underemployment, the hollowing out of the middle class, and the phenomenal wealth of the 1 per cent. Was it always thus?

First port of call is usually finger pointing at the inexorable growth of the human population – blaming it on hunger, climate change, and a host of other problems. Yes – and no. The world today, at a cost to the ecology, produces twice as much food as we need. Storage and distribution is woefully inadequate, and probably too much land and resources are given over to livestock. Although the number of people continues to rise, the rate of acceleration has dropped very significantly, and is actually declining in some countries.

This sends economists into a tizzy, because their models all depend on ever increasing demand. More debt, more stuff, more growth. Stop the boat, I want to get off now! What about quality of life? Here is where I worry very seriously. In some areas, such as art and music, we are at ease with exceptionalism and quality over quantity; let’s extend this idea to more areas.

 

Sausage-factory-style higher education has meant millennials are putting marriage and children on hold, almost halving the natural increase of the US population since 2001, from 1.9m, so that total population growth, at 0.62 per cent (as calculated by the Brookings Institution) is the lowest since 1937 – the Great Depression. In 2018 Japan recorded the fewest births since records began in 1899, deaths a post-war record of 1.369m, thus losing almost half a million people that year – and the ninth consecutive year of annual declines. Go figure!

 

These statistics explain very low unemployment rates in some countries – such as Britain and the US where registered unemployed stand at about 4 per cent. So if things are fine and dandy, why has the recent US Federal government shut down meant that 38m Americans went without food stamps? Over half of US children live in homes receiving state aid and half the total population receives more in government aid than they pay in taxes.

 

The hidden problem is that America’s workforce participation rate is rather low at 63 per cent, from a peak at 67.3 per cent in 2000, with only South Africa and Turkey of the OECD holding lower percentages. UK participation for 16 to 64 year-olds is a record 78.5 per cent – and Iceland’s is an astonishing 88.3 per cent. In 2017 US opioid deaths (mainly synthetic) killed over 70 thousand men aged 25 to 44, taking this century’s tally to over 700,000 – more than were killed in the Vietnam War.

 

Ageing populations and lots of old ladies also explain huge pension deficits in company schemes – and the dramatic shift to defined contribution schemes where perhaps too much of the onus is now on the employee. Evidence of these secular trends can be seen in the four charts accompanying this piece.