Is the US economy a vast pyramid game, dependent on an ever-increasing population to keep the wheels from coming off?
I know that Japan’s economy has suffered as it has experienced declining birth rates. (Has it suffered because of decling birth rates?) Meanwhile, in the US, declining birth rates have been offset (at least in part) by an increase in immigration.
If the US attained zero population growth, or a declining population, would the economy collapse as a result? Or is it possible to maintain a healthy economy with a shrinking population?
One serious problem is maintaining retirement lifestyles in the form that we have them. A declining population means a much older one, and in countries with declining populations the ratio of workers to retirees drops, making the same level of retirement benefits harder to pay for. So either the retirement age has to rise or retiree living standards have to drop, or both.
This is becoming an increasingly serious problem in countries with decreasing population growth such as Europe, and particularly in Eastern Europe which inherited generous pension systems from the Communist regimes.
Then why not cease the scheme of using workers to subsidize retirees? Why not let people invest for their own retirement? Or not? Whichever suits them?
I don’t think it’s necessarily all important that a country’s economic growth is tied directly to continued population growth. I do believe, however, that it is an important element in achieving a certain level of economic development.
If population were to remain stable over a relatively long period of time the economy could be expected to grow at reasonable rates if normal rates in productivity gains are maintained as well. In the case of population decline, if productivty gains were large enough to offset the loss in population, then the economy could theoretically continue to grow as well.
From my understanding, the US Census projects the US population to be over 500 million by 2100 (moderate estimates). This is partially due to a rate of natural increase (more births than deaths) a bit above replacement rate coupled with an unusually high (relative to other countries) net migration rate (more people moving in than leaving). So one should expect the US economy to continue to grow for the foreseeable future (although probably not necessarily at the same rate of growth as today).
Of course, the above estimate could change if birth rates continue to decline and we have a large drop off in immigration
IzzyR,
A declining population doesn’t necessarily imply an older population (although, to be far, that’s generally the case for the economically developed nations such as Japan and quite a few in Europe. It’s also becoming the case in the underdeveloped countries of the world as well).
IMHO, to offset the low replacement rates, (less than 2.0 births per women which, if maintained over a long period of time will result in a reduction in population), many European countries and Japan will seriously need to consider 1) increasing immigration rates, or 2) promote policies to increase the replacement above or near 2.0. A third possibility would be some kind of “productivity breakthrough” via some new technology, but I don’t foresee that being likely in the near future.
A really big problem that IzzyR touched upon is the demographic make-up of the developed counties. As the replacement rate falls below 2, there are fewer and fewer numbers of workers entering the workforce and a larger number of retirees/elderly to support. In the case of the US, it will most certainly mean that changes will need to be made to Social Security and other entitlements. Likewise for many countries in Europe and Japan.
And I should point out that a similar scenario is also taking place in the underdeveloped world (that is, the populations are getting older). Those countries are in a bigger bind because they don’t have the well established social safety nets/retirement systems in place to take care of the growing elderly populations.
Well if the reason for the decline is because everyone over 50 suddenly died of a heart attack it doesn’t. But as a practical matter a declining population means falling birthrate (& possibly emigration) which do imply an older population.
Paying pensions from the profits earned by an accumulated capital stock is not different from paying pensions from current contributions in that pensions are powered by current workers’ work.
That said, a capital-based pension scheme is different from a contributions-based pension scheme when looking at a particular country because in the contributions scheme current workers in that country must generate the wealth for paying the pensions, while in a capital-based scheme the wealth can be generated by workers in other countries with a higher proportion of young people -> lower cost of labour -> better return on capital.
Of course this advantage only applies while there are parts of the world where population has not yet peaked.
Let’s not look at this problem only from the perspective of retirees. Decreasing population could mean:
A real estate market crash…
A deflationary spiral, as supplies exceed demand, which could lead to…
Rampant unemployment as businesses collapse under crushing debt (trying to repay debt incurred in current dollars with future, deflated dollars)…
Which leads to massive unemployment…
Which compounds the pension problem…
Etc.
So is there any way to avoid these pitfalls? (Sorry, but self-financed retirement is hardly a cure for all the ills a declining population may cause.)
If there is no cure, then are we doomed to live through this scenario? I mean, isn’t there an upper limit on how much population may grow? (Regardless of how close to that upper limit you think we may be…)
Why not raise the retirement age at which people are eligible to receive social security? Back when the current age (65 mostly) was set, that wasn’t a whole lot lower than average life expectancy. If only the oldest x% of people were eligible for retirement benefits, the number of workers relative to subsidized retirees could be held constant, regardless of the age of the population. This is especially true as not only the population greying as a whole, but they are remaining healthier and able-bodied up until a later age. Maybe to partially offset the loss of an indeterminable number of idle years at the end of peoples’ lives, the government could instead fund an optional few years of 'hiatus" for people that are younger (e.g. 30s to 50s).
I suppose there’s an upper limit to how high population can grow if the population is limited to the Earth, although I would speculate that we’re ridiculously far from reaching that limit. As technology advances, it becomes possible to move people to previously inhospitable regions, and also to produce more food with less land (look at a modern day state-of-the-art farm, vs the vast “natural” farms of less developed nations that require comparatively vast amounts of acreage).
However, if we consider the possibility of expanding beyond this planet - colonies on the moon, terraforming Mars, etc - then there’s no real limit to how big our population can grow. Sure, I suppose that there’s a finite amount of matter in the universe, and thus a finite number of people that can be created and supported with that matter, but that number is so collosally huge as to be effectively infinite.
Jeff
I don’t really want to get into a debate over how many people we can squeeze onto the planet. As a practical matter, I think population levels will begin to decline long before we reach that point. Experience shows that birth rates tend to decline in developed nations.
I am assuming (reasonably, I think) that population will at some point level off, and may begin to decline. ASSUME a declining population, if that makes it easier for you.
This thread is about the economic problems created by declining populations and how (if at all) those problems might be addressed.
Hmm…let’s look at this a bit closer. Let’s start with the assumption that we know with reasonable certainty that the US population will decline. Some other assumptions are required in order to assess the issue realistically:
How fast is the population declining? Is it expected to be gradual? Or are people dropping like flies left and right?
Are other countries’ populations increasing or is population decline global in nature? If global, is the decline gradual or sudden?
If we know in advance that US population decline is expected to be gradual over, say 50 to 100 years, then that could give people plenty of time to allow the economy to shrink without too much undue stress. People could still reasonbly expect their standard of living to remain the same if productivity levels per person remain the same. It would be quite possible for the economy to grow (not from an absolute starting base - e.g. total GDP), but on a per person basis if productivity levels per person increases.
Something similar happened in the US in regards to our manufacturing “population.” At the turn of the century there were many more people employed in manufacturing as a percentage of the labor force. Today, there’s a smaller number employed in manufacturing as a percentage of the labor force, yet the economy has expanded greatly from our manufacturing heyday. That’s because the productivity levels of our factory workers have increased. The same can be said for our agricultural “population” - 200 years ago most people were farmers; today only a tiny fraction are. The agricultural population “declined”, yet American farmers produce more food (per person) than any other country in the world.
Problems would occur if along with a decline in population you have a corresponding decline in productivity levels. Likewise, if population decline were rather swift, then, of course, this would have dire consequences for the economy.
If maintaining productivity levels is problematic, then an option would be to foster population growth. I’m sure government and business’s could come up with lots of incentives for people to have more kids. If population decline is not global in nature (there are countires that still have high population growth), then another option would be to increase immigration.
