The Coming Demographic Crash

How will the changing demographics affect things economically?

This is something many people are starting to ponder. Will things operate like they always have or will there be a change?

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What is not up for debate is that the population growth in 3 of the top 4 economies is likely topping. China, Japan, and Spain all face aging populations, a dilemma which nobody figured out a solution to. For China, this is the fastest aging population in the history of the world. How will it fare economically going forward?

Automation

One variable in all of this is automation. We are getting close to the point where major productivity gains can be realized through the implementation of AI and robots. This is going to be needed.

Many countries are facing the situation like Japan witnessed. Not only has their population flipped, meaning there are less workers to provide for the older people but also the total number of Japanese citizens declined. This is expected to last throughout the rest of this decade.

China, according to many, is seeing their population peak. There is nowhere for that country to go but down. The country stages the fastest urbanization move in history. What took the United States 7 generations was accomplished in 35 years in China. That country moved a greater number of people from rural to urban areas than exist in the entire United States.

This is causing a major problem as fertility rates are plummeting. Here is where major advancements in automation is required. Without it, China (and other countries) will find their economies crashing over time as the productivity decline takes hold.

Workers Are Consumers

The sweet spot for any nation is to have a thriving, young workforce. These people adds to benefits economically.

  • they are large scale producers, lifting economic output
  • they consume on a large scale

Any country that finds itself in this position is going to have a thriving economy for a number of decades. China was in this position but no more.

An older population does not produce. They are retired or only working part time. This means the overall output drops. That is offset by the fact that older people consume less. This means there is equilibrium in the economy. Nevertheless, there is a negative hit on the economic activity, driving everything further down.

Unfortunately, many of the developed countries find themselves in this situation. Their native fertility rates are far below replacement level. This means that their populations are to decline if things remain on course.

Solutions

Countries facing decline in economic output due to fertility issues have only a few options:

  • increase fertility rates
  • have people work longer
  • immigration
  • automate

The first thing are attempted across the world to varying degrees. Sadly, there are challenges with each.

Fertility rates are not easy to reverse. This is often tied to the shift to urban areas. Here kids become a major expense. Hence, young couples are apt to have less children since their cost of living is already high.

Working longer can be a solution yet it does cause issues. Older employees are less likely to change or embrace new ways of doing things. They tend not to be technically adept meaning they are outdated already. Finally, as the body ages, many jobs simply cannot be done any longer.

Immigration is a terrific solution for a generation. Bringing in newer people can instantly add to the population and lower the average age. The challenge arises when the next generation comes around. Studies reveal that immigrants end up with a fertility rate of the country they moved to, not that from where they came from. Hence, the burst is short-lived as their kids end up mirroring the native population.

This leaves automation, a topic really not discussed to much as it applies to this problem. Both China and Japan are doing their best to automate as much as they can. This certainly can keep productivity up which will alter the economics of a given area. It still does not answer the consumption question yet it can provide the goods and services people need (if it advances).

Expect to see a lot more discussions on this subject. The number of people in many parts of the world is in decline. There will be a migration of people as countries look to get more younger workers in. However, as the countries they come from advance economically, they will see their fertility rates drop also.


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Bang, I did it again... I just rehived your post!
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With your arguments on automation I find significant parallels with an article I am working on, but in the area of Economic History. I'll give you a hint on the article. The main subject is Adam Smith and "Wealth of Nations".

You'll be happy to know your suggestion of automation was advanced in 1776!

Great article Task! Enjoyed reading it.

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It is a topic that was discussed for centuries. Of course, the term "automation" meant different things during the previous eras. My view is automation is at such a degree now that we are going to upend society. The demographics would, historically, be tragic economically. However, I think we are on the verge of replacing a great deal of the productivity via automation.

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Or maybe we will learn to live on less with less doing less and let Mother heal with our lessness.

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The problem with this is are you going to give up most of what you have? Are your neighbors?

People talk about this while being on the Internet. Are you willing to toss your computers and smartphones away?

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Learning to live with less is is not the same as living without.

We don't have to give up most of what we have, we simply need to stop replacing it as often as we do.

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The number of people in many parts of the world is in decline. There will be a migration of people as countries look to get more younger workers in.

This seems like what's going on in Canada.

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Canada is another country (which I often overlook because they make little noise on the global scene) that is in collapse in terms of their population.

This is going to really impact that country in a couple decades.

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I do think its an issue. Immigration itself is nice but I think its only a bandaid on the actual situation. What do you think is the end result? Just less people as time goes on and with more people living longer due to technology?

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Just less people as time goes on and with more people living longer due to technology?

I would say that is a fair assessment. We will see technology impacting more areas of our lives, including life span.

Believe it or not, I have a feeling our "reproductions" will be digital in nature. Not all mind you but we are going to be creating a lot of digital "lives".

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This is part of the reason I am doing my own thing and going heavy on my personal investments because I really don't expect Social Security to still be around by the time that I am ready to receive it.

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Well I will say of all the major issues, Social Security is the easiest to fix. They can do that by just increasing the amount people pay in, delaying the onset of benefits (which they already did for my age bracket), and increasing the cap on which people have to pay.

The big one is how they handle Medicare. They best hope technology gets in there and drives down costs.

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I'd just as soon they give me the money and let me invest it myself. I am sure I couldn't do any worse than they are. Delaying is fine, but like you said, people just aren't working. If you delay it they have to not work even longer before getting the benefits.

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An Accounting professor of mine, a graduate student, mentioned one day that in China she never experienced racism because everybody is Chinese. It's a foreign concept to them. This anecdote touches on immigration. I think the USA has a built-in safety valve for population shrinkage, in that we are much more likely to take a large influx of immigrants than China. This mitigates the problem of a shrinking population, although it presents other problems in terms of integration. Most likely that population influx will largely be Latin American.

By that same token, access to cheap labor via immigration could also serve to delay the integration of automation and AI. They are inevitable. However, many employers will seek the path of least resistance, which will mostly be to throw labor at their production needs until the industry as a whole favors automation.

The worst thing that could happen is to have a large influx of immigration and have no work for them.

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China has similar views to Japan. That Japan's biggest problem, they did not take in too many immigrants. China was always ethnocentric, dating back hundreds of years. This is another way of saying they were full of themselves.

This time, on the global stage, it is going to hinder them. They have the oldest population and it will only get worse over the next couple decades.

Immigration can delay things a couple decades, hopefully enough time to work out other solutions. The US has that advantage. However, the birth rates in Latin America are declining also since they are starting to get more advanced.

This is a global problem. The growth centers are Africa and SE Asia and we will see how long they remain that way.

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