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Potentially the Biggest Story of the Next Five Decades

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What could be the biggest economic story of the next half century?

Demographics.

The entire developed world is aging. Most countries enjoyed a baby boom in the decade after World War II, creating a demographic bulge that is now entering retirement. That shift means a lower percentage of populations are of prime working age -- the group that drives economic growth by spending, saving, investing, and being eager to innovate and get ahead. It's hard for any economy, no matter how resourceful, to get ahead when its population is aging. This has been a key force behind Japan's relative economic decline.

Besides lower growth, a big way demography can have an impact on the economy is through higher deficits. Such entitlements as Social Security and Medicare will take up a growing share of tax revenue unless big changes are made -- and very few voters will be happy with those changes.

Two weeks ago, I sat down with Robert Arnott, CEO of Research Affiliates and one of the brightest investment minds in the world. Here's what he had to say about demographics:

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  • Report this Comment On December 29, 2012, at 3:27 PM, Morgana wrote:

    Please define your use of the word "entitlement." If you mean that people pay into a fund and are entitled to the money they earned, well, yes, you can use entitlement. So, medical and car insurance payments are entitlements?

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Morgan Housel
TMFHousel

Economics and finance columnist for Fool.com. Analyst, Motley Fool One.
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