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3 Countries With Awful Demographics

"In 1979, the world's fertility rate was 6.0," writes Jonathan Last in his book What to Expect When No One's Expecting. "Today, it's 2.52."

In some ways, this represents amazing progress. As societies get richer, they have fewer children. One reason is that richer parents don't need armies of children to look after them in old age, partly because better health means not having to have five kids to ensure two make it into adulthood, and partly because richer societies value expensive things like education that parents can't afford to provide for large numbers of children. "Modernity essentially transforms children from capital goods that produce family income into consumption items to be enjoyed for their own sakes," writes Ronald Bailey.

But the preference for fewer kids can backfire. Net of immigration, once the birthrate falls below two per woman, a population begins a path to decline, and few things are as terrifying from the view of an economist. "There is no precedent in human history for economic growth on declining human capital," writes Mark Steyn. Japan's population declined 0.22% last year, and the country allegedly now sells more adult diapers than children's diapers. This is not unrelated to the country's economic misery.

America's demographic situation isn't nearly as dire, but it's not good, either. Take a look at the population counter to the left. We are a growing nation -- but slowly. Very, very slowly. Our birth rate per 1,000 people has fallen from 30 in 1910 to 25 in 1952 to 13.8 in 2009. Combine fewer births with longer life expectancy, and you get a nasty trend where a growing share of the population is supported in retirement by a dwindling share of workers.

This year, 66.1% of the U.S. population is of working age (15-64), while about 14% is age 65 or older. By the next decade, that will shift to 63% and 17%, respectively, according to estimates by the Census Bureau. The graying of society continues from there: 

Source: Census Bureau.

If these projections pan out, it may prove much harder to grow the economy over the coming century than it was in the past century. It will strain retirement systems, alter the preferences of voters, shrink the supply of entrepreneurs, and raise the demand for health care. Few economic trends have the potential to change virtually every inch of the economy. Demographics are one of them.  

But America's demographic problems pale in relation to those of other countries. Take our aging friend Japan:

Source: Census Bureau.

This is what a true demographic disaster looks like. Last writes:

In 2008, the [population] decline began. By 2011 Japan had already lost a million people. These losses will accelerate. Between now and 2025, the country's population will drop another 6 million. If Japanese fertility were to somehow rebound (the United Nations assumes that all industrial nations will rise to 2.0), Japan will "only" lose 30 percent of its population by 2100. If Japan's fertility stays where it is, the country will contract by more than half -- to 56.8 million -- by the end of the century.

Or take poor South Korea:

Source: Census Bureau.

What's shocking here is the rate of increase in the 65-plus share of the population. Between now and 2050, the share of America's elderly ranks will rise by less than 50%, while South Korea will see its elderly population nearly triple as a share of its total population. If Social Security faced a similar demographic headwind, it would not be a little underfunded. It would be ruined.

Now take a look at China:

Source: Census Bureau.

Here's Last again:

By 2050 the age structure in China will be such that there are only two workers to support each retiree. Because the extended family has been dismantled and there is no pension system, the government will be forced to either (1) substantially cut spending in such areas as defense and public works in order to shift resources to care for the elderly; or (2) impose radically higher tax burdens on younger workers. The first option risks China's international and military ambitions; the second risks revolution.

China has actually already thought of a third option. "From July 1, parents in China can sue their kids who don't visit often enough, under a broadened law mandating children take better care of the aged," writes Bloomberg.

Demographics, like everything else in the economy, are hard to predict. Few saw the baby boom coming, after all. We may be missing another demographic shift that renders these projections useless. And lower population growth may be offset by higher productivity growth. Fewer people, but more innovative, resourceful people, can keep an economy humming.

But the current state of demographics, entitlements, and economic growth isn't sustainable -- throughout the developed world. Something will have to give. 

Read/Post Comments (2) | Recommend This Article (11)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 30, 2013, at 7:20 AM, ashwindollar wrote:

    What this looks like is that most of the economic progress we lost to China and South Korea is coming back to the US, some of it going to India.

    While fixing social security is easy (we don't lack solutions, but political will), demographics as bad as these three countries, combined with a culture against risk taking, and governments which basically build their big companies are terrible for future growth.

  • Report this Comment On October 02, 2013, at 11:20 PM, johnluma wrote:

    Obviously the answer is to send US troops into more foreign wars and make sure we exclusively draft the 50-plus gray hairs like me to wade into the slaughter for Amurica. Since we supposedly can't remember where we put our teeth, much less our adult Depends, we will die on foreign soil in unlimited numbers! And if the Guvment will sweeten this AARP-sponsored military draft by offering "bed-down" privileges with patriotic young hotties during our training, we oldies can father millions of young demos in only a few weeks!... All the horrific consequences of the graying of Amerca -- solved!... Now, uh, where's my rug??

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