The Bent Curve of Demographics
How often have you heard, “Nothing moves in a straight line?” This is a common statement from market pundits, teachers and parents. But when it comes to talking about populations, the assumption has always been that we move in a straight line… up.
This is not our view. It never has been. We’ve pointed out time and again that populations move in waves. Through the ’50s, ’60s and early ’70s, the world was on a wave up. Since then we’ve been on the down side of the wave.
Unfortunately, most people only remember and talk about the “Population Time Bomb,” as penned by Paul Erlich, or other tomes that discuss the Malthusian idea of too many mouths to feed.
Here’s a new one for you: the most populated country on the planet – China – is on the verge of a population decline. It will follow the footsteps of Japan and most of Western Europe. It, and many other countries, has chosen to bend the demographic curve.
In the process, they’ll all bend their economics… and not in a good way…
Japan is the best example of what happens when you bend the demographic curve. The country experienced a meteoric rise in the ’60s and ’70s, and then went supernova in the 1980s.
Its fall from grace in the 1990s and 2000s is well documented. What is not discussed often enough is the country’s lack of families and the role that plays in its continued economic woes.
In Japan, the birthrate among women of child-bearing age is roughly 1.28. This means each woman has, on average, just over one child. That child might replace her, but it doesn’t replace her husband. So Japan’s population is declining.
The last estimate I saw was that 1/3rd of the Japanese population will simply disappear by 2050 because a quarter of the population is older than 65 and the young are not having kids. This is going on in what was the second largest economy on the planet, a status that China has now taken over as Japan has suffered not one but two lost decades.
But here’s the kicker – China is also set for a population bust, one it brought on itself with the force of law.
China Cut off its Nose to Spite its Face
Back in the early ’80s China was in a sad state. The country needed to modernize, but it was mired in a baby boom that left it scrambling to simply feed its population, much less educate them and grow productivity. So, the government implemented its infamous one-child policy that limits urban families to one child and rural families to two children.
In the ensuing decades, China has reduced its population burden by 400 billion people. Of course, at the same time, the country has urbanized and industrialized, so now families are used to being small.
Now China is facing the reality that its population is set to fall – fall – in the years ahead. If China’s birth rate picks up from its anemic 1.58 children per woman of child-bearing age to 2.1 (the replacement rate), it might, just might, have a small decline in population by 2050.
But if China sees no increase in child births, which is much more likely, then it is possible this country of 1.3 billion could see a decline of 300 million people in the next 50 years. This is the same as losing the entire population of the U.S.
The problem with China is that the country is growing old – fewer children are being born and the current population is aging – before it grows rich. There is not a large pot of gold at the end of a retirement rainbow just waiting to pay benefits to all of the retiring Chinese. There are not enough young workers to pay taxes at a rate that would support those retiring.
What’s a government to do? This is where things get dicey.
While the bending of the demographic curve might be great for the planet, it will mean serious adjustments for those looking to receive benefits in shrinking countries.
For now, Obama may wish he was presiding over the Chinese economy, but 50 years from now, he’ll be glad he won’t need to rely on the central government to determine his quality of life or help fund his retirement.
That makes two of us.
P.S. Do you notice the trend in motion around the globe? More and more we’re seeing the poorly-considered plan of implementing some form of social security – where the tax payers support the benefit payments of retirees – barreling straight towards disaster. Do yourself a favor. Regardless of your location or age, do NOT place your retirement plans at the mercy of government. Instead, take steps today to create the retirement of your dreams. Harry and I have detailed all the steps you need to take to prepare and prosper. Start now. Start here.