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The OTHER Economic Crisis
You know all about the subprime, alt-a, option arm, and commercial real estate crises.
You're well-aware of the house of cards built with credit default swaps, securitized assets and other exotic investments.
You've
heard about the massive debt overhang threatening individuals,
companies and the country as a whole, and the massive de-leveraging
which is still to occur.
You're aware of the soaring unemployment rate, the tapped out consumer, and many other economic problems.
But do you know about the demographic crisis?
What Demographic Crisis?
Franco Modigliani won the Nobel Prize in Economics 1985, partly for his "life cycle hypothesis",
which states that spending and savings patterns are predictable and
largely a function of age demographics. In other words, Modigliani's hypothesis is basically that age demographics largely determine the health and robustness of an economy.
Harry Dent and other financial advisors who have examined American demographics say that we're in big trouble.
Specifically,
they say that the basic health of any country's economy is largely
driven by the number of its citizens who are in their peak spending
years.
For example, the peak Japanese spending range has been
estimated to be comprised of 39-43 year olds. The more 39-43 year olds
Japan has at any given time, the more consumer spending there will be,
as these are the folks who are the big spenders in Japan. Dent argues
that the Japanese economy will tend to grow when the number of 39-43
year olds grows, and to shrink when it shrinks.
Dent says that
this principle applies to all countries, although the peak spending
years might vary slightly from country to country.
In the U.S., Dent says,
46-50 year olds are the biggest spenders, because that is when - on
average - they are paying for their kids' college, paying mortgage on
the biggest house they will own during their life, and making other
big-ticket purchases.
Claus Vogt agrees,
saying that - all other things being equal - the country with the
youngest population will experience the biggest growth in the future,
as it will have the highest percentage of productive people in the days
ahead (Modigliani's age categories are
somewhat different from Dent's and Vogt's, but - in general - people
are having children later than they were in 1985).
Whether or
not you believe Modigliani , Dent and Vogt, it should be obvious that
countries with a large percentage of elderly people and a small
proportion of productive workers will have less productive output and a larger demand for social services than those with a higher percentage of workers. It should also be obvious that this will tend to drag down the economy.
Which Countries Have the Most Favorable Demographics?
Which countries have the best demographics?
Let's
start by looking at the "age pyramid" for the United States. The
following 2 charts from the National Institutes of Health shows that
the population is aging:
This graphic (courtesy of Ed Stephan) shows the U.S. age pyramid from from 1950 through 2050:
male female 
Population of the United States, by Age and Sex,
1950-2050 (millions)information source: International Data Base, U.S. Census Bureau;
supplied pyramids were modified using Canvas, GraphicConverter and GIFBuilder.
[If you can't see the dates at the bottom of the pyramid, click here].
As NIH notes:
The
first of the postwar baby boom cohort, born 1946–1964, will turn 55
years in 2001. In just three decades, an extraordinary change in the
age structure of the United States is anticipated. By 2030, one in five
persons (20% of the U.S. population) will be aged 65 or older,
increasing from the present ratio of one in nine persons (12.8%). The
number of persons in the 65 and older age group will more than double,
increasing from the current 34 million persons to 70 million persons.
Moreover, within the older segment of the population, because of longer
life expectancy and additional persons reaching older ages, there will
be age shifts resulting in the 85 and older population more than
doubling in size from 4.3 million persons to approximately 8.9 million
persons.
An aging U.S. population means less productive workers, less big-spending consumers, and more dependent elders.
Here's China:
As Reuters points out, China will have an aging population in the future, but not for some time:
China's working-age population will peak in 2015 and plunge by 23 percent by 2050.
Brazil has a much younger age demographic.
And India's is even younger than Brazil's.
The following chart
shows that Japan has the worst demographics of all, with a staggering
percentage of elderly who need to be taken care of by the young:
Chart 2: Old Age Dependency Ratios for Selected Countries
![clip_image002[5]](http://www.creditwritedowns.com/wp-content/uploads/2009/10/clip_image0025.gif "clip_image002[5]")
Source: http://data.un.org/
And this chart shows that - as a whole - emerging markets have a higher percentage of working age population:
Chart 3: Working-Age Population as % of Total Population
![clip_image002[7]](http://www.creditwritedowns.com/wp-content/uploads/2009/10/clip_image0027.gif "clip_image002[7]")
Source: http://data.un.org/
You can find some interesting charts showing age pyramids for multi-country regions here. You can search for other countries or regions, as well.
What Does It Mean?
What does all this mean?
Well,
initially, it means that - in addition to everything else they have
going for them - 2 of the BRIC countries (Brazil and India) have much
more favorable demographics than the United States. So they are at a
competitive advantage to America for demographic reasons in addition to
the other reasons that people write about.
Indeed, as Richard Jackson told the White House Conference on Aging in 2005:
If demography is destiny, global leadership may pass to the “Third” world... Countries with slowly growing workforces may have slowly growing economies... We live in an era defined by many challenges, from global warming to global terrorism. None is as certain as global aging. And none is likely to have such a large and enduring effect on the shape of national economies and the world order. Moreover, Dent and another of the main writers focusing on the economic effect of age demographers - Daniel Arnold - say that America's aging demographics point to a major depression.
As Arnold writes:
2008 was the victim of a self inflicted sub-prime financial crisis. This has nothing to do with the demographics based
massive depression that is yet to come, as described in the book. The
sub-prime consequences are however very similar though mild so far
compared to what is coming our way. The book clearly spelled out that
along the way unpredictable short-term (1 to 3 years) disruptive events
could happen. The sub-prime crisis is just that. It should be regarded
as the “warmer upper” or “hors d'oeuvre” for the big one that is now
rapidly closing in on us all.
I hope that he's wrong.
»
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Dent's works is based on a number of historical cycles that have been repeating over time. It's not a matter of too much gloom to believe--it's just cycles as they occur--you can research it yourself. If you are aware, then you can prepare and invest accordingly.
The clear, but depressing corollary to Modigliani's assertion is that the greatest growth is experienced after the war, when all the young and gullible have been slaughtered, and new facsimiles are being busily produced.
Charles Rivers Associates found a similar demographic pattern in 1988 that linked demographics to the housing market.
It found that the number of 25 - 44 year-olds at any given moment drove the price of residential real estate more than any other independent variable, including interest rates.
This age group finally passed through in 2007 - 2008. The bubble burst on time, notwithstanding all the efforts in the early years of the century to prolong the real estate boom with new construction, particularly Sun Belt condominiums.
The effort to privatize Social Security is a function of demographics, too. Retirees desire fixed income and abhor volatile investments, in general, because income is unstable. Volatility requires buying and selling. Brokerage housing win with buying and selling. They lose when investors stand pat.
Buying and selling drop off amongst retirees. The Baby Boomers are hitting retirement now, with the 1946 and 1947 babies at ages 63 and 62 respectively. The best way to keep Wall Street happy and rich with buying and selling is the privatization of the biggest pile of retirees' money available -- Social Security assts.
Healthcare etfs for developed nations? But other countries aren't quite like the us.
As the chart of various nations shows, this demographic crisis is clearly a function of the endemic 1st World contraceptive culture. In order to have an easier, more comfortable life NOW, many people have turned to contraceptives (and abortion) to prevent the disruptions that additional children cause. The number of abortions alone over the last 35 years in the USA is 50,000,000+ and I would wager that contraceptives have kept another 100 million from being born. Collectively, we have chosen this path, which is clearly leading to the death of many nations in the West. The only other option is to import peoples from elsewhere; in this case, the country doesn't die, it merely morphs into another culture, language, race, mindset, etc. Oh well.
Who writes your report, and where did they go to school?
you say,"less productive workers" and, "less big spending consumers"
if you can count something, (workers, consumers) it is
FEWER workers, fewer consumers !!!
You learn that in High School
Speak ENGLISH !! Richard Wagner
Harry Dent is the researcher/writer and he went to Harvard. If you haven't seen his work, it will open your eyes.
I would have paid for this content. Great work GW!
I once read somewhere that to find a historical equivalent of the boomer retirement (percentage of workforce going from working/producing to non-working/non-producing over a period of say five years) you have to go all the way back to the bubonic plague.
Please if the US was really in demographic trouble we could offer an extra 500,000 citizenships with no more than 50,000 from any one nation to 18-30 year olds willing to stipulate to learning english within three years and not sufferign from any chronic disease.
The 500,000 would be full in I would say, three weeks.
This is temporary (for Brazil at least). For the first time in a long time the number of kids beginning kindergarten dropped and the Minister for Education said the reason was the demographics here are changing. We have many 10-17 years old, but not many 0-5 years old.
Mark Stein's America Alone highlights this problem
Why do we continue to regard 65 as some magic immutable number beyond which people cannot serve as productive members (like working) of society? It's like advances in medical sciences and shifts in labor composition are meaningless.
Does he have a son named Harvey by any chance?
China, India? Two countries that have issues feeding themselves? One with incredible social tensions, another with an islamic fundamentalist state on it's border armed with nuclear weapons and plauged by a faulty government?
America is FAR from perfect, but if you really believe in China and India on a long term basis then sold to you!
harry dent, though, i believe was also forcasting dow going to infinity a couple years ago, based on these same demographics.
2006: http://www.amazon.com/Next-Great-Bubble-Boom-2006-2010/dp/B000W3U9CY/ref...
now/2009: http://www.amazon.com/Great-Depression-Ahead-Following-Greatest/dp/14165...
the sum of the two = highly believable.
Your critique of Dent is well-placed. However, look here:
Franco Modigliani won the Nobel Prize in Economics 1985, partly for his "life cycle hypothesis", which states that spending and savings patterns are predictable and largely a function of age demographics. In other words, Modigliani's hypothesis is basically that age demographics largely determine the hea.lth and robustness of an economy.
In fact, I'm not sure Dent gave Modigliani credit, but it is obvious that is where he got the idea.
This also presumes that in our deflationary nightmare, somehow the world's best healthcare system (I mean in effectiveness and not efficiency) will continue at full pace and the elderly will be well managed.
What happens if we continue with our same infrastructure, but the average age dips? If the babyboomers start lining up the graves earlier than the models predict? What if we undergo a controlled nationalist policy of population expansion through tax incentives to even out the curve/spike?
I think the demographic data should be viewed much more specifically... for example, what the hell do you think is going to happen to the housing market as a result of the demographics? And I don't mean 20 years from now, I mean now. What happens to the job market when Johnny 65 year old is now going to be competing for many positions w/ Joey know it all 16 year old? How does this affect education?
You forgot the other part.
What is Joey 20-25 year old going to want to be paid be the waiter in the restaurant where Johnny 70-75 year old wants to eat his "senior discount" dinners.
Or even more, what is Joey 30-35 year old going to DEMAND he be paid in order to clean the bedpans and wipe Johnny 80-85 year-old's backside in the nursing home?
And in the end, Joey may simply decide not to bother with either of them because while the pay will be huge, he will also be taxed at 90% -- so why bother -- it's easier to dumpster dive and "house-squat" in the vacation-home that Janey 87 year old has left "sitting empty" in Arizona (because you can't sell NOW... not with prices this low).
I guarantee you one thing -- the future decades are going to be "weird" times to live thru.
The Scientist will be the first to say that nothing can grow exponentially forever.
The Economists' goal is to show how economic growth (and subsequent population growth and consumption growth)can best grow forever.
Who will be right in the long run?
Hint: what happens to a bacteria colony in a petri dish over time?
Depends on if we open our system. We could grow wheat on the moon and have it catapulted down by prisoners. Or something like that.
The China love affair continues. What a joke. Once their reserves run dry on stimulus and malinvestment, deflating global trade will crush any hopes of superpower status.
http://www.amazon.com/America-Alone-End-World-Know/dp/0895260786
Don't forget the Muslim demo. I know it's not top-of-mind these days but it's still simmering.
"Don't forget the Muslim demo."
Here's your muslim demo -
http://www.youtube.com/watch?v=6-3X5hIFXYU
Check out the demo trends here:
https://www.cia.gov/library/publications/the-world-factbook/geos/fr.html
Quote: "Little more than a collection of fabrications and misleading statistics driven by a phobia for Islam and Muslims, the new anti-semitism of our age.
Transforming it into wishful thinking on our part is neither rational nor wise for numerous reasons.
For example, if we assume everything is true, the question remains, when was the last time populations have taken over anything?
How about the genocidal death-rate amongst Muslims worldwide?
How about social classes worldwide as well as in the West?
How about the effects of such propaganda on both birth- and death-rates?
What about trends such as assimilation, secularisation, modernisation and so on? And this is assuming the accuracy of such figures to begin with, and there is no reason to do that either.
Moreover, it is not true whatsoever.
For example, the film claims that 25% of the population in Belgium are Muslims.
This is nonsense, only 6% of Belgium is Muslim which is about 700.000 people. It is claimed that 50% of its newborns are Muslims, and this is ridiculous.
The same is claimed for Holland, which is also ridiculous. About 6% of Holland is Muslim which is about 900.000 people, while the birthrate in Holland is 1.05 which means that about 175.000 children are born. That would mean the Muslim birthrate has to be about 9 in order to count half of all newborns as Muslims.
In reality, it averages a little below 3.
Sure, Muslims may even have three times as many kids as non-Muslims, the fact remains that they do so as a small percentage of the population. But there's no reason to go there even as it is clear what purpose this propaganda has, and how it has been used - both historically and contemporary - by fascist politicians.
We should think twice before responding emotionally and facilitating the spreading of such material. It needs the exact opposite treatment."
read somewhere that Vietnam has the youngest (most economically favorable) demographics of them all.
wouldn't that be ironic?
the baby boomer retirement plan long equities trade was the most crowded trade in the history of mankind. we can't all be winners.
Underlying this article is a capitalist presupposition that growth is required for economic success. In another world view, it might be possible for US citizens to live modest lifestyles with sustainable industry.
Capitalists know that more people are good for growth and wealth. Socialists see more people as a burden on the state.
Why the assumed conflict between growth and sustainability?
Why the assumed incompatability of growth and modest lifestyles?
A lack of growth = growing hardship. We have lots of hardship now, and more peoples join our planet everyday.
While I agree that we should dial it back to a sustainable economy, growth is, unfortunately, necessary for two reasons: without growth, nobody can achieve any more than they already have. Everything would remain more or less static because there is no capacity in a no-growth economy for more pieces of pie. It would be as though the economy was a closed-end mutual fund with a finite number of shares. You couldn't get more shares unless somebody gave you their shares (there would be no additional capacity to buy them out). Also, without growth, where does the money come from to pay compound interest? Arithmetic growth and exponential compounding are a poor combination.
While growth is necessary, there is an upper limit to growth. We may very well be coming close to the upper bound of sustainable growth and hence the weird turns in the economy in the past few years. The catch-22 is that, while we need growth, we cannot sustain any more (peak oil, peak resources, etc), and so we may very well see diminished standards of living in the near future.
Anon92682, ++++1000
We have been sucked in by the capitalistic thinking that permeates our culture, not just the economy or finance sector.
This kind of thinking posits that a life that does not continuously "produce" more and more improved products is not valuable.
Growth does not equal prosperity. Both are the products of surplus energy, resources and existing sources of wealth. A growing population does not garuntee higher standards of living. Quite the opposite, they the trade offs countries must face once the era of cheap and readily availible energy ends (assuming like you say sustainable, renewable sources doesn't fill the gap).
Your use of the word "surplus" is undefined and not meaningful. And you fail to mention increases in productivity, which may be the most important generator of wealth. As for the end of the era of cheap energy, you state this as if it is a well-known fact. I assume you refuse to acknowledge the existence of nuclear power?
This is why Bush, the RINO's, and the DemocRATS never cared about illegal aliens...most of them are in their teens and 20's so they help this demographic. Entire villages are being stripped of their young men in Mexico to go Norte. If we legalize them how does this help these charts?
bingo
Also see John Maudlin published the Niels Jensen view about global demographics on Oct 6th in his regular Outside the Box E-Letter, some charts in that article make the comparisons very clearly. Search for "A Country for Old Men and a Bit of Samba", first few paras are not indicative of rest of article.
from "HowLongDoesItTakeForZHtoApproveNewAccountRequest"?
Nothing here that massive immigration from Iraq and Afghanistan can't solve.
We can import the demographics of nations even "younger" than BRIC.
Next crisis?
No doom and gloom here!
No doom and gloom here - unless you expect to live for a few more years.