Simultaneous Elderly Overpopulation, Youth Depopulation And The Impact On Economic Growth

by: Christopher Hamilton

Strangely, the world is suffering from two seemingly opposite actions... overpopulation and depopulation in concert. The overpopulation is due to the increased longevity of elderly lifespans versus depopulation of young populations due to collapsing birthrates. The depopulation is among most under 25-year old populations (except Africa) and among many under 45-year old populations.

So, the old are living decades longer than a generation ago, but their adult children are having far fewer children. The economics of this is a complete game changer and is unlike any time previously in the history of mankind. None of the models ever accounted for a shrinking young population absent income, savings, or job opportunity, versus massive growth in the old with a vast majority reliant on government programs in their generally underfunded retirements (apart from a minority of retirees who are wildly "overfunded"). There are literally hundreds of reasons for the longer lifespans and lower birthrates... but that's for another day. This is simply a look at what is, and what is likely to be, absent a goal-seeked happy ending.

In a short, yet economically valid manner, every person is a unit of consumption. The greater the number of people and the greater the purchasing power, the greater the growth in consumption. So, if one wanted to gauge economic growth, (growth in consumption driving economic growth), multiply the annual change in population by purchasing power (wages, savings) per capita. Regarding wage growth, I hold wages flat, as from a consumption standpoint, wage growth is basically offset by inflation. Of course, there is another lever beyond this, which central banks are feverishly torqueing: substituting the lower interest rates of ZIRP and NIRP to boost consumption from a flagging base of population growth.

The Details

The chart below is total annual population growth broken down by OECD nations (33 wealthiest nations, representing 1.3 billion people, OECD members), BRIICS (Brazil, Russia, India, Indonesia, China, S. Africa, representing 3.4 billion people), and RoW (Rest of the World, representing about 3 billion people). Takeaways - 1) Total annual population growth peaked in 1988 and has been decelerating since falling 13%, and now down 12m/year from peak; 2) Growth has been shifting away from BRIICS to RoW.

Below, global annual total population change versus under-45 annual population change, broken down by OECD, BRIICS, and RoW. What should be clear is: 1) under-45 population growth has fallen by nearly 60% and is down 44m/year from peak growth; 2) all under-45 population growth (net) is among the poorer nations of the Rest of the World. Growth has shifted from rich to middle to poor nations and from young to old. Those with little income, savings, and/or access to credit can't consume much. Elderly on fixed incomes, declining vitality, and credit averse won't consume much. Clearly, the impact of the slowing and shifting population growth on slowing growth of consumption should be easily understood.

The chart below shows global annual population growth by GDP per capita. OECD nations given an average of $40k per capita, BRIICS $15k per capita, and RoW $8k per capita (below). Annual growth in consumption peaked in 1989 and has been falling since... of course, this is unadjusted for the big impact that credit has on increasing real consumption.

Global annual under-45 population growth by GDP per capita further broken down by growth among OECD, BRIICS, and RoW is shown in the chart below. The deceleration of global GDP per capita is entirely among the under-45 OECD and BRIICS, which have nearly entirely ceased. The only under-45 growth in consumption is among the decelerating RoW.

Below, 0-64 year/old annual global population growth versus 0-64 year/old population growth among combined OECD, China, Brazil, and Russia versus global debt growth. The surge in debt since 1988 coinciding with the collapse of growth among the wealth OECD and aspiring BRIICS (growth has fallen from 30m/year to 3m/year (90% decline), and growth among the RoW has entirely stalled since '88 at +55m/year. The central bank's response to take interest rates to ZIRP (and now NIRP) has been an attempt to maintain consumption growth against declining population growth. Only central bankers know what they'll do as under 65-year/old populations begin outright shrinking nearly everywhere but Africa.

A look at annual global populations, young versus old (below). The 0-5 year/old population has stalled, but nowhere near so for the 75+ year/old population. In 1950, there were ten "babes" for every 75+ year/old. By 2050, the two groups are estimated to be 1:1, but this estimate is likely to be far too optimistic if economic conditions continue deteriorating.

US 20-59 year/old annual population growth versus the Federal Reserves FFR (%) and US total debt is shown in the chart below. Federal Reserve actions have been and remain a simple (ultimately unwinnable) fight versus the decelerating growth among the core US population since the early 1980s. The great recession of 2008-'09 shouldn't be a shocker given the sharp 20-59 year/old population growth deceleration culminating in '07.

Below, Japan's 20-59 year/old annual population growth versus BOJ interest rates and Japanese federal debt. Japan's annual core population turned negative in '00 and interest rates hit ZIRP, and debt creation took off. Japan's plan to monetize likely well in excess of 100% and maybe ultimately 1,000% or 10,000% of GDP is a curious solution, which may lead to an eventual hiccup that leaves Japanese society in absolute chaos. If it were only Japan that had this plan... But alas, it is the same for all major central banks presently or eventually facing depopulation. (Debt in chart below is denominated in yen, not dollars).

Below, Germany's 20-59 year/old annual population change versus debt-to-GDP. Germany's 20-59 year/old population turned negative in '94, but the implementation of the euro and euro-wide market (with the Maastrich treaty in 1992 and implementation euro-area wide implementation in 1999) quintupled Germany's available export base under a now common currency (the 2nd chart below). The impact was a stay of execution for Germany, but a grinding, terminal cancer for the remainder of the euro area.

The chart below shows China's 20-59 year/old population change, Bank of China interest rates, and China total debt growth. Annual Chinese core population growth has collapsed since '08 by 90%, and will turn negative in 2018 and remain negative for decades thereafter. The insane Chinese debt ramp to offset the declining population growth has no possible means to resolve in any manner but catastrophe.

Conclusion

An economic and financial system premised on perpetual growth was bound to run into trouble (what do you do when you have taken a wrong turn? Apparently, just keep going!). The inevitable deceleration of population growth was the trigger that turned central bankers into pushers offering ever cheaper credit to drive rates of consumption higher, instead of more consumers maintaining consumption. What happens as population growth turns to population decline is honestly and literally a complete and total game changer. Currencies (what will constitute "money"), "free-markets", and perhaps the basis of civilization hang in the balance of the transition from high population growth to potential outright depopulation.

I believe this is the correct lens through which to view and understand why growth is perpetually weakening, why commodity overcapacity and slowing demand will only accelerate, why the Treasury market continues to see "buying" despite the near total absence of buyers (Treasury Mystery), and why precious metal valuations are so extremely suspect in the face of a monetary onslaught.

Thanks for reading, and glad to hear your thoughts, corrections, and/or disagreements.

***All population data is from OECD and all debt and interest rate data is from St. Louis FRED.