The 500 Lb. Gorilla Raging Through the World: Demographics

Robb Smith Article, On Your Radar, Perspectives

It’s easy to offhandedly acknowledge that the Baby Boom generation is aging and our demographics are changing. But most people don’t truly understand the magnitude of the change we’re going through: the greying of the north–countries are “greying” throughout the northern hemisphere, far less so in the southern hemisphere–will impact everything from retirement to economic growth, from education to healthcare.

Take the United States as an example. In 1970 there were 3.2 workers supporting a single retiree in the U.S. Social Security system. That number is 2.8 today and is projected to move to 2.1 by 2040. Think about that: if you held everything else the same, there will be almost over a third less support for each retiree in the system. The solutions, and there are many available, range from raising retirement ages, decreasing benefits to raising tax rates (and most likely some combination of these).

But demographics doesn’t just impact retirement funding. It also impacts economic growth, with population growth being one of the two main drivers for overall economic growth. A greying population produces a slowing economy, all things being equal. That’s less money for education, social services, and common defense. Which may be why, as the New York Times reports, Russia is giving away land to families who will have more babies. It’s also more spending on healthcare. In the same report they cite the work of economist Nicholas Eberstadt who calculates that half of the increase in public debt over the past twenty years is attributable to aging population costs, and is set to increase.

One solution to demographics is immigration. But we live in a world where the same sluggish economic growth fostered by a greying population is also driving a populist backlash against immigration policies that could counter the demographics trap and improve domestic economic conditions.

On Your Radar:

Expect to see continuing tension as the northern hemisphere’s governments, economies and populations adjust to a gradual but steadily aging reality that may pit young against old, citizens against immigrants, and discretionary spending against aging population spending.

Available below is an adjustable data visualization for Europe. Adjust the year of analysis and retirement ages to see how the population shifts and worker:retiree support ratio changes.