China has reported that its population is declining. Given the number of souls there, that may strike some people as a step in the right direction. But, Paul Krugman writes, a declining population presents a nation with two big problems:
The first problem is that a declining population is also an aging population — and in every society I can think of we depend on younger people to support older people. In the United States the three big social programs are Social Security, Medicare and Medicaid; the first two are explicitly targeted at seniors, and even the third spends most of its money on older Americans and the disabled.
In each case, the funding for these programs ultimately depends on taxes paid by working-age adults, and concerns about America’s long-term fiscal future arise largely from a rising old-age dependency ratio — that is, a rising ratio of seniors to those of working age.
The other problem is subtler but also serious. To maintain full employment, a society must keep overall spending high enough to keep up with the economy’s productive capacity. You might think that a shrinking population, which reduces capacity, would make this task easier. But a falling population — especially a falling working-age population — tends to reduce some important kinds of spending, especially investment spending. After all, if the number of workers is declining, there’s less need to build new factories, office buildings and so on; if the number of families is declining, there’s not much need to build new housing.
The result is that a society with a declining working-age population tends, other things equal, to experience persistent economic weakness. Japan illustrates the point: Its working-age population peaked in the mid-1990s, and the country has struggled with deflation ever since, despite decades of extremely low interest rates. More recently, other wealthy countries whose demographies have begun to resemble Japan’s have faced similar issues, although these issues have been sidelined — temporarily, I’d argue — by the burst of inflation set off by policy responses to Covid-19.
It has taken a long time, but Japan did a pretty good job of managing the problem:
To be fair to the Japanese, they’ve arguably handled the issue of population decline pretty well, avoiding mass unemployment in part by propping up their economy with deficit spending. This has led to high levels of public debt, but there has been no hint that investors are losing faith in Japanese solvency.
Time will tell how China handles the problem. But it's also a problem we face in Canada.
Image: Business Insider
14 comments:
Population decline is good on a planet already beyond its carrying capacity. The problem is the expectation of constant economic growth in a finite world. We won't get a handle on climate change until we stop demanding economic growth.
Cap
We long ago passed the limits on population, Cap. The question we face now is whether or not we can manage sustainable growth.
I suggest taking a good look at South Korea. It is doing much better than Japan with its population decrease. North Americans always think of Japan being the leader in Asia especially Americans...it isan't. Anyong
South Korea has made a lot of progress in the last fifty years, Anyong.
Sustainable growth is an oxymoron; an imaginary healthy state of economic affairs that justifies continuation of business as usual but with a green wash. Any growth however small or how it is achieved eventually achieves unsustainability in a closed system.
It is zero growth and declining footprints (size and number) that's needed and an eye to balanced living with the millions of other kinds of earthlings.
Chances of that being the possible outcome this time around?
Pretty good if you don't have to factor in humans.
We're up against what appears to be some pretty insurmountable odds, lungta.
Time to ramp up inheritance taxes. Should inheritance become taxable income, perhaps with a reasonable exemption? The money from seniors is needed.
Seniors will howl bloody murder, Barmon.
Along with Cap and Lungta, I resist the 'there must be growth' mantras of that so called dismal 'science' of 'economics'. (Michael Hudson & Michael Piketty aside.)
Either we figure out how to share what's left while adjusting to rapid population decline or Gaia will do it for us via mass die offs.
At the moment, the latter outcome is more likely.
I agree, PoV. The latter outcome appears more likely.
Here's a story I just heard about PP. It's only loosely connected to the topic but does involve seniors.
Pierre P has been in Quebec trying to build up some name recognition. He visited a seniors' home and asked one of the residents if she knew who he was. She said that she did not but he could ask the nurse and she would tell him who he was.
Funniest story I have heard about anything political recently.
A terrific story, ffd. And it suits the man.
I mean, there is something to be said about getting our population under control. The problem is we really haven’t figured out how to deal with the reality of it. It isn’t just the fact that you wind up with a much smaller number of working age adults needing to support the elderly, but also that those working age people aren’t making enough money to support themselves, let alone both their parents and all four of their grandparents. (Do the math of a one-child policy for a couple of generations and add long life spans.) Automation could provide an answer, except the way we are operating now, only the people who create and own the machines get to reap the rewards from said automation. Everyone else gets to scramble for the fewer and fewer jobs available at increasingly lesser pay, making the whole issue even worse.
Beyond that, while we know how to deal with growing communities, we are not set up to properly deal with shrinking ones, at least not with anything like maintaining the same level of services and quality of life. All we do now is just let them wither away, and sucks to be you if you happen to live there. Want a better quality of life? Move to where it is still growing, which won’t work once nothing is. A growing city builds up infrastructure. A shrinking one still has to maintain that infrastructure even if they barely use it anymore. The water pipes still need to run, the streets still need to be cleared of snow, the power lines and everything else still need to function even if the neighbourhoods they are serving have only a fraction of the people they were originally built for. The costs of maintaining all that infrastructure remains the same, but now has to be shared by fewer and fewer people. You could, in theory, consolidate people so you don’t have to service streets and neighbourhoods where half the housing is sitting empty, but we have a some very good reasons to dislike forced relocations, plus the people needing to be relocated will mostly be in the largest demographic group (old people), so will generally have the votes to block any such moves against their own interests. So you wind up in a spiral of escalating costs for worse levels of service and quality of life, making it even less likely for things to recover, and make it even more difficult to transition to a more sustainable model thanks to all the wasted time, effort and money spent on infrastructure that is necessary, but no longer fully utilized.
Basically, while the idea of a smaller population is a good one for sustainability, actually getting there doesn’t look like it will be very much fun for the vast majority of people, no matter how it ultimately comes about.
That's precisely the problem, BJ. Getting there is very, very difficult.
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