This blog is intended to go along with Population: An Introduction to Concepts and Issues, by John R. Weeks, published by Cengage Learning. The latest edition is the 13th (it will be out in January 2020), but this blog is meant to complement any edition of the book by showing the way in which demographic issues are regularly in the news.

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Sunday, October 26, 2014

Is Population Aging a Factor in Europe's Economic Woes?

The cover story in this week's Economist is about Europe's ailing economy. There is genuine fear of deflation and economic disaster should that happen. This thinking is widespread--not just confined to the pages of the Economist (see, for example, recent posts on Mauldin Economics). The situation is complex, like most things in the world, but this paragraph obviously caught my attention:
Since 2008 corporate investment in America, the euro zone and Japan has fallen short of cashflow, notes ISI Group, an investment-research provider, making firms net savers rather than borrowers. This reflects both subdued expectations about near term sales and a more deep seated belief that, as populations age, markets will shrink and good opportunities for investment will become rare. Rising inequality may aggravate the process: the rich save more than the poor. Efforts by emerging markets to hold down their currencies and plough the resulting trade surpluses into rich-world bond markets do further harm.
Two themes--population aging, and inequality--stand out here. But what really impressed me (in a negative way) was the idea that that population aging would lead to a self-fulfilling prophecy. The inequality is an issue because the rich need to be spending their money (either directly or through higher taxes so that the government spends it for them) in order to help keep the economy going. But if you think the economy is going in the tank due to an agin population, then you save more and spend less, leading right into the outcome that you worried about. One of the dilemmas of population aging is lack of a youthful labor force to fill in the gaps left by those growing older. Yet, the Economist also notes that "roughly 45m workers are jobless in the rich OECD countries." This is crazy talk. Let's get that money moving, folks, so that we at least delay the negative effects of an aging population. 

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