What is the Impact of Demographics on Market Forces?

I don't really know how he does it, but Todd Gardner (@PopGeog) seems to find every story of demographic relevance every day of the year. Today he hit on a story posted on Investopedia.com in which the chief global strategist at Charles Schwab company discusses the importance of demographics on market forces.

Policy – be it monetary, trade, foreign or fiscal – can have an impact on investor sentiment and therefore on investment decisions. But demographics could play a bigger role in the coming decades as the population continues to age in the U.S, said Jeffrey Kleintop, chief global investment strategist at The Charles Schwab Corporation (SCHW).

Still, while there are reasons to worry about the demographic shift and the impact it will have on investing, Kleintop said that it is not all doom and gloom. For starters, he said that economists have not always been right when assessing the impact of demographics. Kleintop pointed to the late 1930s, when growth in the U.S. population started to slow. Alvin Hansen, a Harvard University professor and economist, said at the time that the economy in the U.S. was stuck in "secular stagnation." However, that population and growth slowdown was short lived, with the economy growing thanks to World War II and a surge in new babies starting after the war, ending any of those concerns. That is just one example of how economists can get it wrong by assuming that the worst is going to happen.

So, the story here is actually a pretty familiar one from economists--aging (which is heavily driven by low birth rates) is bad for the market, while high birth rates are good for the market. We can see that clearly from Kleintop when he notes that:

"Demographics are a powerful force, but they aren't the only force," Kleintop wrote in the blog post. "For example, Venezuela has good demographics, but they have been overwhelmed by bad governance."

I disagree 100% with the idea that "Venezuela has good demographics." I have blogged about Venezuela many times over the years, including a piece last November about the birth rate there. The country has way too high a rate of growth considering especially its heavy dependence on oil exports. Yes, good governance would help, but mainly if it were aimed at further lowering the birth rate.