Demographics and Destiny
Updated: Aug 20, 2021
Demographics and Destiny
Demographics is destiny, not density. This map shows how many more people live in other countries compared to our own. We can see China and India are the densest and most populated countries.
To understand how this affects the economy, we need to go back to the Keynesian model. It shows Gross Domestic Product (GDP) equals consumption plus investment plus government spending, and exports and imports will have some effect. The two things that matter the most are consumption and investment choices. Everyone is constantly consuming things, but some have different ratios on consumption versus investment.
GDP = C + I + G + (X – M)
(Consumption and Investment)
If you look at the senior population, frequently industrialized and developed nations have significant savings from the previous production. When we think about them as only consumers, it's a lowercase c. Why? Because many people call them "annoyingly wise" with their consumption. In other words, they have to be much wiser on how they consume. We would consider this lifestyle bucket to have many savings if it's an industrialized country, but there are low consumers in the GDP model.
Now, if we look at the producer population, they will be consumers while being significant producers. Goods that are coming into the economy will be produced by the age group of 18-65. Their choices between consuming versus investing will be highly related to how many people are dependent upon them.
Suppose you look back to the senior population, and they don't have savings to live off of. In that case, they're going to put a drag on the producer population because their consumption versus investment choices are different. Meaning they may have a parent to be supported. This leads to less money for investment causing GDP to grow more dramatically. Therefore, the lower the senior population dependency on the producer population, the faster the GDP can grow.
Then there's the borrowing population. This population is no longer in childhood, and they are getting educations, starting families, or starting their first job. They are not big producers yet, but they have a lot of demand for borrowing because they're investing in future production. They have a symbiotic relationship with the senior population because they can loan to this group as they develop their skills.
The child population is a significant factor in the producer population regarding consumption. If you don't have many kids, you tend to have more investment in other things in your life. Therefore, children will be a big part of the producer's consumption versus investment choices. Just because children are mainly only consumed does not mean that's a drawback because they're detrimental to long-term growth. Remember, they're the future producers as well.
The population pyramid above is an expanding population often relating to an expanding economy with the age bands on the left. Then, you have it divided by how many people are male or female. For productivity of making more children, the ratio of women is far more critical than the number of men. It's the norm of the population, when the more women you have, the higher the fertility rate. The ratio of men to women will have different economic impacts, like China has fewer women than men because of their prior one-child policy.
If you look at the pyramid, we can see that the segment comprises mainly young people. The further we go up the less impact that has. This is met with good capital structure and technology and could be a booming economy in the next 20 to 30 years.
Here is a stationary population. We see the children and the producing population are pretty steady. However, there is a little bit of a decrease here, but you can easily make that up with immigration. We can see that this will be just a stationary economy with no significant liability for demographics in the future.
Next, we have the population dividend. If you get an example where the fertility rate is low in a country with not many children or elderly for the producer population to support, then the choices on consumption versus investment change. All the excess money is going into the growing the economy faster, which is a massive boon for the economy. The population dividend turns into a population liability.
As individuals retire, there's a decreasing amount of people that are producing within the economy. If there were plenty of savings that the senior population has to live off during production, then there will be more imports coming in to support them as they decrease spending.
What are the four countries we have been talking about? The first one expanding is Mexico, with a very young population that is multiplying. The next one, the United States, is right next door to Mexico, where the immigration is coming from the Southern border. The current population dividend is China, and they do not have a lot of savings for their senior and the current producer population. They are becoming wealthier, but not fast. Lastly, we have Japan for population liability. Japan in the eighties-nineties was taking over the world because they were in a population dividend.
Japan and China Comparison
China has a 20-year lag to Japan. Japan was in the expanding phase through the sixties to seventies. Then, they started to move into the producer population. By the eighties to the nineties, they were reaching the population dividend. Then, 2000 happened, and things began to turn, and the economy not growing much since.
Production Function: Growth Rate of GDP Overtime
(Current Capital Stock, Technology Development, and Labor Population)
The growth rate of GDP over time has a couple of more factors with a fairly complex equation, but we can keep it simple as:
Do you have a current capital structure?
Do you have factories and tools that are already there in the economy?
Are they good at developing that capital structure further?
These three components are the primary factors on how fast an economy is going to grow over time.
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