Transcription
**Benefits of Demographic Crisis**
1. **Introduction**
In this video, I will try to perform a significant shift in perspective. Most of my work on this channel revolves around the description of various facets of the coming demographic crisis affecting, to various degrees, most of the world. The impacts are most commonly perceived negatively, connected to labor shortages, decreasing tax revenue, unsustainable social welfare systems, cultural malaise and national decline, military weakness, decrepit infrastructure, and depopulating villages and cities. Now, these are all undeniable facts. But is it the whole story? The current population crunch into which vast areas of the planet are heading is truly a massive change. On a European level, it is a reversal of an unbroken trend of population growth that has continued since the middle of the 17th century. Even throughout the horrors of both world wars, the population of Europe continued to grow, although at a much slower pace. It is estimated that in the last thousand years, there were only two major periods of population decline on a continental level: the period of the Black Death in the 14th century and the period around the 30 Years War in the 17th century. So, such a major change in paradigm with massive consequences permeating through all levels of society cannot be purely negative, right? It might be mostly negative, but as with every enormous change, there also must be some positive consequences. After all, it is accepted by most historians that the massive population decline caused by the Black Death was one of the impulses leading to the end of serfdom in Western Europe and the creation of some form of proto-labor market, maybe even capitalism and the industrial revolution further down the line. So, this is what I want to focus on in this video. Get away from all the doom and gloom for a moment and try to paint a bit more positive scenario of the future. Let’s get it.
2. **The History of Population Decline**
As mentioned, there were two major periods of population decline in the last thousand years of European history. Now, there definitely might have been more local periods affecting a certain region or a certain state, but on a continental level, there is consensus on just these two. The first was caused primarily by the Black Death, which nevertheless found a very fertile ground for its rampage among the European population, already massively weakened by decades of severe malnutrition and famines. Many consider the Black Death population decline to be a prime example of a Malthusian catastrophe, a situation in which population growth outpaces agricultural production, thereby causing famine or war. According to this theory, poverty and inequality will increase as the price of assets and scarce commodities increases due to fierce competition for these dwindling resources. This increased level of poverty eventually causes depopulation by decreasing birth rates. If asset prices keep increasing, social unrest would occur, which would likely cause a major war, revolution, or famine. Societal collapse is an extreme but possible outcome from this process.
And indeed, the population of Europe has grown significantly over the previous centuries. Approximately from the middle of the 11th century and throughout the twelfth century, Western Europe went through somewhat of a high middle-age golden age, sometimes called the Renaissance of the twelfth century. Many peak examples of high Gothic architecture, such as the Notre Dame, Canterbury, or Chartres Cathedrals, were built in those times. Arthurian legends in England, Le Cid in Spain, and Nibelungenlied in Germany are all classics of the European literary canon. The European population is estimated to have grown from under 60 to almost 90 million people between 1000 and the middle of the fourteenth century when the Black Death hit the continent. These population numbers and their growth rates are good examples of how the demographics of the premodern world were a completely different game than today. For example, population growth from 60 to 90 million people was achieved by Pakistan, a single country, between roughly 1970 and 1990, in two decades. The key difference here is in mortality rates. In short, they have been absolutely massive all over the board, even in the best of premodern times. The magnitude of the difference is almost hard to comprehend. For most of history, including hunter and gatherer societies and up until the 19th century, the infant and child mortality rate was estimated to be stably close to 50%. Half of all children did not live past their 15 years of age. Today, on a global level, this rate is around 4%, and in developed countries, it is around 0.3%. Maternal mortality rates were also very high; it is estimated that usually around 1 in 100 mothers died during labor. Today, the figure is about 100 times lower in developed countries. All kinds of mortality rates were higher by orders of magnitude.
That has one major important impact. Today, we operate with the replacement fertility being 2.1 children per woman. However, that is mostly the case in the more developed countries with low mortality rates. Demographers estimate that in some of the countries with the highest mortality rates on the planet, mostly in sub-Saharan Africa, the replacement rate might be as high as 3.4 children per woman. That means that the replacement rate in the middle ages, or more broadly speaking in the premodern world, was most definitely not 2.1 children per woman, but much higher. For example, in antiquity, demographers estimate that the replacement level was likely somewhere between 4.5 and 6.5 children per woman. You can often hear claims about low birth rates in premodern times; for example, they are often cited as one of the causes of the decline of ancient Greece or Rome. They certainly might have played a role; however, do not imagine that the population of any ancient or premodern society had fertility rates anywhere near our current level. That is ruled out. Due to their much higher mortality rates and thus much higher replacement-fertility level, the threshold for birth rates leading to natural decline was much higher than today, and fertility rates under two children per woman would thus lead to absolutely massive depopulation during a few generations. If you read about low birth rates in antiquity or the Middle Ages, imagine the average woman having 3 or 4 children instead of five or six and not one or two children. We are truly unique in this regard.
But to get back to the pleasant topic of the Black Death. As I already noted, there was a medieval baby boom. Due to those times' relative stability and abundance, people married earlier, and fertility rates were high. The population growth, however, wasn't without consequences. In such premodern times, large-scale population growth threatened the ability of the population to get basic necessities, mostly food, shelter, and firewood or charcoal. As Robert Malthus correctly observed many centuries later, the ability of the land to provide for the people was inherently limited. It often just could not cope with the increasing population and demand, especially if the population's average age decreased due to high fertility. There were more small children who could not yet work in the fields, but they still needed to be fed and kept warm. Another massive factor was weather and climate since any cold and wet year could mean a very weak harvest, which could spell a disaster in the form of famine. Long story short, the demographic growth of the medieval period led to sustained inflation, affecting mostly the most basic necessities, such as food, shelter, firewood, and charcoal. These commodities were in most pressing demand - everyone needed to eat and use fire - but they were least elastic in their supply - agriculture could provide only so much food, and the land only had so many trees. So, as the population was growing, so were the prices. More people meant a lower value of labor since the population expanded much more rapidly than the medieval job market, if we can even call it that, since forms of serfdom were still prevalent in Western Europe back then. The real wages thus massively declined. The lords who owned the land most people worked on were getting richer, and the peasants were much poorer since rents and land value skyrocketed. Even before the Black Death came, Western Europe was experiencing massive crises, widespread poverty, and hunger, for example, the great famine of 1315-1317. Then, in the middle of the 14th century, the plague hit a continent already ravaged by severe malnutrition, and it was the so-called final nail in the coffin. The population of Europe declined by about a third, and in parts of Western Europe, it was even significantly higher. It must have been bloody apocalyptic. The European population has not recovered for 200 years, and in some rural French or English regions, it did not reach the same numbers until the middle of the 20th century.
However, there were positive long-term consequences as well. The agricultural prices plummeted, as did the land value and rent, which were both clear consequences of the population decline. Labor was scarce due to massive depopulation, and real wages significantly increased, especially for low-skilled laborers. The high bargaining power of workers led to the gradual end of serfdom in Western Europe and increased social mobility. Economic inequality, while obviously still pretty outlandish, declined significantly. This period of stability lasted for most of the 15th century and culturally manifested in the European Renaissance. However, nothing good lasts forever. In a sort of vicious cycle, prosperity has led to a restart of population growth. The fertility rate increased, and marriage age and mortality rates decreased. From circa the beginning of the 15th century, the population slowly began to grow, and the growth rate accelerated in the second half of the century. I won't get into the details since, in broad strokes, they were relatively similar to the situation I described in the Middle Ages, but the whole cycle basically repeated itself. The population growth caused demand-driven inflation of basic necessities such as food, firewood, and land prices that have persisted for a very long time and brought Europe to another massive crisis in the 17th century, where a number of wars, bad harvests, diseases, and general social upheaval caused a second significant pan-European population decline. It is estimated that the European population grew from circa 60 million in 1400 to circa 110 million in the first half of the 17th century and then declined by about 10 million people on a continental level around the 30 Years War. The local declines in some regions of Central Europe or Spain were much more drastic. And once again, after this mayhem, a period of growth and stability occurred. The prices of agricultural products fell due to suddenly slashed demand; real wages grew due to scarcity of labor and declining prices and rents, and inequality decreased. Culturally, this stable period manifested in an era of Enlightenment. These were the only two cases of population decline in European history in the past thousand years. Until our contemporary times.
Now, the outline of the history of population decline with the causes and consequences was obviously highly distilled. Not everyone agrees that population growth is the main force behind the aforementioned crises; experts often bring up other reasons, such as climate or monetary policy. The world is complex, and all of the factors likely did play a role. However, most agree that the population decline did bring certain benefits to those who were able to survive it. So, let’s now move through time to our current times and try to find out if we might be so lucky as to experience the potential benefits of a large-scale population decline, which is, in our case, so far caused purely by low fertility without massively increased mortality rates and thus without the horrendous wars, famines, and epidemics. If that would be the case, our current situation would not look so desperate after all.
3. **The Current Situation**
In the past 200 years, the world has experienced an absolutely unprecedented population explosion. However, this population explosion was accompanied by an even more unprecedented explosion of technological progress and innovation. So far, this technological productivity boom has been able to offset the potential Malthusian catastrophes, at least on a huge continental scale like the previously mentioned European declines. Sure, some countries and regions, mainly in Africa and the Middle East, might be seriously threatened by water or food shortages if global trade with fertilizers or the food itself were to shut down. However, we are producing massive food surpluses on a planetary level due to previous revolutions in agricultural productivity. The British economic historian Angus Maddison has calculated that since 1820, so basically from the industrial revolution period onwards, the population of the planet rose fivefold while the per capita income increased eightfold. The population has skyrocketed, but the living standards have increased even more. This vast population growth is now coming to an end. In some regions of the industrialized world, populations are already significantly declining; in others, they are stagnating or mildly growing only due to a large influx of immigrants. It is very much possible that the world's overall population will peak during this century and then start to decline. By that point, there might be many countries that will see their populations decline by 50%.
Now, there are people who see significant parallels between the processes leading to the big depopulation crises of the 14th and 17th centuries and contemporary development. Since the 1970s, some of the indicators in Western developed economies have seemed to show some resemblance to the processes outlined in the previous chapters. Economic inequality, measured usually as the share of the wealth owned by the top 1% of the population, has increased rather massively since the 1970s. The real wages, especially for lower-skilled workers, have stagnated or even declined. Rents and house prices have significantly increased, and their affordability has declined substantially. Maybe we are experiencing similar population growth-induced pressure on the prices and wages that people in the past ages have experienced. Luckily for me, there is a book that deals more or less with the subject at hand. It is called *The Great Demographic Reversal*, and it tracks the impacts of the grand demographic changes on the global economy over the past 50 years or so. And there have indeed been significant demographic influences on the processes mentioned above.
Two crucial demographic shifts took place in the past decades that have massively undercut the wages in the developed world - the integration of China and post-communist Eastern Europe into the world economy, especially manufacturing. The integration of China alone from the 1980s onwards more than doubled the available labor supply. Since the 1990s, almost 200 million Eastern Europeans have been integrated into the world's manufacturing and economic networks. One could probably also add the NAFTA trade deal and the increasing US corporate manufacturing capacities in Mexico. This demographic shift coincided with the prevalence of neoliberal economic theory in the political spheres of the West, which pushed for the dismantling of trade barriers between states and regions. But there was more. Precisely at the same time, Western countries were experiencing prime examples of demographic dividends. The strong post-war baby boom cohorts were just entering the labor force, and the fertility rate and the proportion of dependent children declined, often quite rapidly, but the aging of the population has not yet created massive populations of elderly dependents. That means the share of the population of Western countries in the productive age rapidly increased from circa the 1970s to the early 2000s, precisely during the time when the Chinese and Eastern European populations were getting integrated into the world economy. At the same time, the process of female emancipation was happening as well, so the available labor force got an additional boost from female labor participation, which often doubled between the 1950s and the 1990s. And at the very same time, mass immigration into Western countries has kicked in. The effective labor supply force for the world's advanced economy trading system more than doubled over these 27 years, from 1991 to 2018, in what is the largest ever massive positive labor supply shock. We have been living in times of unprecedented labor glut.
And the consequences were huge. The bargaining power of the low and semi-skilled workers dramatically declined in relation to the skilled labor, managerial class, and returns to capital. There has been a massive disparity between the growth of wages of people with and without a college education since approximately the 1980s, which coincides with the massive cheap labor bonanza. People with managerial and technical skills were rewarded, while manual or less qualified laborers were heavily undercut by foreign competition and partially also by immigrants. The ratio between the pay of CEOs and their average worker has skyrocketed in most advanced countries. Technological progress has negatively impacted certain lower-skilled professions as well. The trade unions' membership has, for example, dramatically declined in this period. But there were also some advantages. The prices of durable goods such as cars, refrigerators, computers, and so on have significantly declined in this period due to dramatically lower labor costs of their manufacturing. That has massive implications for the overall economy since it meant that the overall inflation was low throughout this period. That has allowed governments to massively pump money into economies for a long time since the interest rates could be kept at low levels due to deflationary pressures caused by the declining cost of manufactured goods. Due to very low interest rates, the ballooning government debts were quite easily serviceable. Low interest rates have also led to rising asset prices, such as bonds, equity, or house prices, massively increasing overall inequality. The haves profited much more than the have-nots. The winners of these massive demographic shifts have been capital-owning classes and highly skilled workers in developed countries, as well as workers in Eastern Europe and China. While inequality within developed countries has increased, income inequality between different countries has decreased, often massively so. In the year 2000, the average Chinese wage earner earned 35 times lower wages than the average American worker, but in 2018, he earned five times lower wages.
So, yes. We can conclude that demographic development, together with policy choices, clearly does play a role in many of the societal upheavals in the Western world. A lot of the political polarization in Western countries is a backlash against these processes by the native working classes. But now we have entered the great reversal of this process. The working-age population of the world is already declining and will continue to massively decline for the foreseeable future, especially if we take Africa out of the equation, which is not very well integrated into the world economy anyway. The decline of the overall population will follow. What will be the effects? Can we look forward to a new golden age for the average person induced by the massive population decrease and thus in the competition for resources? Well…it is more complicated than that.
4. **The Impacts**
First of all, it is important to point out certain very important demographic differences between the decline of the population of our age and the past ages. First of all, there is obviously a huge difference between population loss caused by low fertility and something like a plague, famine, or a period of massive wars also accompanied by a lack of food or pestilence. In those cases, the population declines were usually very sharp drops in relatively short amounts of time, for example, within a decade. Moreover, in cases of famine or plague, the dying disproportionately affects the biologically less resilient strata of society, so the young and the old. That means that these calamities, their obvious dreadfulness aside, probably had relatively beneficial impacts on the age structure of the population from the economic point of view. The percentage of very young children and older people who are not really capable of working that much would decrease, and you would be left with a bulk of the population in the peak productive age. Due to persistently high fertility rates, the population started rebounding very quickly after these calamities, with massively increased mortality rates passed over. It is fair to acknowledge that in the case of wars, such as the 30 Years War in the 17th-century population decline, this does not really apply since men in economically productive years would be disproportionately affected by war-induced excess mortality. However, even during the 17th century, large parts of the population decline were caused by famines and pestilence. Climate changes caused significant crop failures, and the malnutrition of the population made it much more susceptible to being killed by diseases.
However, we are in a very different situation. Massive excess mortality rates do not cause our issue; it is ultra-low fertility rates that are lower than mortality rates, which are nevertheless very low as well from the historical point of view. Our demographic issues are thus unique. First of all, they lie in the massive elderly dependent populations, which need to be somehow taken care of in terms of basic necessities and health care. Second, the issue never ends as long as the fertility rates remain sub-replaced. Every generation will be smaller than the previous one, and the population imbalance will prevail. But I have promised that this video won't be doomerism, and I will stand by my word. Nevertheless, the picture is complex, and to outline the good that might come out of it, we must also consider the bad.
First of all, economic growth is most likely to be almost non-existent. In an age of declining working-age populations, often rapidly so, only significant productivity gains would be able to offset this loss in the economic output of workers. Since the growth in labor productivity in the developed world has been declining for decades, this is very unlikely to happen. In many countries, the economic growth in the past years has depended on the constant influx of immigrants who nominally increase the output of the country's economy without significant boon for most of the population. However, this will likely be seriously curtailed in a world of rising anti-immigration sentiments. Moreover, the various forms of taxation of the population will almost certainly markedly increase. Pension and healthcare costs will skyrocket due to the rising share of the elderly. There will almost certainly be a pandemic of dementia and Alzheimer's, which affects a substantial share of people over a certain age. Even if publicly funded pension schemes and healthcare systems were slashed, something that is highly unlikely in a democratic system, but let's say that democracy might not be here forever, this issue would still persist. If you think through the consequences, if public-funded pensions and healthcare do not exist, the needs of the elderly will still be here. And they would most likely be heavily shared by their kids, so the productive strata of the population. For most people, instead of being highly taxed, this would mean expenditures for their elderly parents out of their income. So either way, whether through high taxation or through direct expenditures, the burden of the elderly population will heavily fall on the working-age population.
Moreover, due to the increasing average age of marriage and childbearing, people's natural life cycle is changing significantly. People have kids later, their kids leave their households later, and old people live longer. That means that more and more people will be squeezed into the so-called sandwich generation, where they care for their children and their parents at the same time at the economically most productive part of their lives. People in the past, when they had children in their early 20s and their parents had a life expectancy closer to 70 than to 80, had their children out of the house when they were 45 and, assuming their parents had them also in their 20s, their parents died by the time they were 55. That gave people more time to save for their retirement without having dependents, whether in the form of children or parents. But if you have your kid when you are 35, the kid might not leave the house until you are close to sixty, while your parents might also live to your sixties. And then you are suddenly very close to retirement.
To somehow conclude this long list of not-so-positive developments, before getting to the positive side of the equation, inflation will probably remain persistently and structurally high. High dependency ratios are structurally inflationary forces. If more people are consuming in proportion to those producing, that logically pushes inflation higher. The demand is larger than the supply. Studies have shown an empirical link between population age structure and inflation. Populations with a higher share of dependents, whether children or elderly, have higher inflation than those societies with a high proportion of people in the productive age. That is also why, as previously mentioned, the past couple of decades exhibited very low inflation levels, especially for consumer goods, even though monetary policies were very expansionist and public debts hugely increased. The number of producers and people of productive age massively increased while the number of dependents, children, and the elderly was low.
However, another inflationary pressure will be the growing bargaining power of the workers and wage growth. That is where I finally get to the more positive side of the equation. The mass demographic forces that have led to the processes above are now beginning to revert themselves on all fronts. The global working-age population will massively decrease over the next few decades, especially in the industrial countries most connected and relevant to the world economy. The political backlash against globalization and the worsening of the security situation will likely significantly curtail the trend of outsourcing manufacturing abroad. The anti-immigration backlash brewing throughout the Western world will likely partially curtail the inflow of new unskilled immigrants into the economies. The bargaining power of lower and mid-skilled workers should increase significantly, and their real wages and the proportion of labor as a share of national income, which has generally declined since the 1970s in the developed world, should start to increase again.
In the past couple of decades, we have lived in a world where the massive post-World War II generations all over the developed world were in their peak earning years before retirement. That means that there was a massive demand for assets such as stocks, bonds, or housing since these boomers were trying to prepare for their retirement. As these massive and wealthy generations gradually retire and die off, they will start to decumulate their savings to get money for retirement. Since the demand generated by the significantly smaller younger generations will likely be smaller than the supply, the prices of assets should decline. Researchers have found links between age structure and asset prices, depending on the ratio of people in the later productive years to retirees. When the proportion of people in their peak productive years, let's say from 45-65, is higher, as it has been in the past decades, the asset prices increase, and when the proportion of retirees is higher, as it will be in the coming decades, the asset prices decline. That should further decrease the current massive inequality.
To somehow conclude these economic theories and predictions, we will most likely become much poorer as societies, with the strains of the ballooning elderly populations on the backs of the declining working-age populations. The inflation will likely be structurally high, and many durable goods might become more expensive. However, we might become more economically equal with smaller differences between the richest and the average people and thus smaller social discontents. And maybe the real house prices will fall. Maybe that could rekindle fertility rates; who knows? Of course, these are all just theories. What the future has planned for us remains a mystery. Everything might be completely different. However, I think trying to find hope and a positive attitude towards the future is good. If you enjoyed this video, please like and subscribe or consider supporting me on my Patreon or on my Buy Me A Coffee. Thank you very much.