The Aging World and the Coming Storm

Despite the complaints about health care, the reality is that people over the last century have gotten healthier not just wealthier. We are living longer just as the rise of the middle class and women entering the workforce in mass, have led fertility rates to decline. The resulting sustantial increase in the  number of elderly people will create serious problems in coming years as a growing number of them will rely on a smaller labor pool (generally referred to an increase in the old-age dependency ratio). As the chart atop shows by 2050 Japan and major European countries could have a dependency ratio close or above 50% meaning that about 2 workers will have to bear the high cost of supporting social services for the elderly. This will be impossible unless payroll taxes rise to punitive levels or benefits are significantly reduced which may not be politically viable given the large share of the elderly voting in democracies. Although China and the United States are in slightly better shape, the trend is evident worldwide and as emerging countries become richer, the dependency ratio for the world is on the track to more than double to over 25% by 2050. Today it is popular to bash business for the bursting of the financial bubble but when citizens will discover that their highly indebted governments have overpromised benefits that cannot be delivered they may turn on democratic politicians and political parties which thrives on promising gullible voters utopian visions of prosperity for the purpose of gaining power. If you though pandemic flu and economic crisis were enough just wait for the coming storm that may threaten the core of world’s democracies.

Enjoy the cheap goods, they will not last

China has enjoyed great economic growth by becoming the manufacturing shop for the global economy thanks to its large population and vast supply of cheap labor. Company executives in China however are starting to complain about labor shortages and wages have been rising rapidly. This could be an indication that China’s surplus labor has been used up. This should not come as a surprise given that the country’s one-child policy introduced in 1979 has caused population growth to slow sharply. As a matter of fact the growth in the working-age population is expected to drop from an annual rate of 1.3% in 2005 to 0.1% by 2015. At the same time, the migration of workers from agriculture to industry will slow. In addition, the population is ageing, and there will be fewer young, single workers who are usually preferred by many industries. For those who fear the rise of China this slowing trend may be good news but for the rest of us who enjoy good deals it means that the seemingly never ending supply of cheap goods made in China is something that should be treasured until it last.

Changing Faces of America

According to new demographic projections from the US Census Bureau, white Americans will be in a minority within a few decades and America’s minorities will be the new majority in 2042. Non-Hispanic whites will grow from two-thirds of America’s population (305m today) to less than half of the 440m total by 2042. The Asian and Hispanic populations will rise to 9% and 30%, respectively. Immigration and higher birth rates among minority populations, particularly Hispanics, are driving the growth. As so often the case, the America of tomorrow will look more like present-day Texas, Hawaii, New Mexico and California where these demographic changes are most visible. Although some will take this news as a new urgent cue to shut down the borders, this change is something to celebrate. America remains a melting pot and with each new wave of immigrants new ideas, opportunities and wealth are created (Silicon valley is not the only example for this) that will allow the United States to take on the challenges of an ever more competitive world.