Wednesday, January 27, 2010

Demographics and the End of Cheap Oil, Jobs and The Savior State

Analysts worry about demographic trends, but the solution is straightforward: we all work longer as our societies age, and we encourage opportunities in the developing world.

Are demographics destiny? In the sense demographics force choices to be made: yes.

A recent article in Foreign Affairs tackles the subject from the point of view that is't not the raw increases or decreases in population which matter but the distribution of aging and youthful populations and the income declines caused by shrinking, aging populations in the developed nations.

The New Population Bomb: The Four Megatrends That Will Change the World(payment required for the full piece, but you can read it at a library for free)

A previous Foreign Affairs article in 2004 argued along similar lines that a shrinking population would trigger economic decline: The Global Baby Bust.

Standard demographics always makes the key cognitive error of extrapolating current trends into the future even as the fundamentals are changing. For instance, The U.N.'s "World Population Prospects" assumes the global human population will stabilize in 2050 at around 9.15 billion people, and that the global economy will grow faster than the population, at 2-3% annually. (Current global population is 6.8 billion.)

So the U.N. reckons the world can add another 2.3 billion humans with no real problem, assuming the planet avoids catastrophic climate change.

Um, has anyone at the U.N. heard about soil depletion, drought, peak oil and falling water tables? There are plenty of reasons short of catastrophic climate change to reckon that the planet is already past carrying capacity and that any relatively modest disruption in global grain or fossil fuel supplies in conjunction with existing drought/ water shortages could trigger widespread starvation.

But setting those issues aside for the moment, let's examine the four megatrends as outlined in the Foreign Affairs article:

1. the demographic weight of the developed world will decline by 25% (i.e. the share of the world's population who reside in developed countries will decline), shifting economic power to the less-developed nations

2. the labor pool in the developed nations will age and shrink, lowering economic growth and creating demand for younger immigrants

3. the population growth will occur in poorer, younger nations

4. for the first time in history, most of the world's population will be urban

The author's solution is for the developed nations (Northeast Asia, North America, the EU) to spur their birth rates via tax incentives. His second suggestion is to become more open and friendly with the nations whose populations are exploding, to facilitate shifting 100 million poor people into Western countries to perform the work they will need done because their populations are aging rapidly.

I cannot find much to agree with in this lengthy piece. Its premises seem completely uninformed about the world beyond nice little extrapolations on graph paper.

The author seems to think the relative economic decline of the developed countries is a disaster as the relative influence of the West/Korea/Japan will decline as their share of the global economic pie shrinks.

Isn't this the same error of extrapolating current "cheap abundant oil" and plentiful water/soil into the future? What evidence is there that the "middle class of the developing world will soon exceed the entire population of the West"? Exactly how large will the middle class of any nation be once oil and food become pricey/ unavailable?

The entire premise of limitless growth of oil, grain and other material wealth is so detached from reality that it qualifies as a form of psychosis/insanity.This article, and others like it, blithely assume the world can add 2 billion middle-class consumers without a hitch.

The big problem to these analysts is that the developed world will be largely populated by retired people, so the demographic "project" is to bring in a couple hundred million young poor people anxious to work as maids, servants, streetcleaners, etc.

Have any of the analysts visited Europe lately and observed the simmering conflicts between the poor, young Muslims who are already in the EU and the wealthier non-Muslim residents? Is this deep cultural divide some sort of secret?

Have the analysts considered the much simpler solution, which is that as people live to 85 and beyond, that they will have to work until the age of 70-75 instead of retiring at 55 or 67? Yes, there will always be a place for immigration from poorer to wealthier countries, but does anyone seriously believe that moving 100 million poor people into Europe (leaving 2.9 billion other poor people behind) is any sort of "solution" to a natural aging of developed populations?

Wouldn't the better goal be to create more opportunities in the undeveloped countries rather than create social turmoil by mixing populations on a vast scale simply because one group is younger and poorer, as if this is all that counts? Why not start demanding transparency, a reduction in corruption and the introduction of civil liberties and free open markets in these less-developed nations? Those are the reasons they are suffering from poverty; shifting the most ambitious 5% of their populations to the West is not helping the 95% left behind.

(We could start by setting a good example, i.e. restoring our own financial transparency and civil liberties.)

This article's "solutions" are nonsensical. So the developed world's relative share of global economic power declines; fine, it's about time. The developed world's populations are aging: no big deal, as lifespans increase then so should the time spent in the labor force. Having a job (even a part-time one) is healthy; it isn't some awful evil that should be shunned.

What really stuns me is how deaf these analysts are to the "end of work" in the developed countries; as I have written here before, a strong case can be made that the U.S. will lose another 25 million jobs in the next decade, on top of the 8 million it has already lost. We as a nation will be dividing up paid work amoung the millions of unemployed here; there will be no need for tens of millions of immigrants.

What will change is the developed-world's expectations of retiring at 55 and lounging around for 30 years on the golf course and cruise ships, breaking up the endless leisure with numerous visits to medical specialists paid for by the Savior State.

The entitlement programs in all developed nations are doomed regardless of what modifications are made to taxes and benefits; the End of Work simply hastens the collapse of the Savior State.

The fantasy of working for 30 years and then retiring for 30 years, all expenses paid, is now toast, for structural reasons which are only partially demographic.

Demographics may be destiny, but so are oil, grain, water and jobs.

Here are some previous entries on these topics:

End of Work, End of Affluence I: Cascading Job Losses (December 8, 2008)

End of Work, End of Affluence III: The Rise of Informal Businesses (December 10, 2008)

Endgame 3: The End of (Paying) Work (January 21, 2009)

Here are a few books on the material matters conveniently ignored by the FA article:

The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century

Fewer: How the New Demography of Depopulation Will Shape Our Future

The Coming Generational Storm: What You Need to Know about America's Economic Future

Globalization and Its Discontents Joseph Stiglitz

The Coming Anarchy: Shattering the Dreams of the Post Cold War

The End of Work

The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization

The Collapse of Complex Societies

When Giants Fall: An Economic Roadmap for the End of the American Era

While America Aged: the Next Financial Crisis

Planet of Slums
Mike Davis

The Great Wave: Price Revolutions and the Rhythm of History
David Hackett Fischer

Reinventing Collapse: The Soviet Example and American Prospects
Dmitri Orlov

The River Runs Black: The Environmental Challenge To China's Future
by Elizabeth C. Economy

The End of Oil: On the Edge of a Perilous New World

The Nature of Mass Poverty

The Sovereign Individual: Mastering the Transition to the Information Age

The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else

End of the Line: The Rise and Coming Fall of the Global Corporation

And if you'll forgive a burst of shameless self-promotion: Survival+: Structuring Prosperity for Yourself and the Nation is now open for aggregating our collective intelligence.

Order Survival+: Structuring Prosperity for Yourself and the Nation from your local bookseller or from or in ebook and Kindle formats. A 20% discount is available from the publisher.

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