Given the recent focus on demographics, I went back to review a book in my library titled “The Great Demographic Reversal.” In a post that reviewed the book, I mentioned that the authors state several times that their findings are controversial and counter to the views of mainstream economists. By way of review, the authors concluded that the future is one of:
- A fall in working age population
- An aging society that struggles with the ravages of dementia
- Declining growth of real output
- An increase in labor’s bargaining power
- Possible interest rate increases
- Increased health expenses
- A reduction in inequality
Several of those projected characteristics of a possible future are currently in play. Whether these are transitory or the new normal suggested by the authors remains to be seen. We have the benefit of history in looking at the various forces that shaped the current global economy.
Beginning in 1990, several forces converged to shape the global economy. Globalization, demographics, technology, deflation, debt, and interest rates have all played a role. Now, at least two of those forces are reversing. Charles Goodhart and Manoj Pradhan describe these forces and their influence on the last thirty years of economic activity. With this convergence, the world experienced an extended deflationary period, which per the authors, was driven in part by a labor supply shock.Frank Diana – Post on The Great Demographic Reversal
The authors believe that both globalization and demographics will reverse. I focused on deglobalization in a post last week, and other posts focused on demographics in the form of labor shortages and population growth. These societal factors likely play a considerable role in defining the future. If viewed through the lens of the human life cycle, aspects of that future come into view. This visual from the book recasts the human life cycle from four stages to five.
Significant changes are represented by shifts in marriage age, age of first child, retirement age, and the dependent nature of our post-50 lives. The reversal becomes apparent as we witness shifts in what was a positive labor supply shock to a fall in working age population, a baby boom to a dramatic fall in fertility rates, and an earlier retirement period to a later and likely longer retirement. That retirement shift may come with more dependence, as longer life expectancy may challenge financial well-being. This likely places a higher fiscal burden on the public sector to provide acceptable standards of living and health care for the elderly.
The life cycle shifts in the 50-plus age category are linked to increased life expectancy. We may work longer given that our financial needs grow as we live longer lives. But the dependence issues represent a significant change – something I see playing out in my personal network. One characteristic of the future referenced by the book authors was an aging society that struggles with the ravages of dementia. As noted in the book, the burden of dementia has risen primarily because of the increase in life expectancy, not because of an increase in prevalence. While we work towards rejuvenating other parts of the body, repairing brain damage remains elusive. Dementia therefore causes dependency. In our new life stage four, we have parents that are dependent. In life stage five, that group becomes dependent ones.
When viewed through the lens of those forces in the 1990s, it is easy to see a great demographic reversal ahead – and it is simply a handful of building blocks in a growing sea of them.