A NO-GROWTHWORLD IS INEVITABLE
pick), as the base continues to rise, any improvements will be incremental at best. Productivity growth is slowly decelerating towards zero. Again, it’s doing all the work you did last year... plus something extra on top of that. If you can only do as much as last year, efficiency hasn’t improved... and there’s no growth.
Last year, there were more deaths than births in half of all 50 states. The decline meant that the U.S. has joined the much of the rest of the developed world in sub-replacement level fertility. In fact, globally, fertility has been falling for decades. The average woman in 1960 gave birth to five children in 1960 – and just under half that, at 2.4, in 2019. But even that level is aspirational for much of Europe and Asia – including Spain (1.2), Germany (1.5), Japan (1.4), and South Korea (0.9), according to World Bank figures – where the birth rate has long been well below the replacement level. Perhaps most alarming for global growth, the fertility rate in China – the world’s most populous country (for now... India is about to catch up) – has collapsed from 6.4 births in 1965, to around 1.5 today. According to a widely discussed July 2020 article in medical journal The Lancet, by the end of the century, the populations of 183 of the 195 countries in the world will have shrunk (absent dramatic changes in immigration policies, which are politically unpalatable in most countries). A total of 23 nations – including Italy, Spain, Japan, and Thailand – will have at most half as many people as they do today. In another 34 countries – including China (down 48%) – the population is likely to drop by between a quarter and a half. CODE RED FOR GROWTH Both productivity and population growth are slowing. And it follows that growth as
And it’s time to recalibrate our expectations.
THE DEMOGRAPHICS ARE DARK A rising population is a necessary – but not sufficient – ingredient for sustainable long-term economic growth. Even an economy where everything else is supporting productivity – like good policies, solid leadership, and sound macroeconomics – will in time struggle to grow if its population isn’t increasing in size. The master key of demographic growth is the fertility rate, which is the average number of children that a woman gives birth to during her lifetime. It’s the most important indicator of the future size of the working age population... and thus, long-term economic growth. The fertility rate in the U.S. hit a 35-year high in 2007, at 2.12 births per woman. But even that was only just above the replacement level (the number of children required to “replace” their parents) fertility rate of 2.1. But since then, it has fallen steadily... dropping to a record low of 1.64 in 2020.
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July 2021
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