Tag Archives: aging demographics

Aging Gracefully

The OECD had an interesting piece on old age dependency ratios across countries, predicting that on average they would nearly double over the next 35 years for the 20-64 cohort, as per the graph below.

click to enlargeOld Age Dependency Ratio

Japan and Spain come out the highest in the 2050 projection, followed by Greece, Portugal, Italy and Korea. Interestingly, the countries that came out the lowest in the 2050 projection were Australia, the US, Turkey, Mexico and Israel.

Age of Change

As if we all needed proof that the people across the so called developed world are troubled about the future, the election of Donald Trump to the US presidency last Tuesday is still a shock and unfolded in a spookingly familiar manner to the Brexit vote. “Wrong!” as Alec Baldwin has so aptly mimicked could be the call to the pollsters and commentators who are now scratching around despondently for reasons.

Why, we again ask, could an electorate so recklessly vote against conventional wisdom. I think the answer is in the question. Although the factors behind Trump’s vote are multi-faceted and reflect a bizarre coalition that will be impossible to satisfy, the over-riding factor has to lie at the door of an electorate that is troubled by future prospects and rejects the status quo. Why else would they vote for a man that polls suggests a majority acknowledge as been unqualified for the job? Aspects such as the worry of aging baby boomers at the diminishing returns on savings, the insecurity of the middle and working classes over globalisation, and the realisation that the technology from the shared economy is a cover for unsecure low wage employment have all contributed. Like in the Brexit vote, Trump tapped into a nostalgia for times past as an easy answer to the complex questions facing the world we live in.

The age profile of the Brexiteers in the UK and Trump voters in the US is interesting in that it highlights that Trump’s surprise victory is slightly less of a factor of age than Brexit.

click to enlargetrump-brexit-vote-by-age

Aging demographics in the developed world has been highlighted by many as a contributor to the current low growth. I last posted on this topic before here and the graph below is a reminder of one of the current predictions by the UN.

click to enlargeunited-nations-population-projections-2015-to-2100

The impacts of aging on future dependency ratios can be seen below, again from UN predictions.

click to enlargeglobal-dependency-ratios

A fascinating report from the research department of the FED last month, entitled “Understanding the New Normal: The Role of Demographics”, argues that demographic factors alone in the US account for 1.25% decline in the nature rate of interest and real GDP growth since 1980. The report concludes that “looking forward, the model suggests that low interest rates, low output growth, and low investment rates are here to stay, suggesting that the U.S. economy has entered a new normal”.

There was an interesting article recently in the FT called “The effects of aging” which included the graph below from UBS which strikingly highlights the changes in demographic trends and financial crises.

click to enlargefinancial-crisis-demographic-turning-points

Whatever disparate concoction of economic policies that Trump will follow in an attempt to tap the ghost of Reaganomics, it is clear that lower taxes and increased US debt will be feature. Trump may surprise everyone and use debt wisely to increase productivity on items such as rebuilding infrastructure, although it’s more likely to go on wasteful expenditure to satisfy his motley crew of constituents (eh hello, a Mexico wall!).

I constructed an index to show the relative level of debt dependency of countries using the 2020 debt level predicted by the IMF and the average 2020 to 2050 dependency ratios by the UN. Both the US and the UK are above the average based upon current forecasts and really can’t afford any debt laden policy cul-de-sacs. One only has to look at Japan for enlightenment in that direction. We have to hope that policies pursued by politicians in the US and the UK in their attempt to bring back the past over the next few years don’t result in unsustainable debt levels. Maybe inflation, some are calling the outcome of Trump’s likely policies trumpflation, will inflate debts away!

click to enlargedebt-dependency-index

In his recent book, “A banquet of consequences”, Satyajit Das articulated the choice we have in terms of a choice of two bad options by using the metaphor of the ancient  mythical sea monsters, Scylla and Charybdis, who terrorised sailors. Das said “Today, the world is trapped between Scylla, existing policies that promise stagnation and slow decline, and Charybdis, decisive action that leads to an immediate loss in living standards.

The character of Charybdis is said to be the personification of a whirlwind. Remind you of anyone….?

The Next Wave

As part of my summer reading, I finished Paul Mason’s book “PostCapitalism: A Guide To Our Future” and although it’s an engaging read with many thoughtful insights, the concluding chapters on the future and policy implications were disappointing.

Mason points to many of the same issues as Martin Wolf did in his book (see post) as reasons for our current situation, namely the inherent instability in allowing private profit seeking banks to create fiat money, ineffective regulation (and the impossibility of effective regulation), increased financialization, global flow imbalances, aging populations, climate change and the disruptive impact of new information technologies. This 2005 paper from Gretta Krippner on the financialization of the US economy and reports from S&P (here and here) on the policy implementations of aging demographics are interesting sources cited in the book.

It is on the impact of the information technology and networks that Mason has the most interesting things to say. Mason uses Nikolai Kondratieff’s long wave theory on structural cycles of 50-60 years to frame the information technological age as the 5th wave. The graphic below tries to summarise one view of Kondratieff waves (and there are so many variations!) as per the book.

click to enlargeHistory Rhyming in Kondratieff Waves

The existence of such historical cycles are dismissed by many economists and historians, although this 2010 paper concludes there is a statistical justification in GDP data for the existence of such waves.

Mason shows his left wing disposition in arguing that a little known theory from Karl Marx’s 1858 notebook called the Fragment on Machines gives an insight into the future. The driving force of production is knowledge, Marx theorises, which is social and therefore the future system will have to develop the intellectual power of the worker, enhancing what Marx referred to as the general intellect. Mason contends that the intelligent network we are seeing unfold today fits into Marx’s theory as a proxy for the general intellect.

Mason also promotes the labour theory of value, as espoused by Marx and others, where automation is predicted to reduce the necessary labour in production and make work optional for many in a post-capitalist world. To highlight the relevance of this possibility, a 2013 study asserted that 47% of existing jobs in the US would be replaced by automation. References to Alexander Bogdanov’s sci-fi novel Red Star in 1909 may push the socialist utopia concept driven by the information age too far although Mason does give realistically harsh assessments of Soviet communism and other such misguided socialist experiments.

The network effect was first discussed by Theodore Vail of Bell Telephone 100 years ago with Robert Metcalfe, the inventor of the Ethernet switch, claiming in 1980 that a network’s value is the number of users squared. Mason argues that the intelligent network, whereby every person and thing (through the internet of things) is wired to the network, could even reduce the marginal cost of energy and physical goods in the same way the internet has for digital products. Many of these ideas are also present in Jeremy Rifken’s 2014 book “Zero Marginal Cost Society”. Mason further argues that the network makes it possible to organise production in a decentralized and collaborative way, utilizing neither the market nor management hierarchy, and that info-capitalism has created a new agent of change in history: the educated and connected person.

The weakest part of the book are the final chapters on possible policy responses which Mason calls Project Zero with the following aims: a zero carbon energy system, the production of products and services with near zero marginal costs, and the goal of pushing the necessary labour time close to zero for workers. Mason proposes a trial and error process using agent based modelling to be adopted by policy makers to test post-capitalism concepts. He refers to a Wiki-State, a state that acts like the business model of Wikipedia nurturing new economic forms without burdensome bureaucracies. Such a state should promote collaborative business models, suppress or socialize info-monopolies, end fractional banking (as per the Chicago Plan), and follow policies such as a minimum basic wage for all to accommodate the move to new ways of working. All very laudable but a bit too Red Star-ish for me!

Nonetheless, Mason’s book has some interesting arguments that make his book worth the read.


An aside – As highlighted above, there are many variations on the Kondratieff long wave out there. An interesting one is that included in a 2010 Allianz report which, using the 10 year average yield on the S&P500 as the determinant, asserts that we are actually entering the 6th Kondratieff wave (I have updated it to Q3 2015)!

click to enlarge6th Kondratieff Wave

Looking through some of the mountain of theories on long waves reminds me of a 2004 quote from Benoit Mandelbrot that “Human nature yearns to see order and hierarchy in the world. It will invent it if it cannot find it.