A Country For Old Men

October 6, 2009 at 12:07 pm | Posted in Economics, Workplace | Leave a comment

As the few long-term readers of this blog know, I continue to be fascinated by the effect of demographics on a nations economy.  I find this topic especially interesting, because, unlike other factors, demographics are a long-term and long-lasting factor in a nation’s development.  It takes nine months just to create a new citizen, plus a decade or two to develop him or her into a truly productive member.  One cannot turn that ship around overnight.  So, a trend in birth rates now must shape the nation decades hence.

One of the biggest effects that are commonly brought to attention is  the “dependency ratio”, or how many citizens the average working-age member must support by his or her labor.  As the population ages, the dependency ratio goes up and becomes more burdensome on the economy, especially for more socialist states with a high level of guaranteed welfare.  But as a recent article points out, the effect of an aging population can be felt even earlier in terms of a nation’s savings rate and trade deficit. 

To summarize, a middle-age population tends to save more than they consume, as they enter their high-wage years and the expense of raising their children comes to an end.   This leads to greater exports (see Germany, China, and Russia).  However, as their wage-earning years tail off, they begin to consume more and save less.  To avoid a crippling trade imbalance, they must find a way to increase their exports.  But without a sizeable younger population to employ, how can they increase production?  Watch invesment capital start to flee China and Russia in the near future as it becomes apparent that they no longer have the workforce to exploit any increase in production capacity….

Read “A Country for Old Men and a Bit of Sambahere.

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