12 August 2022

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Demographic bomb

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The reason humans are dying out is simple: humans are the reason humans are dying out. We don't have enough babies; it's simple. The key number is "2.1". It refers to 2.1 children per couple, known as the replacement rate. The replacement rate is the average number of children each couple must have to keep the world population at a constant level. A birth rate of 1.8 is lower than the replacement rate of 2.1. This means that the population is decreasing.

Why is the replacement rate not 2.0? If two people have two children, doesn't that keep the population at a constant level? The answer is no, due to infant mortality and other premature deaths. If a couple has two children and one dies before adulthood, only one child can contribute to the future growth of the adult population. A birth rate of 2.1 offsets this factor and contributes to two adult children for every two adult parents. No one has 2.1 children (the replacement rate is average). Likewise, every couple need not have an equal number of boys and girls (it's about averages).

In large population samples, slightly more males than females are born: this is normal and is caused by genetic factors, and it is not a problem (as long as there are more males than females, there is no practical limit to the ability of each female to reproduce). This is what counts in demographics: demographics are not just one of the many factors that influence markets; demographics are the dominant factor by a large margin over all others.

None of the factors that influence market prices (interest rates, exchange rates, inflation, deflation, central bank policy rates, supply chains, geopolitics, consumer expectations, etc.) are as important as demographics because the data demographics relate to people and economies is nothing more than the total of the actions of individuals in those economies.

Demographically, Japan is the canary in the coal mine. Japan has had multiple recessions and no sustained growth for over thirty years. This modern depression coincides with the fact that Japan has the oldest society of any major economy. The rest of the world will soon be in the same condition as Japan. The time bomb has already exploded. Those who expect sub-Saharan Africa to compensate for low birth rates in the developed world may be disappointed to find that African birth rates are falling sharply and may soon be as low as those in North America and Western Europe. Contrary to popular perception, the population in China is collapsing, and in India, it will not grow as fast as many expect and may soon begin its steep decline.

The three major (have an amplification effect.) The causes of the "population bomb" effect are:

• Urbanization;

• Education;

• Women's empowerment.

Demographic collapse is inevitable, already integrated into existing birth rates and likely trends. It is not the end of the world and will not be the end of humanity, but it will be the end of an economic paradigm of greater growth, consumption, and production. The new paradigm will consist of fewer people in larger cities, a form of urbanization, legacy industries (e.g., cars) will fall by the wayside, and health care / elderly care will explode.

There will be no shortage of investment opportunities: investors will have to avoid many traditional investments that have performed well in the past but will have little or no role in aging and highly urbanized future.