COTW: The World is Aging

[credit: The Global Mail]

The chart shows that the human population is aging because fertility rates are down on a global scale. This development has at least two fundamental consequences. One, there will be fewer young working people in the future to support retire elderly workers and pay taxes, thus putting social democracies in a fiscal squeeze. We are seeing some of this happening in Europe now Many economists doubt the current policy fetish for austerity will work to solve the problem*. Forbes wrote last year that Europe's economic problems can be laid at European's failure to reproduce fast enough. Not totally tongue-in-cheek the voice of economic orthodoxy called upon Club Med to use its mojo to convince Europeans to have babies. But recession makes educated women postpone having babies. Economist Joseph Stiglitz called the plan to bail out Spanish Banks "voodoo economics" because the very banks being rescued are the buyers of most of Spain's sovereign debt that is ballooning because of mass unemployment and recession. And its not just Spain, the world's banking system is insolvent according to Nouriel Roubini. Governments have decided to socialize the banks' private loses, and for loses of this magnitude there is simiply not enough money to go around. Commentator Max Keiser sees the recent large drop in gold prices as the effect of large, computerized shorts by institutional banks "slamming" the market, [chart below] desperate to prop up their country's devalued currencies against gold (before the slam gold hit a forty-year high against the Yen). The result is the world's economy returning to a de facto gold standard. Small investors are helpless against these paper bombs (1,100 tons of paper gold). However, what the slam signals is that money printing is not working, and deflation is on the horizon.

Second, older populations mean less consumption. For the Earth, already taxed beyond sustainability by human consumption, this is good news, but bad news for economies that exist by consumerism. Some pundits have labeled the world economy a giant Ponzi scheme(e.g Mitch Feierstein, Planet Ponzi). Half the world, including most of the developed world is reproducing below replacement level. No one really knows what will happen to economies based on consumption and service because this has never happened before in human history. The future appears to be one of fewer people living with less consumption and lower need for resource exploitation. That cannot be all bad unless you are a "free-market" ideologue addicted to arbitrage, war and private concentrations of capital.

[source: ZeroHedge.com]

*A key academic analysis underpinning global austerity policy was recently found to be based on data errors. Reinhart & Rogoff wrote in their paper, "Growth in a Time of Debt" (2010) that countries which have debt higher than 90% of GDP do not grow, but have a slightly negative average growth rate (contraction). When other researchers attempted to duplicate their results, they found that Reinhart & Rogoff massaged their data by excluding Australia (1946-1950), Canada (1946-1950) and New Zealand (1946-1949) all economies that grew during those periods with debt levels >90%. The authors in question also committed a rather large spreadsheet coding error leaving out five countries from their calculations. Opps! The reviewing researchers found after correcting the errors the actual growth rate of countries with higher than 90% debt ratios is actually 2.2% not -0.1% as claimed. Further, some prominent economists conclude that the relationship between debt and economic growth is the reverse of what Reinhart & Rogoff concluded: slow growth causes high debt levels. US Person follows this line of thinking.