Co-blogger has a post at Demography Matters examining the idea that low or even negative population growth will translate into low or negative economic growth. This is a phenomenon much more widespread in Europe or JApan than in the United States.
Strangely, while I would suggest the most obviously affected countries are those mentioned above, most of the debate has centered around the US economy. Since it is not at all clear that the US economy is actually suffering from either a liquidity trap or secular stagnation at this point, this has lead many to question whether the idea might not be ill-founded. The Economist, for example, in a revue article (Vox e-book on the topic conclude the concept “remains a baggy one”, one which is “arguably too capacious for its own good”.
Viewed in this light the concept does at times appear vague, and lacking in clear definition. In part this is because Alvin Hansen’s original idea was made up of two components, a technological and a demographic one. Naturally if there is a slowdown in the rate of impact of technological innovation then this would be felt equally across those economies which are operating near the technological frontier. But the phenomenon which is being described today as secular stagnation isn’t being witnessed equally across all those countries. Economies in both the UK and the US appear to have responded differently to those in Sweden, the Euro Area and Japan, a phenomenon which is obvious to the theory’s critics. Thus the Economist author goes on to argue, “it is hard to avoid the conclusion that many of the euro area’s difficulties result from a dysfunctional monetary union rather than a susceptibility to secular stagnation.” And it would be hard to disagree with the writer, except… except ….except that there is the awkward little case of Japan, which doesn’t actually use the Euro, as there are possible cases like the Czech Republic, Sweden or Hungary that don’t either.
Which brings us nearer to the demographic part of the argument. Is there any pattern emerging in the way symptoms which look like those which would be presented in cases suffering from secular stagnation are showing up? Well, I would argue there is. I think it is generally accepted that the first affected country was Japan. It was in Japan that a slowdown in GDP growth (not GDP per capita growth) was first noted.
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EU working age populations started to decline in the years between 2009 and 2012. They will now continue to decline for many years to come. In the United States however, while the rate of growth in this population segment has slowed in recent years, it is about to start accelerating again. As Calculated Risk’s Bill McBride pointed out, the US Census Bureau now reports that Baby Boomers aren’t the largest US cohort anymore, and that the prime working-age force is expected to start growing again in a few years. In other words, in terms of the demographic outlook, the dynamic points to stronger, rather than weaker, economic growth. By 2020, eight of the top ten largest cohorts (five year age groups) will be under 40, and by 2030 the top 11 cohorts will be the youngest 11 cohorts. (see the marvelous animation Bill has at the end of his post).