Co-blogger Edward Hugh has reposted his latest essay at A Fistful of Euros on the connection between demographics and economics. Starting with the specific case of Ukraine, where low fertility and high rates of emigration combine to produce a rapidly aging, and shrinking, population, which in turn seems to be associated with economic stagnation, Hugh goes on to wonder what happens when this goes on globally. What of Japan, or Spain? What of the rest of the planet?
So where does all this lead. Well it leads me personally to ask the question whether it is not possible that some countries will actually die, in the sense of becoming totally unsustainable, and whether or not the international community doesn’t need to start thinking about a country resolution mechanism somewhat along the lines of the one which has been so recently debated in Europe for dealing with failed banks.
That something like this is going to be needed I regard as being what John Locke would have termed a “self evident truth”. As we know, in country after country each generation is getting smaller. While we can argue about exact timing, what this falling population means means is that GDP will eventually start to contract. This should make those ecologists who have long been arguing that the planet was over populated and that zero of even negative economic growth was desirable extremely happy. But what about the debt left behind by earlier generations, will that also contract? The Japan experience so far tends to suggest it won’t, and herein lies the rub.
But this is only part of the problem, since the process of country decline, like most processes in the macro economic world, is non linear. That is to say critical moments or turning points will exist when suddenly things move a lot faster than expected. Hemmingway grasped the essence of this in his much quoted “bankruptcy comes slowly at first but then all of a sudden”. As the economy falls back, and the burden of debt grows on the ever smaller numbers of young people expected to pay, the pressure on those young people to pack their bags and leave simply mounts and mounts, accelerating the process even further.
In fact populations dying out is nothing new in human history if we move beyond the most recent world delineated by nation states. In hunter gatherer times populations occupied increased or reduced proportions of the earth’s surface as climate dictated. In more modern times, islands have been populated or become depopulated according to economic dynamics (think the Scottish coastline). More recently, it is clear the old East Germany would have become a country in need of “resolution” had it not sneaked in under the umbrella of the Federal Republic. Why people should find the idea of country failure so contentious I am not sure, perhaps we have just become accustomed not to have “hard” thoughts.
Applying the argument many apply to banks, unsustainable countries “deserve” to fail, don’t they? Why should the US or German taxpayer have pay to keep them afloat? Naturally, including Spain in this group of countries that can only now salute Cesar as they prepare to die my seem extreme, but just give it time.
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But not all countries will experience the shortage (which is already being talked about in China in labour force terms) in the same way. Some countries, with competitive economies, healthier banking systems, younger populations, and better-quality institutions will gain the population which is being lost by the others. That is another of the reasons I say the process will not be linear. This is naked capitalism in the raw, sovereign against sovereign, with a winner take all structure.
The competition is ongoing.