What do you expect the economy to be like in 10-20 years?

Submitted by David on Thu, 2008-10-16 19:40
One of the things that inspired me to go travelling this year was, believe it or not, pessimism about the future. Looking at my investment options, they seemed basically an assortment of ways in which to lose money. Savings accounts and bonds generally seem to give a rate of return somewhat lower than the rate of inflation. Going into the riskier area of the mutual funds and stocks, well... just read the papers. Being still a student I have comparatively little invested there. Yet if I calculate my loss-on-investment I think that I've lost about $2000 or so, before taking into account additional losses due to inflation. Do I see a bright-looking future? Not so much. To quote William Robson of the C.D. Howe Foundation on Canada's economic future:
But we're only in good shape compared with other people's disasters.... It's not that very far away when the demands go up very sharply as the Baby Boomers start to retire in force. (cited in the Financial Post)
By and large, this isn't something that governments have accounted for. For example, the U.S. public debt is commonly cited at the seemingly outrageous figure of about $10 trillion. However, as the U.S. government's own figures show, once you take into account promises of medicare and social security funding versus future income projections, you end up with a figure closer to $53 trillion - over $450,000 per U.S. household. (The image to the right comes from an ad campaign in the New York Times by the Peterson Foundation - headed by a former U.S. Commerce Secretary). As Philip Longman noted in his book (p. 21-2):
As the cost of supporting the elderly has risen, governments have already responded by raising taxes on younger workers, and will be compelled to do so much more in the future. Younger workers, finding that not only does the economy require them to have far higher levels of education than did their parents, but that they must also pay far higher payroll taxes, are less able to afford children, and so have fewer of them, causing a new cycle of population aging.

What should you expect in a shrinking population? The experiences of a country like Japan (and common sense) seem to dictate that it will shrink. How much use is there in saving for retirement? Well, if money is simply a means of paying for services, then if the percentage of the population able to work is small, then I'd expect rampant wage inflation. I'm not happy about the idea, but I still expect that in years to come you'll see governments moving more and more along the lines of P.D. James' Children of Men - basically increased government sanction of suicide and perhaps even encouragement for the aged to follow this route.

By and large, I think that global warming is at worst a relatively minor concern compared with the changes in population profile.

What do you think? Am I too cynical?

Comments

David

Fri, 2008-10-17 17:03

dmodderman said thus:

What shrinking population? Canada's population has been growing steady, more or less, since Confederation (albeit due to immigration).

If anything population growth should be reduced to alleviate strain on ecosystems (i.e. estimated 15,000 to 40,000 species per year going extinct due largely to human activities, especially resource extraction). Sure we may have to pay more taxes now in the short term, but what about providing a habitable planet to future generations?

David

Fri, 2008-10-17 17:43

What shrinking population: The global working-age population that's soon to be shrinking. Immigration is not sustainable, both due to countries that would tax higher being less attractive as destinations (and countries who want immigrants are competing with one another). Another thing that makes it even less sustainable are the U.N. figures suggesting that birth rates are causing population aging to occur at a faster pace in those countries that have been sources of immigrants.

If anything population growth should be reduced to alleviate strain on ecosystems (i.e. estimated 15,000 to 40,000 species per year going extinct due largely to human activities, especially resource extraction). Sure we may have to pay more taxes now in the short term, but what about providing a habitable planet to future generations?

If you want to gradually reduce population that would be one thing (which would still likely cause a shrinking economy but not be disastrous), but what I'm referring to is more of an implosion of the working age population. You can't hike taxes indefinitely.

David

Fri, 2008-10-17 17:45

If you want to read Longman's book The Empty Cradle, BTW, I can lend you a copy.

dmodderman

Mon, 2008-10-20 17:25

I suppose I should just finally read the book, although I'll have to get through a few others first! But what you said does make sense now about immigration not being sustainable. I suppose we can just add it to the growing "unsustainable list" our country is working on :-)