Photo by: mikol ice
This post is part of my World-Changing Wednesday series. These are a collection of thoughts on issues which I think will have a huge impact on how we live our lives in the years to come.
Populations of Industrialised Nations Are Ageing
There is a troubling trend brewing and it’s going to change many of the things we thought we knew about the economy.
In 1960 there were more than 5 workers per retiree in the USA. By 2007, that ratio had dropped to only 3.3 to 1, and by 2032, that ratio will have plummeted to a thoroughly unworkable value of 2.1 to 1. This same pattern is shown throughout the developed world and every country will be affected in some way. This trend comes about as a feature of the so-called ‘Baby Boom’ which occured post WWII.
The easiest way to visualise this issue is using a demographic pyramid chart. This first chart represents a more ‘normal’ population distribution; in this case Australia in 1971. Humans evolved over countless millennia with a population pyramid that looked something like this. This distribution is capable of supporting an entitlement program based on transferring wealth directly from younger workers to older retirees, such as the age pension in Australia and social security in the USA.
When we cast this chart of Australian population forward to 2008, the baby boomer bulge is quite apparent. While it may not seem like much, the ‘hole’ that exists in the population behind the baby boomers represents an enormous challenge, and will greatly complicate how the economy operates in the decades to come.
Boomer Wealth Based on Massive Credit Bubble
The ‘Boomers’ are the wealthiest generation ever. They hold nearly all of the assets in developed nations. In my article entitled The Debt Trap (Our Economic System is not Sustainable), I explained how our economic system is based entirely on debt and that current levels of debt are without precedent. The biggest credit bubble in history has been inflating since the beginning of the post WWII baby boom and that bubble has fueled the massive wealth accumulation of the Boomers.
We have already seen that exponential growth in debt (which underlies the Boomer wealth) only appears to be sustainable when asset prices rise fast enough to keep the financial system solvent. Without continuous economic growth, the entire monetary system will collapse and we are already seeing the beginning stages of this process.
Percentage of nations’ population aged 65 and over: Chartsbin
What Happens When Boomers Want to Retire?
Unfortunately for the Boomers, they will need to sell off the assets which define their wealth in order to fund their retirements. The question then is: Who exactly are the Boomers planning on selling their assets to? Even if Generation X somehow could afford to buy all these assets, there simply aren’t enough people in this generation to buy them. One has to wonder, given the demographic forces in the Western world, if there is simply going to be more sellers than buyers in the coming years as the Boomers liquidate.
If we are operating an economic system which must continue to grow exponentially to survive, we have to question how this can happen if Boomers are retiring en masse and there are fewer behind them to take their place?
- Will assets plummet in value as they are repriced to the reality of what Gen X can afford?
- How will this affect the Boomers’ expectations of a comfortable retirement?
- Will the younger generations be expected to work harder to pay for those promises made to the Boomer generation?
This sort of demographic profile will be with us for decades and setting policies to encourage population growth are probably not the best way to solve the problem given that we live on a finite planet and cannot support further exponential population growth. This issue is one that we’d do well to recognise and plan for rather than ignore.
Boomer retirement has already begun, and the pace of this will accelerate rapidly over the next 15 years.
The next twenty years are going to be completely unlike the last twenty years. ~ Chris Martenson
Soon, I’ll write another post with more specifics on what this means for my generation (Gen X) and those coming through behind.