Demographic Trends and Living Standards

People are agents of throughput and the younger, healthier and less resistant to change are the people (for a given population, state of technology, and resource availability), then the larger and better quality the throughput they can achieve.

In more perfluent countries, in recent years, several factors have combined to effect a steady increase in the average age of the population.

There was an unusually high birthrate between 1946 and 1952. There has been a generally falling birthrate since then.

Medical and nutrition improvements have increased people’s life expectancy.

The effect of this increase in the median age of populations will increasingly be downward pressure on the throughput rate. At the same time, pensions and other benefits will demand an ever-increasing proportion of money flow in the economy.

The aging populations will achieve a lower rate of throughput increase than the same circumstances would have allowed more vigorous populations, and material living standard expectations will be further ahead of reality. The latter point will be aggravated by the fact that, even with the median age of the populations in the most perfluent nations staying the same, the expectations of today’s young people on retirement will be much higher than those of the present crop of old people; and the pressure from the pensioner lobby for higher payments will be greater from this factor alone, apart from the greater number, vigour, and longevity of the old, and their probable earlier retirement. Yesterday’s Grandma might have been happy to get a bus to go to the shops but the pensioners of today and in the future will expect to roar everywhere in a large powerful car even when they are no longer contributing their work to society.

The demand for transfer payments to pensioners will increase faster than the rate of increase of those requiring pensions, because the living standard expectations of each successive retiring group will be higher.

While throughput per person is falling or rising more slowly, the proportion of the population causing that throughput is falling and everyone’s expectations are rising, there are ever fewer workers supporting each pensioner and carrying each aging, less efficient worker.

In the absence of saving for retirement, superannuation, there would be three ways of supporting this ever-growing burden of transfer payments. Taxes on workers could go on increasing, government debt would have to increase, or money would have to be printed to pay pensions. Superannuation by its very nature will never completely avoid these options.

The first option would grow ever more intolerable and cause rage and conflict between old and young; it would also make working for a living increasingly unattractive, encouraging ever more people to find a way of getting an income from welfare payments and exacerbating the problem of an ever-growing burden of transfer payments.

The second procedure amounts to borrowing from the future to pay for present consumption. This might be all right if there were a good chance of repaying the debt, but what chance would there be of that in this case, considering the purpose for which the debt would be incurred? Such borrowing would put upward pressure on interest rates. Also, since consumption per person is a function of the availability of goods and services and the distribution of personal money income, not simply of the number of currency units a person has, it will cause inflation by making each currency unit able to command fewer goods and services.

That last point applies more directly to the measure of simply printing money. The consequences of an increase in the inflation rate have been looked at in other postings.

The rate of technology improvement is slowed by the aging of the population. This also works against maintaining or increasing throughput.

One advantage, a large one, of this whole development is that downward pressure is placed on the rate of depletion of wealth, buying more time for economic reform and depriving the less perfluent nations of less throughput, that is allowing them more throughput than they might otherwise have had.

This advantage is enhanced by the fact that the more perfluent populations are smaller than they could have been and are growing more slowly.

This discussion will be resumed after the following digression.

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