What would happen to the world economy if the world population shrinks? (debt, buy)
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The world population is expected to peak around 2100 and begin shrinking after that. This is the opposite of the predictions of exponential population growth forever that were extrapolated in the first half of the twentieth century, so things may change in the next 80 years.
But as a thought experiment, what would happen if the world population began to shrink?
My own observations are first that some regions will shrink before others. Moreover those regions are wealthier than the places that are still growing, creating a population/wealth asymmetry that leads to migration. So the first effect would be migration to richer areas from poorer areas.
However declining population rates are correlated with wealth and education, so both migrants and foreign investment would enrich their homelands, transmit ideas about family planning, and break traditions. This spreads the falling birthrate to the poorer, people-producing region. We see this now too.
This means that eventually the entire world will converge at sub-replacement birthrates, causing global population decline.
What happens when this happens? We have two examples with Japan and Bulgaria.
Japan has had a very low birthrate for two generations, and has also shunned immigration. The result has been three decades of muted growth and deflation. Unemployment is very low due to the shortage of labor. Employers have succeeded in keeping wages down in the face of declining labor supply by using automation and social conventions to bifurcate the employment market into full-time and gig workers. We already see this latter trend in the US.
Bulgaria suffered social breakdown after the end of communism in eastern Europe, and its birthrate plunged. Bulgaria is interesting in that it is a poorer country that ceased to be a people producer before it started to become wealthy. It also had hyper-outmigration after EU accession. However, an interesting thing happened recently. Instead of completely depopulating as a static analysis would predict, the population stabilized because so many people emigrated that wages began to rise locally.
Deflation is the megatrend that proceeds from a declining population. Deflation is also considered very bad in neoclassical economics because it slows down the velocity of money and inhibits multiplier effects. So if the 22nd century is one of a falling population, economic theory would predict slow to little growth worldwide ala Japan. I can imagine two countervailing trends: population bottoming out and then rebounding as in Bulgaria, and automation making growth possible with a falling population.
Is there an economic consensus on how the world will change with global population decline? Or does anyone else want to spitball?
Consumption could be maintained with a falling population. Instead of more people spending money on staples, fewer people could spend money on more refined goods.
The neoclassical assumption is that demand is infinite and is only constrained by supply. If automation can expand supply with a falling population, I think consumption would grow.
Consumption could be maintained with a falling population. Instead of more people spending money on staples, fewer people could spend money on more refined goods.
The neoclassical assumption is that demand is infinite and is only constrained by supply. If automation can expand supply with a falling population, I think consumption would grow.
You actually need consumption to increase so realistically hat would be hard to do with a declining population. It’s actually why with the US birth rate/replacement rate we need immigration
You actually need consumption to increase so realistically hat would be hard to do with a declining population. It’s actually why with the US birth rate/replacement rate we need immigration
I agree it would be hard. I'm imagining future residents of Tokyo owning multiple joined apartments that sum up to 2000 sq ft per person, filling them with useless junk they buy on the internet. Oh we already have that in the US? Maybe demand is infinite...
Current immigration policy is arbitrage of the demographic dividend across country lines. What happens when that play is exhausted? When everyone has it good enough that very few still want to emigrate.
-The world population will not peak in 2100. We will enter into a Malthusian catastrophe far before that point.
- The current economic paradigm requires infinite growth and infinite debt expansion, so obviously a declining population would negatively impact the global economy.
The UN simply extrapolates current tends into the future. They don't take into account the energy and resource limits of the earth, which will lead to a massive collapse in the global population
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