As birth rates fall and life expectancies increase in advanced countries, shrinking populations will bring dire economic consequences, including stressed pension systems, slow recoveries and "secular stagnation," some economists warn.
But wait, says Adair Turner, former chairman of the United Kingdom's Financial Services Authority. Falling — or stable — populations are actually good, he writes in an article for
Project Syndicate.
While some economists argue that people expecting longer retirements will save more, thus decreasing overall demand and depressing economic growth, Turner says those challenges are manageable.
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"And, perhaps more important, the benefits of increased longevity and reduced fertility are considerable."
The growing number of retirees could burden pension systems, but if retirement ages increase, working and retirement years would grow at equal rates, with no adverse effects. Longer lives mean more years of healthy, active lives, not unhealthy dependency, according to Turner, a member of the United Kingdom’s Financial Policy Committee and the House of Lords.
"Only bad policies, such as the recent German commitment to reduce retirement ages, can turn longer lives into an economic problem."
Another benefit of slower population growth? It could slow the increasing income disparities, he argues. Rising inequality in wealth in many countries is due to rising real estate prices, as the wealthy can purchase desirable properties.
Falling or stable populations would also make it easier to reduce carbon dioxide levels and improve the quality of the environment, Turner adds.
The real problem is rising populations in developing countries, he cautions, noting that high fertility rates can stymie economic growth.
If populations grow too fast, jobs cannot be created fast enough, leading to rising youth unemployment and dangerous social instability.
Although low birth rates may cause inadequate demand, governments and central banks can counter that trend with debt- or money-financed tools.
"If aging populations lead to secular stagnation, the cause will be deficient policies," Turner concludes.
New York Times columnist Paul Krugman is one of those economists say falling populations prompt major problems. Economies are like bicycles, he writes. If they don't keep moving, they fall over.
We need spending to maintain economic output, Krugman argues. If spending falls due to a drop in population growth, the economy can fall into a permanent slump.
Why not reduce interest rates to stimulate demand? The problem, he says, is that it could prompt ideological opposition against inflation risks.
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