.....
Demography
Another thing that is cooked into the books is demography. We can make
a fairly realistic projection of how many people will be over 60 in 20
years by looking at how many people are over 40 today. By projecting
birth and death rates, which change slowly over time, we can get a
fairly realistic handle on world population trends. And what we see is
an
aging Europe, Japan and America and an explosion of population
in Asia.
This will have a major effect on the pace and shift of globalization.
The developed countries have gone from about 33% of world population in
1950 to the 18% range right now. The current developed countries will
be 12% of the population in 45 years. The underdeveloped countries are
going to grow to roughly 87%. That's a huge demographic shift.
Another important shift will be in
the 10 major Islamic countries.
By 2050 their population will be about the same as the developed
countries. Today, Russian has 145 million people and at its current
rate it will be 100 million it 2050. Iran and Iraq currently have 87
million people combined. Today they are roughly 60% of the population
of Russia, and in 2025 those two countries will have 10 million more
people than Russia. Iran alone will have a greater population than
Russia in 45 years. How do you think a nuclear power and militaristic
power like Russia is going to be able to deal with that change? It
makes me wonder if the reason Iran wants nuclear power is simply the
US?
Yemen will be bigger than Germany in 45 years. Yemen is a small
country, where will they go?
6 We have already witnessed the
largest migration of human population in human history.
Over 200
million Chinese have moved from the interior and the west to within 90
miles of the coast in the last 20 years. That is almost too large
to grasp. It is as if half the population of the middle part of United
States decided to move to the coast in the next 20 years.
What implications does demography have on the aging population of the
world? The population over 60 years old will grow dramatically in the
developed world from 2005 to 2040. The US will go from 16% today to
26%; Japan grows from 23% to 44%; Italy from 24% to 46%. Those are
major problems which will affect worker productivity, health care and
strain the economy. The percentage of GDP that countries will have to
tax if they keep the promises they made to the retirees will be a
problem, as there will be less workers to pay into the pay as you go
retirement systems. France will be at 64% and Germany will be at 60% of
GDP just for social services, without adding other government costs
such as education, military, roads, etc.
Do you think young people are going to stay in France or Germany and
see tax rates of 75% or more?
The strain on the systems clearly
can't work.7 Europe and Japan are destined to go through
enormous social and economic strains. Farm subsidies, a deeply
engrained part of Europe and Japan, will be cut or done away with. How
can I say this? There will be more elderly voters who want their health
care and pensions than there are farmers. Just the threat of a drop of
a small part of farm subsidies in France brings out farmers who riot,
block roads and create mass protests. Think about what will happen as
they lose those subsidies over the next 15-20 years.
While not as bad as Europe and Japan, the US has its own problems
coming down the demographic highway. The US will be forced to change
its social security system. If we don't change it by the end of 2005,
my prediction is that it will not change until 2013. Whoever is elected
president by either party in 2008 will not touch the "third rail" of
politics (social security) until a second term. By then, the problems
will be much bigger.
Social Security in the US can be fixed. The real problem is
Medicare and health care. Health care costs will rise from 14% of
GDP in 2003 to 17% in 2010 and keep on rising as Baby Boomers need more
care and as better and ever more expensive solutions are found to keep
us healthy. A reported $40 trillion dollar deficit looms in front of US
tax-payers. The options are not pretty. We can raise taxes
significantly over time, cut back on other spending like our military,
farm subsidies, education and welfare, or cut back on health care. What
politician will want to run on that platform?
This will all produce
a shift of economic power to the East.
China, India and the rest of Asia will come to the fore by the middle
of this century. This shift will be forced because of the Economic,
Political and Demographic changes which will happen in the West. The
United States and Europe have guaranteed our baby boomers and our
elders "X" amount of our GDP. We have bet the farm on our future, we
haven't saved enough money for it and we're expecting our kids to pay
it. That's going to force fundamental restructuring. China, India and
other parts of Asia don't have those obligations because the elderly
population is a much smaller percentage, so they will be able to devote
more of their dollars to research and to economic development. The
sheer shift of assets into research and development will give the
Asians an advantage. They have an advantage in terms of demographics,
but not too much over the US. China, by the way, is going to have
demographic problems within 20-30 yea rs.
Governments are the problem, they are not the solution. Less
government, from a business standpoint, generally means less cost and
that is a better thing. The less money that you are paying in taxes,
the less money your corporations and your investors pay in taxes, the
more the customers are going to be able to pay to put your products on
the table and in their homes. Not to mention the more money to return
to investors.
The change that I think is really coming over the next four decades is
the
demise of centralized governments because they are not
"profitable." They don't work in a globalized and industrialized world
society with mobile capital and mobile people. What we will see is the
rise of the sovereign individual, which is a very uncomfortable change;
governments won't willingly give up that power. The "spread" between
the rich and poor will increase as well, making the politics of envy
all the more susceptible to politicians who love to demagogue.
....
7 Richard Jackson and Neil Howe, "The
2003 Aging Vulnerability index: An Assessment of the Capacity of Twelve
Developed Countries to Meet the Aging Challenge," Center for Strategic
and international Studies (CSIS) (March 2003).
Note: John Mauldin is president of Millennium Wave Advisors, LLC,
(MWA) a registered investment advisor. All material presented herein is
believed to be reliable but we cannot attest to its accuracy.
Investment recommendations may change and readers are urged to check
with their investment counselors before making any investment
decisions. Opinions expressed in these reports may change without prior
notice.
Note: This is only a portion of the speech given at Stanford University
and distributed in John's E-letter. Use the email address below to
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