Driving To Our Demographic Destiny

Demographics and government: neither can fully control the other. Soon that will have to change. When it comes to people, more isn’t always better. The economic growth levels of the last 30 years must be maintained to mitigate the blast of the “demographic bomb.”

Smoothing The Demographic Curve To A Healthy Economy

By Fernando Arce, Staff Writer
Designed By Ryan Trinidad

We tend to think that more is better. Why wouldn’t we? When we like something we want more of it. Our entire economy is based upon this philosophy. We demand something because we find that it’s useful to us; then manufacturing companies supply it.

Retailers stock their stores and market those products as enticingly as possible based on this relationship. More production and more consumption are good for manufacturers, consumers, and the economy.

The Gas

When it comes to people, more isn’t always better. Those familiar with Malthusian theories of resource depletion know this. Yet we continue to hear dire warnings about a depleting workforce and the need to step up population growth to avoid it. Although these claims aren’t entirely unfounded, seeing as how the workforce is indeed the juice that sustains an economy, this doesn’t translate into economic growth or well-being.

A country cannot prosper in the face of political, economic, and environmental catastrophes based solely on the size of its workforce. Economies are complex mechanisms that need much more than just working people; they are systems based on rules, policies and regulations, all of which have become increasingly interconnected across the globe.

Let’s think of an economy like an automobile and of the working force like the gasoline that we pump into it. Without it, we can’t drive anywhere. However, for the gasoline to be burned efficiently and get the most possible miles per gallon, the car must have a finely tuned engine.

Much the same way, an economy needs people to propel it forward and to benefit from its services. Like the car, the economy also has an engine that, if sharply tuned, will determine whether a country can prosper in the face of adversities, such as a depleting workforce brought about by changing demographics.

The Engine

Although the mantra of the capitalist economy is the lack of government intervention, it is impossible to envision a successful economy fully void of it. A quick jog down memory lane can refresh our memories.

The first economists considered the free market a self-ordering mechanism that also served as an impetus for growth as individuals pursued their private interests. While all investments were driven by the desire for profit, the market would subtly work behind the scenes to ensure the full utilization of society’s capital (things like full employment and balance between supply and demand), contributing therefore to what Adam Smith called the Public Good; any intervention from the government would have distorted this seemingly natural process. The government was seen as a mediator, at best, who would overtake responsibilities such as erecting public institutions and developing an infrastructure that would in turn facilitate the flow of commerce, but not influence it.

The success of their theories—and of capitalism—was magnified by the fact that society was breaking off from the feudal past. In this context, the benefits of liberalization of trade and the freedom of individuals to engage in this activity had been blown up, portraying any outside intervention as regressive and counterproductive.

But history proved otherwise.

When the Great Depression hit, the foundation of capitalism was shaken, and the feasibility of alternatives like communism and fascism loomed precariously over their heads. With more than one third of the labour force unemployed in the United States and increasingly negative profit margins, the government began to question whether the invisible hand that was thought to lift all boats to the same tide was not an anchor drowning them instead. It was around this time that John Maynard Keynes emerged, advocating a type of mixed economy where the public sector played a large role in the undertakings of the private sphere.

His analysis of macroeconomics essentially said that, left unattended and unregulated, microeconomic-level decisions would lead the economy into inevitable cyclical instability. In a way, Keynes played the devil’s advocate—and succeeded—as he persuaded governments to adopt policies that would assure “a stable process of reproduction and adequate levels of employment.”

Although Keynesian notions lost some of their influence during the 1960s and 1970s, they’ve re-emerged in the wake of the 2008 global economic crisis. We’ve seen government bail-outs, tax cuts for some, and lower interest rates for others. More literature has popped up everywhere advising governments to implement policies that would monitor the activities of lending banks more closely and even “require [them] to prick asset price bubbles” when necessary (a great example is George Cooper’s The Origin of Financial Crises). The evidence is abundant: Governments are important for the economy.