Demography Is Rewriting Our Economic Destiny.

http://www.bloombergview.com/articles/2014-12-04/demography-is-rewriting-our-economic-destiny

The idea that the world economy is undergoing a demographic transition is now so familiar that it barely even registers. The point is noted; the conversation moves on. This is a mistake. It's important to recognize just how powerful a force this shift is going to be.

A remarkable boom in the world's working-age population is ending, and a new boom in the population of retired people has begun. People are living longer; more importantly, when it comes to reshaping the global age structure, they're having fewer children. Today, there are roughly four people of working age for every person aged 60 or over. By 2050, it's estimated there'll be just two. The steep fall in this ratio is unprecedented.

What will it mean? For one thing, of course, systems for paying incomes in retirement will come under serious pressure. But the implications go far wider than that.

In a couple of recent notes for VoxEU, the portal of the European Center for Economic Policy Research, Charles Goodhart and Philip Erfurth explain the connections between global demographics on the one hand, and economic growth, real interest rates and inequality on the other. Seemingly entrenched patterns, they argue, are likely to be disrupted over the next two or three decades.

The starting-point is that countries with older populations tend to save less, because people save while they're working and then run down their savings in retirement. As patterns of saving change, so will flows of capital.

Through this channel, demographic forces were implicated in the global financial imbalances that helped cause the Great Recession. 

Looking ahead, they'll shift the pattern of financial imbalances, and all that follows from them, again.

WHERE HAVE ALL THE WORKERS GONE?