Low Birthrates Will Devastate the Global Economy If Not Reversed

With aging and declining or even collapsing populations, we lose specialization and economies of scale. Eventually innovation grinds to a halt. 

 

NOTE: I have been warning of the impending demographic implosion for more than 30 years, one of the very few voices to stand against the consensus overpopulation hysteria. Daniel Hess’s work on this — what’s happening, why, and what to do about it — is outstanding. — RDM

by Daniel Hess
January 27, 2025

Birthrates are now below ‘replacement’ (2.1 births per woman) in most countries in the world. But the economic hit will be especially severe because low birthrate countries account for *90%* of global GDP.

How bad are the numbers? Most countries aren’t near the replacement level, but far below it. Countries at only around ½ of replacement include Japan, China, Korea, Canada, Spain, Poland, and Chile. 

The scariest thing? Fertility keeps plunging lower every year.

 But the crisis only hits after a lag, like a tsunami after an earthquake. South Korea shows the contradiction. Total population is near an all-time-high. GDP is still growing. But the population pyramid makes the crisis all too clear: there are now just 1/4 as many 1-year-olds as 50-year-olds.

 Isn't the planet already overcrowded? No. It just feels that way because we’ve been told that all our lives, and because many of us choose to live near cities. In fact, even in populous places like California and South Korea, there is a tremendous amount of land that is basically unused.

 But wouldn't we be richer with fewer people competing? No. That is a big misconception! With fewer people, but especially fewer innovators, the division of labor would dramatically shrink: we would be poorer, not richer. Economist @bryan_caplan explains how prosperity is the product of large populations cooperating together:

 

Another economist @robinhanson explains that with aging and declining populations, we lose specialization and economies of scale. Eventually, he says, innovation grinds to a halt.

Japan offers an ominous preview. Its share of global innovation has plummeted as it shrinks and ages.

 Everyone knows Japan has been a poor economic performer for more than a generation. Economists considered it a mystery that Japan had seen little growth over 30 years. But a 2023 paper (Fernandez-Villaverde et al.) argues Japan's shrinking working-age population explains its poor economic performance.

 

This is a very big problem for the rest of us, because there are a whole lot of countries going the way of Japan in the next few decades.

But the economic problem looks even worse when you look at the problem through the lens of innovation. Innovation (here measured by patents) is what gave us the Industrial Revolution, and in fact the whole modern world.

Yet the most inventive countries almost all now have very low fertility. South Korea, the most innovative country in the world by patent output has a TFR of just 0.7 births per woman.

 
 

In scientific publications, we see the same pattern. It is precisely the countries that the world depends on for both invention and scientific breakthroughs that will be most crippled by population decline, hurting the whole world economy

 

Immigration is not a global fix for at least 3 reasons:

1. One country’s gain is another’s loss (see poor Ukraine).

2. Rich countries skim the most talented from poor countries (brain drain)

3. Birthrates are falling all over the world, not just in wealthier countries

   
   
    

   The only real solution is to raise birthrates.

   Let's look at some of the variables involved with fertility. The biggest variable is culture. In Israel, the one OECD country with a high TFR, people value children above almost everything else, and it makes all the difference.