Will Demographic Trends Drive Economic Trends?

People in Japan have too few children to replace themselves, and so the population of Japan is shrinking -- at an accelerating rate. Eventually the trend will have passed the point of no return.

The population of Japan peaked in 2004 and now is in relentless decline. Over 23% of the population is over 65 and the median age is 45 years old. For comparison, the median age in the U.S. is 37 years old, with only 13% over 65. The projection portion of the chart below paints a picture of death. The population of Japan is aging rapidly and will decline by 4.4 million, or 3.5% in the next ten years.

... Japan's central bank cannot reverse the demographics. From this point forward the population of Japan will be net sellers of government debt. Japanese insurance companies will be on the hook for $33 billion in claims. They will need to sell government bonds in order to make those payments. The World Bank has estimated the cost of rebuilding to be $235 billion. The government will need to borrow this money. At least 30% of its energy needs are off-line. It already imports 95% of its oil and coal. They will need to increase energy imports to make up for the nuclear energy shortage. Its positive trade balance was already in decline. _Marketoracle

In other words, even before the earthquake and tsunami, Japan was in demographic trouble -- and consequently in economic trouble. Now things could easily get worse.

The same demographic downtrends are occurring across Europe and Russia, with generally predictable dour economic results. Europe's newcomer populations have almost nothing in common with native Europeans, and seem to be adding very little to Europe's prosperity -- what is left of it.

A lot of analysts seem to believe that because third world and emerging nations have higher birthrates, that their economic situation will be better than that of the aging nations of the west:

Emerging markets have young and growing populations as well as labor force participation. Developed countries on the other hand have aging — and declining — populations and labor force participation. These trends suggest that GDP growth in emerging markets will remain robust, while GDP growth in developed countries will decline. For a simple reason: Population growth and labor force participation drive consumption, which in turn drives GDP. _Seekingalpha

All other things being equal, that logic would be relatively sound. But third world countries are third world for a reason. If the human capital for prosperity is not there when a country's population is 60 million, it is unlikely to improve significantly when the population reaches 100 million.

In the US, the Hispanic population is growing rapidly -- reaching 50 million in the 2010 census. If you add illegals to the count, the real census may be over 60 million. The US black population is only around 37 million, which makes Hispanics the larges minority by a significant count.

Hispanics accounted for more than half of the U.S. population increase over the last decade, exceeding estimates in most states as they crossed a new census milestone: 50 million, or 1 in 6 Americans.

Meanwhile, more than 9 million Americans checked two or more race categories on their 2010 census forms, up 32 percent from 2000, a sign of burgeoning multiracial growth in an increasingly minority nation. _MSNBC

The population of the US is indeed rising, but will the newcomers bring renewed national prosperity? Not unless they assimilate to an earlier pre-tribalist, pre-multicultural ethic that personified earlier, more properous eras of American growth.

If newcomers fall into the grievance trap of identity politics, they are more likely to hurt the US economically, than to help. Eventually the cohesiveness of the union is likely to fail, if neo-tribalism triumphs. That would certainly not be good for national finances.

The same problem of tribalism is a plague on most of the world's populations, and continues to afflict much of Africa and MENA / Central Asian countries in endless conflict and war. But America has just begun to get a big nasty taste of it on its home turf, and census results suggest such trends will only get worse.