07 July 2011

Economic Implications of Southern Europe's Demographic Collapse

The southern Europeans are doomed. They have passed a demographic point of no return. There simply aren’t enough females entering their child-bearing years in those countries to reverse the rapid aging. _SeekingAlpha
Southern Europe

You could as easily state the problem as: "Demographic implications of Southern Europe's economic collapse," since in such situations causation is decidedly circular. The implications of Southern Europe's economic / demographic decline for investors are relatively clear: stay away unless you know exactly what you are doing.
Between 2020 and 2045...the infertility of Southern Europe will catch up with it, and the elder dependent ratio will rise to over 60%–an impossible, unmanageable number. At that point the character of these countries will change radically; they will be overwhelmed with immigrants from North Africa as well as sub-Saharan Africa, who will not have the skills or the habits of civil society to maintain economic life. And their economies will slide into a degree of ruin comparable only to that of classical antiquity. Perhaps the Chinese will operate Greece as a theme park. Spain, which can draw on Latin American immigrants, is likely to be the least badly off.

...Why would anyone buy a 30-year bond from any of these countries? By 2041, there won’t be enough taxpayers left to pay the coupons. And that raises a related question: what is time horizon of an equity investment in those countries? Although Standard and Poor's calculates the duration of equities at somewhere between 20 and 30 years, that is a somewhat dubious estimation of interest sensitivity, not a measure of the horizon of expectations. Markets are notoriously short-sighted. But at some point markets must recognize that companies that have a rapidly-shrinking pool of workers as well as customers are in no position to earn profits. The real demographic crunch will start to hit in the mid-2020s, and it is possible that markets will ignore the inevitable demographic doom until then.

There’s little reason to expect European contagion to blow up the financial system today. But there’s also no reason to invest in those countries, except on a very opportunistic basis. _DavidGoldman_SeekingAlpha

"The demographic point of no return" happens when the population of fertile females falls below the point where population recovery can be reasonably expected. Japan is flirting with that point of no return, as are various populations in southern and eastern Europe. Immigration is not an answer unless the replacement populations are of equivalent or superior aptitude for managing and improving a high tech infrastructure.

When economic collapse is thrown into the middle of an ongoing demographic collapse, there is even less justification for procreation than existed before. And as population declines in the midst of economic contraction, opportunities for economic growth, innovation, and invention typically decline.

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Blogger kurt9 said...

Russia has the same problem.

Thursday, 07 July, 2011  
Blogger Bruce Hall said...

Perhaps instead of the general welfare system in place, these countries could implement a policy of a decreasing tax rate for families with children. Any family, presumably excluding immigrants with less than 15-years in the country, that has 4 or more children in the active household would be exempt from taxes. Fewer than 4 children would get lesser tax relief. Immigrants would be taxed at a higher rate than citizens born in the country.

This shifts the burden to non-reproductive individuals and immigrants. Seems reasonable in the situation you described when you are trying to maintain the national culture and economic viability.

Thursday, 07 July, 2011  
Blogger neil craig said...

When the retired population reaches that percentage or anything close no government can get elected which does not promise to make pensions the first charge on government. Of course democracy cannot survive that. With most of the actual work being gone by immigrant communities it is even less likely that they will hold the felow feeling with the pensioners to keep working. A mixture of age and race conflict.

Friday, 08 July, 2011  
Blogger al fin said...

Kurt: Right.

Bruce: Good thinking, but putting those rules into place becomes more difficult with each passing second.

Neil: Too true. Radical leftists will have to decide whether to ally with third world immigrants in a bloody revolution, or whether to so gently ease the aging natives into the slowly boiling pot that they never know what cooked them.

Radical leftists and hungry, fertile, desperate third world immigrants may be the only real players, since everyone else will be too old and cowed to fight, content to "passively aggressively" demand all those cushy benefits they are entitled to.

Friday, 08 July, 2011  
Blogger PRCalDude said...

Old people always show up to vote - look at California. Thus, they always get what they want at the polls. The same is true for partisans.

OTOH, immgrants don't seem to care much about the electoral process.

Tuesday, 12 July, 2011  

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