Declining Populations Matter

The fertility rate in the United States has dropped to below 1.7, well below the replacement rate of 2.1 needed to sustain the population size.

This statistic follows trends in many other rich countries; among OECD countries, the average fertility rate is now 1.5. In fact, in every developed country with the exception of Israel, the fertility rate is below the replacement rate. A full 67% of the world’s population lives in a country with a below replacement-fertility rate.

Assuming this trend continues, the US Census Bureau estimates that the US’s population will peak in 2080 at around 370 million, and then start to decline.

Shrinking populations cause economies to shrink — and by extension military might and global influence — leading to a change in the world order.

Declining Populations Shrink Everything

Economists used to be more concerned with populations growing too fast. Thomas Malthus argued in 1798 that populations that grow faster than the food supply would eventually face food scarcity and decline in living standards, causing a cycle of boom and bust called the “Malthusian Trap.”

The Industrial Revolution thankfully allowed countries to escape this pernicious cycle but now economists and others speak of the dangers of population decline.

A declining population means everything gets smaller. Aggregate GDP shrinks for given levels of productivity. Companies have less access to new capital to invest in growth as the population ages, as older individuals generally save less; there is of course also less incentive to grow given a shrinking domestic market. Declining populations may also reduce price levels.

There are also fewer workers which means less tax revenue. Strain on government finances mean governments will need to either raise taxes to sustain public services (e.g., hospitals, schools, bridges, etc.) or shut down those no longer needed.

Smaller economies driven by fewer, older people, weaken military posture. Military budgets likely shrink which reduces capacity and ability to build new equipment and there are fewer eligible recruits to serve.

Smaller, older populations also likely mean less cultural innovation and relevance, and smaller impact on the global scene.

But it’s not all bad news.

Empirical studies show no correlation between population size and per capita GDP. Declining populations may increase the standard of living of inhabitants as resources are shared among fewer people.

There is no empirical evidence that smaller populations innovate less, and smaller workforces may induce employers to invest in new technologies to compensate. For example, a study of rapidly aging countries such as Germany, Japan, and South Korea show a positive correlation between aging and use of robots.

Immigration is Not a Panacea

Many analysts claim that boosting immigration can help offset the negative impacts of declining native-born populations. However, an abundance of research shows that, in the long-run, immigration has little impact on aging populations.

The reasons for this are severalfold: the average age of arriving immigrants is also increasing, and some are already at or near retirement age; immigrant fertility-rates are also declining; and even for those who arrive with or soon bear children, by the time those children are working age their parents will be close to retirement.

A Changing World Order

So how dire is the situation for the US?

The US is arguably in a better position than other developed countries. It will reach its peak population at around the same time as the rest of the world, in the 2080s.

According to estimates compiled by the World Economic Forum, the US will still be the fourth most populous country in 2100.

Forecasting GDP over 75 years from now is a fraught endeavor, but one economic model shows that the US’s share of world GDP based on purchasing power parity will decline from 16.4% to 12.3%. The decline in economic might of Western Europe is even more pronounced (17.1% to 11.9%). China and India will rise from 23.7% to 43.2%. These results are highly sensitive to productivity growth rate assumptions.

Assuming share of world GDP is a rough proxy for global influence — economic and by extension military and cultural — these forecasts portend a changing world order.

Policymakers should be planning for these changes.

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