The Consequences of a Shrinking Population
Humans are no longer replacing themselves. What will happen as a result?
The human species is now at or below the replacement fertility rate
This fact has snuck up on a lot of us. For many very online people, the issue is increasingly a current thing, with main characters such as Elon Musk making sounds about it. But most normies have still not updated their views on the fertility question and some are experiencing cognitive whiplash. A comment from my recent video on the subject reveals the mindscape of one such bewildered person.
It feels like just yesterday we were worried about overpopulation and environmental carrying capacity, and now we are supposed to be worried about population collapse? In reality, the population trends in most countries on Earth are bleak. People like Paul Ehrlich of The Population Bomb were catastrophically wrong. It’s been apparent for at least 10 years that overpopulation concerns were overblown and, in fact, that population collapse was the issue to worry about.
The surprising reality is that the average human woman, despite not being overwhelmingly rich, has just over 2 children on average. The UN estimates that the global fertility rate, expressed as the number of children per woman, was 2.32 in 2021. The global replacement rate (the number of children per woman needed for humans to replace ourselves) is estimated to be around 2.2 to 2.3 children per woman (higher than the rich world’s 2.1, largely due to higher child mortality worldwide). Fertility has dropped sharply since 2021, so it is likely we are now below the global replacement fertility rate.
Size matters… but so does the rate of change
If fertility rates stay on trend, most countries on Earth will begin shrinking within the next few decades. The figure below shows the UN’s population projections for middle-income countries. It is useful to focus on middle-income countries to show that this is a problem for the median human on Earth; it’s not a “first-world problem.” The poorest country in this group is South Sudan and the wealthiest is Bulgaria. The median projection has the total population of this group beginning to shrink by 2070.
Richer countries are, of course, even worse off demographically. The set of countries wealthier than Bulgaria is expected to begin shrinking by 2043, despite substantial immigration. Interestingly, the wealthiest countries of all, such as the United States, are shielded demographically by their ability to attract high levels of immigration, but this may come with its own problems.
But why is a shrinking population a problem? We don’t know exactly how severe the consequences will be, but there are many things to worry about. Economically, most countries rely on a combination of debt and growth—governments often spend more than they tax, but the debt-to-GDP and debt-to-population ratio remain stable due to growth. If the population shrinks, especially if the government continues running deficits, debt per person will begin to rapidly rise. Lending to a shrinking country is like lending to a person whose income is shrinking. In other words, permanent deficits are not really sustainable for shrinking populations, and financial markets will likely cut off such countries. Without deficits to support social spending, these countries will need to cut back on net spending per person.
But it’s worse than this. As populations shrink, they will also age. In middle-income countries, the share of the population that is 70 or older is forecast to rise from 5% today to 20% by 2100. Needless to say, 70-year-olds are not net taxpayers for governments.
The dependency ratio also looks dire. Today there are about 6.5 people of working age (20-64) for every person 65 or older in middle-income countries. By 2100, the UN forecasts that there will be just 2 working-age people for every person aged 65 or older.
So, countries will need to cut net spending per person at the same time that their elderly population explodes as a share of the population. This would require a radical rewrite of the social contract and it is difficult to understand how this isn’t a looming civilizational disaster. By 2100, in middle-income countries, there will be roughly one employed person for every elderly person… in other words, every working person will need to financially support themselves, and an old person (as well as any children that still exist at this point). Again, this will be with less government borrowing than now. The elderly who paid their entire lives into pension schemes may not see that money back, healthcare systems could buckle and collapse, and tax rates could soar.
Solve for the equilibrium
Too often, those who fancy themselves forecasters fail to think carefully about the Nth-order effects of things. In the early days of the now-forgotten COVID-19 pandemic, many of us assumed that there would be “2 weeks to flatten the curve” and then things would go back to normal. We assumed that some would die, and others not, and life would go on. But this is not what happened. The public and policymakers reacted to the pandemic in a myriad of unpredictable ways, causing layers of consequences that were difficult to foresee at the outset.
The same is true for shrinking populations. A dearth of young people, many elderly, and high taxation are not recipes for economic success. But the young in these countries will not sit passively as these changes occur. Youth is increasingly a scarce global demographic commodity, and out-migration will occur. This can become a feedback loop, with young people leaving, causing the dependency ratio to worsen, causing the net tax burden to rise, and causing more young people to forgo having children and/or migrate. What is the natural stopping point of this cycle?
One can imagine a “death spiral” happening in many of these countries, where the young and economically productive are simply pilfered by the rich world to alleviate their own severe demographic problems, leaving behind countries that are old, sick, and unproductive, with weak incomes, shrinking populations, declining asset and home prices, and limited borrowing capacity. Yikes!
It should concern us per se that the most economically, scientifically, and socially sophisticated individuals and groups are rapidly shrinking in population. The future belongs to those who show up! But human societies are always, in many ways, a Ponzi structure—it’s up or out; if you aren’t growing, you are collapsing. University departments create more PhDs than there are professors, pension funds and health insurance rely on ever larger young generations to pay in, ever-growing government debt relies on larger cohorts of young people to service it, and real estate prices and stock markets must always rise to justify themselves… who buys a depreciating asset? None of these systems work well when the population shrinks. But given that shrinking is almost certainly baked-in for most countries, should we be preparing for a reset?