Bill Gross’s latest investment outlook drops a demographic scare bomb — the world’s population will grow at a slower and slower rate over the next few decades, and this will be a ‘danger’ given that the developed world is deleveraging at the same time.
The danger today, as opposed to prior deleveraging cycles, is that the deleveraging is being attempted into the headwinds of a structural demographic downwave as opposed to a decade of substantial population growth. ….Today’s developed economies almost assuredly offer substantially less population growth than the 1.5% rate experienced over the prior 50 years. Even when viewed from a total global economy perspective, population growth over the next 10–20 years will barely exceed 1%.
He even wonders whether capitalism itself is threatened by declining population growth:
I will go so far as to say that not only growth but capitalism itself may be in part dependent on a growing population. Our modern era of capitalism over the past several centuries has never known a period of time in which population declined or grew less than 1% a year. Currently, the globe is adding over 77 million people a year at a pace of 1.15% annually, but slowing. Still, that’s 77 million more mouths to feed, 77 million more pairs of shoes to make, 77 million more little economic units of demand – houses, furniture, cars, roads, oil – more, more, more. Capitalism, I would assert, thrives on more, more, and more, but not so well when there is less or an expectation of less.
Thing is, he failed to mention one very important driver of growth — rising living standards, and this is where the world can expect far more, not less.
While world population growth will slow over the next few decades, there’s still massive room for people in developing nations to achieve higher living standards. Higher living standards come through increasing people’s productivity, and while this is extremely challenging in a developed nation like the U.S. since productivity is high and thus requires new innovations to take it further, in a developing nation people can achieve rapid productivity growth simply by using the same technology and knowledge which is already used in higher-productivity-per-capita developed nations. Witness China.
For example, right now Americans, Europeans, and Japanese produce more output per person than most countries in the world thanks to their countries’ established skills, technology, national organisation, and knowledge. If the rest of the world can just achieve half their output levels, then there’s massive room for economic growth, even without adding in population growth. That’s because economic growth isn’t just about having more people on the earth, as will be clear by flying from New York to Nigeria.
It’s not that we completely disagree with Bill Gross’s ‘New Normal’ view of the world economy going forward, it’s that we think we walked a bit too far out on a limb this week in his latest commentary. A threat to capitalism? Given that stocks thrive on capitalism, we think even he disagrees with his latest view:
The king of bonds is now talking up stocks as a better long-term investment. He said that as U.S. Treasury returns fall, investors will have to take more risk with high-yield bonds, equities and, eventually, real estate.
“If you’re talking about the next 10, 15, 20 years, there’s certainly the recognition that assets [stocks, high yield bonds, real estate] will grow faster in those categories,” he said.