Global Trend

Peak Human As the Trends editors began arguing 35 years ago, civilization is facing a long-term decline in human population due to the global collapse in fertility.

That’s something that’s never happened before.

The big question is when and how fast this will unfold.

The most recent UN forecast sees a global population peak at nearly 10.

4 billion in the mid-2080s.

However, plenty of other experts see our numbers cresting at a far lower level, and beginning to fall, much earlier.

And in either case, key countries in East Asia and Europe are feeling the effects in the 2020s.

A key factor in these population projections is the fertility rate and how it might change over time.

A leading expert in this research is University of Pennsylvania economist Jesús Fernández-Villaverde.

When he calculates global fertility rates, he finds them “falling much faster than almost anyone had realized before.

” His forecast resembles the UN’s Low Fertility Scenario which appears in a chart in the printable issue.

As Fernández-Villaverde explains “I look at the fertility [rate] of the planet as a whole.

According to my calculations, it’s already at 2.

2.

That says that the planet in 2023 was already below the replacement rate.

That means the world population will start falling at some time in the late 2050s or early 2060s.

My argument is that the United Nations is underestimating how fast fertility is falling.

Instead of 2084, I’m pushing the peak back to 2060.

And instead of 9.

7 billion, I say we will peak around 9.

2 or 9.

1 billion, and then we are going to start falling.

” What leads him to that conclusion? “The number of births that actually happened in China in 2022 is what the United Nations forecasted to happen around 2040.

So, China is running 18 years ahead of the United Nations median forecast.

And China represents a big chunk of humanity.

For India, they are five to six years ahead of the forecast.

And if you go country-by-country, you realize that the United Nations is consistently behind.

” According to Fernández-Villaverde, “their birth rate model is running hot.

It’s forecasting way too many births compared to what we are actually seeing.

” The true shape of the curve might be different moving forward.

However, according to Fernández-Villaverde, we can get a rough estimate of where things are headed by using a simple technique, he calls the “Rule of 85.

” It works like this: Life expectancy in most advanced countries is about 85 years.

So, if 1,000 people are born each year in a particular country - and this number stays constant - the country’s population in the long term will be 85 times 1,000.

We can apply this simple rule of thumb to get an upper bound for the population of any country.

For example, if you want to forecast China’s population in 2109 start with China’s current birth rate of slightly below 10 million births each year; 10 million times 85 is 850 million.

Today, China’s population is 1.

4 billion.

So, that implies at least a 40 percent reduction.

South Korea recently had 240,000 births a year; multiply by 85 and you have slightly over 20 million.

The current population of South Korea is 51 million, implying a reduction of at least 60 percent in the decades ahead.

Based on the “Rule of 85” and using the current estimate of 3.

6 million births per year in the United States, the long-term sustainable population of the country should be approximately 306 million, down about 8% from 331 million today.

Remember, though, this is a very simplistic model intended to illustrate the overall trend.

It doesn’t take into account factors such as changing birth rates, in-migration, out-migration, or improvements in healthcare that could increase life expectancy.

As simple as it is, the model illustrates a powerful trend.

We’re headed for a smaller world, with all its implications.

The detailed analysis behind this conclusion is documented in a 2021 NATIONAL BUREAU OF ECONOMIC RESEARCH study coauthored by Fernández-Villaverde, titled “Demographic Transitions Across Time and Space.

” That analysis concluded that the demographic transition from high fertility to low fertility has already “been completed or is ongoing in nearly every country.

” Furthermore, “the speed of the transition has only accelerated” as the world has become more connected and information about the benefits of smaller family sizes has become more widely available.

We’ve established that the world will be getting smaller within the lifetimes of today’s Gen Xers and Millennials.

Before that, it will get older, especially in the OECD countries and China.

This will shape the opportunities and threats facing Baby Boomers, as well as subsequent generations.

Therefore, it makes sense to consider how our wealth, security, and values might be impacted by a shrinking and aging world.

For roughly 60 years the neo-Malthusians of the green movement have argued that fewer people would “save the planet” by reducing the burden on our ecosystems.

However, as we’ve previously explained in Trends , the tech-driven “dematerialization” of the economy was already on a path to achieving this objective, even as the population soared.

For example, the United States consumed 2 percent less oil in 2019 than in 1978, while its gross domestic product was, in real value, three times larger despite not being overly concerned with saving energy.

In the eye-opening 2019 book More from Less , MIT’s Andrew McAfee documents declining resource consumption by the U.

S.

economy.

Specifically, he shows that consumption of the important manufacturing metals (aluminum, copper, steel, nickel and gold) dropped by 15-to-40 percent from 2000-to-2019, even as real GDP rapidly expanded.

That’s because it simply takes much less material input to produce economic output in an advanced economy, and there’s no reason that trend will not accelerate globally.

In reality, the facts indicate that the downside of a rapid population shrinkage far outweighs any upside associated with “Peak Human.

” To begin with, the implications for economic growth will be catastrophic unless a new paradigm emerges.

Rich economies have historically grown at around three percent annually over the long run, adjusted for inflation.

On average, that three percent has been composed of two percent productivity growth plus one percent population growth.

With a declining population, economic growth could fall to just one percent; that’s two percent productivity growth minus a one percent population decline.

Or even worse to zero, despite an otherwise productive economy.

This is not a fantasy.

It’s essentially the reality we’ve seen unfold for Japan’s economy.

That is, Japan and similar countries whose GDP growth per capita performance has been lackluster, have actually done surprisingly well in terms of GDP growth per working-age adult.

Indeed, from 1998 to 2019, Japan grew slightly faster than the U.

S.

in terms of GDP per working-age adult, a cumulative gain of 31.

9% vs.

29.

5%.

All the talk about “two lost decades” is because Japan is simply growing at the speed one would expect given its demographic realities.

As we contemplate living and investing in the EU, China, South Korea, Taiwan and even the United States, we need to recognize that there are at least three big advantages to maintaining a fast pace of absolute national economic growth and not simply focusing on GDP per capita or GDP per working adult.

1.

A downshifting economy makes it harder to manage public debt and fully fund social safety net programs including pensions and healthcare.

2.

Larger economies have more influence in international trade and politics.

They can negotiate more favorable trade deals and have greater leverage in international organizations.

And, 3.

If you’re the military power that’s keeping the world from spinning out of control, it’s probably better to have a bigger economy (with a bigger population) than a smaller one funding your military.

Since the beginning of the Industrial Revolution, 250 years ago, productivity growth of two percent has been “average.

” But since roughly 1973, that’s been a tough target for the United States to achieve.

We’ve discussed the so-called “Great Stagnation” in prior Trends issues.

And all other things being equal, the challenge is likely to get more difficult in a shrinking world.

Why? Because a world with fewer people, is a world with fewer people thinking up new ideas; that’s a big problem.

As Stanford University economist Charles I.

Jones explains in a study titled “The End of Economic Growth? Unintended Consequences of a Declining Population, research shows that “economic growth is driven by people discovering new ideas.

These models typically assume either a constant or growing population.

However, in high income countries today, fertility is already below its replacement rate: women are having fewer than two children on average.

As explained earlier it’s likely that global population will decline rather than stabilize over the foreseeable future.

In standard economic models, this has profound implications; rather than continued exponential growth , living standards stagnate for a population that vanishes.

” As Jones concludes, “More people mean more ideas and innovations.

With fewer people, especially fewer researchers and entrepreneurs, there will likely be less innovation.

So, key breakthroughs are less likely.

” According to Fernández-Villaverde, “For the last three centuries, humanity has been participating in a race in which, on the one hand, it is increasingly difficult to come up with new ideas, but on the other hand, there are more and more of us engaged in research.

These two forces have counteracted each other, and the result of the race, so far, is that we have been able to develop new technologies and scientific advances that have given us that 2 percent average annual growth in labor productivity.

With a falling population, we will start to lose the race.

” What’s the bottom line? "Peak human” is coming! A chart in the printable issue titled “ The Five Stages of the Demographic Transition” shows why rapid population growth was a temporary phenomenon.

In Stage 1 , birth rates and death rates both remained high for millennia, leading to relatively stable population.

In Stage 2 , the 19th and 20th centuries saw breakthroughs in agriculture and health care which lowered death rates, but not birth rates, leading to very fast population growth in most countries.

In Stage 3 , urbanization and industrialization led to greater workforce participation and collapsing birth rates causing population growth to slow.

Now, as we move through Stage 4 in the 21st century, birth rates have gotten so low in most countries that they are exceeded by death rates, leading to smaller populations.

In Stage 5 , behavioral and technological factors in the decades ahead could alter birth and death rates, ultimately leading to a rise or continued fall in population.

We already see selected economies in East Asia and Europe aging and shrinking.

However, we’re just not sure how soon the global decline will begin or how fast it will occur.

That means individuals, nations, and companies should plan for this unprecedented reality.

In doing so, they need to recognize that national trends will vary substantially.

The EU and East Asia will lead the way, while North America and South Asia will have more time to get ready.

However, everyone will be impacted due to the globalized nature of the economy.

The greatest challenge of the 21st century will be innovating our way through this transitional epoch.

Given this trend, we offer the following forecasts for your consideration.

First, an aging and shrinking society will be less dynamic.

As the average person in society becomes older, society will adopt fewer new technologies and you’ll have fewer new entrepreneurs and innovators.

Consider that the U.

S.

now has fewer new businesses than 10, 15, or 20 years ago.

UCLA economist Hugo Hopenhayn has convincingly demonstrated that this is primarily driven by the fact that we have fewer 25-year-olds.

This makes sense: History shows that most new firms are created by people in their late-20s; and we now have fewer people in their late 20s.

Furthermore, the research shows that people in their late 20s are still creating firms at the same rate as before; there are simply less of them, so you have fewer new firms.

Second, the change in age distribution will change population distribution within countries.

If South Korea loses 30 million people, those people are not going to disappear from Seoul; they’re going to disappear from rural areas.

Why? People will move out of rural areas as their populations drop below the critical levels needed to support certain resources such as supermarkets and hospitals.

Even people who want to live in small rural venues will move out because there are no services in those rural areas anymore.

And then, what do we do with those rural areas? In some countries like Japan and Italy, they are already being abandoned.

Third, aging and shrinking societies will create an array of potentially dysfunctional psychological, sociological, and economic problems for which mankind is largely unprepared.

Consider just three of them.

1.

In low fertility societies with longer lifespans, children often grow up with numerous adults but few peers; we’ve already seen this phenomenon in the case of China’s “little emperors.

” The intense focus of attention and resources on a single child affects socialization and peer interactions.

2.

Longer lifespans and smaller families will mean inheritances are passed down later, influencing young adults’ work and financial attitudes.

This additional waiting for substantial wealth transfers will impact labor decisions and economic planning.

And, 3.

Older generations will need to work longer, creating career progression challenges for younger people.

Opportunities for advancement will be reduced, causing frustration among young professionals about their career prospects.

That brings us to forecast number four… Fourth, on a global scale, migration will create almost as many problems as it resolves.

While attracting people from other countries to your country seems like an obvious fix for governments, there are three clear problems.

1.

not every country will be seen as attractive to potential immigrants, 2.

at a certain point, the size of the foreign-born population will likely be politically untenable, and 3.

unless you’re attracting people from other planets, the global population will continue to drop regardless of the degree of migration between countries Fernández-Villaverde cites the example of South Korea which will lose 60 percent of its population before 2110.

To keep the population constant, it will mean 60 percent of the people living in South Korea will not be of Korean heritage.

Has any society undertaken such a deep demographic change over just three-to-four generations? Can any political system digest that much change? It’s one thing to add 10-to-20 percent immigrants.

It’s a very different thing to add 60 percent.

For less developed countries the problem is different, but just as real.

In a finite and shrinking world, mass migration will mostly be to advanced economies, such as the U.

S.

or South Korea, rather than to less developed ones.

For example, assume the U.

S.

is bringing immigrants from developing economies in 2040; that means the demographic shortfall of these developing economies is going to become even more serious.

Consider the case of Brazil.

It will probably start shrinking around 2030 or 2032, if not earlier.

In this scenario the best and the brightest of Brazilians move to the U.

S.

or to Europe.

Already, there are a lot of top Brazilian students and researchers at any good U.

S.

university.

As Brazil starts losing population, the questions become, “Which immigrants can it attract?” and, “Who’s going to move to Brazil?” This is another reason Americans should be thankful their country has an unparalleled ability to attract and assimilate immigrants.

Research shows that immigration is pretty much the only policy that can indisputably boost population, even in the short-term.

Yet, few countries can pull it off.

And it will get harder to execute as we approach and pass “Peak Human.

” Fifth, with rare exceptions, efforts to enhance birthrates will fall flat.

Russia, Japan and a range of EU countries have tried to use incentives to increase birth rates since at least the 1990s.

Unfortunately, research suggests that children do not fit into many millennials’ life plans.

Before the transitional Baby Boom generation, it was a “sacrifice” not to have children; but in every generation since them, starting a family has meant “sacrificing independence.

” Researchers say that “In most societies, having children was a cornerstone of adulthood.

Now they are something you have if you already have everything else.

It becomes the capstone.

” In short, the only women who have kids are either “those who can do it all” or those that “can’t do anything else.

” That means that the “great middle” tends to remain childless, while only poor and rich have offspring.

- Sociologists attribute this pattern to so-called “workism,” the hypothesis that family formation is undermined by the increasing value and importance that individuals and societies place on having a career and achieving workplace success.

“Workism” as defined here is not just about having a well-paying job, it’s about seeing a career as central to one’s identity, social status, sense of meaning, and purpose.

Personal fulfillment comes through meaningful work rather than through building a family.

As Tim Carney of the American Enterprise Institute wrote recently in the Washington Examiner , “This points us toward the key issue here.

The super-individualistic culture of Europe and the U.

S.

is not a fitting habitat for family formation.

Also, a society that values career above all else is not a place where families will bloom.

” - Assuming “workism” is at the root of declining birth rates, is it something that can be fixed using policy incentives? Research in countries like Finland indicate that they are not.

So, that could imply an inevitable death spiral.

However, as Fernández-Villaverde and others note, there are major differences in birthrates between religious and secular groups today.

Quite possibly, the answer is that secularist populations will become essentially extinct, while the religious will become more prevalent.

And, Sixth, unless government creates too much inertia, the economic, social, and geopolitical crises potentially arising from our aging and shrinking population will be largely addressed by technological innovation operating within a free market.

In short, AI and Robotics will permit entrepreneurs to deliver breakthrough solutions which make these challenges manageable.

In the short-term, generative AI and large language models will make routine knowledge work far more cost-effective and make formerly impossible products and services commonplace.

However, that’s just the tip of the iceberg.

- So-called “analytic AI” will utilize state-of-the-art robots and sensors to discover a flood of breakthrough ideas by making scientists and technologists more productive.

As a result, the burgeoning field of Knowledge discovery will turbocharge technological progress and economic growth creating game-changing materials, drugs, chemicals, and organisms.

A likely outcome of this research will be adding 10-to-20 years to the average healthy lifespan by 2100.

- Beyond that, advanced economies facing Peak Human will benefit enormously as cost-effective service robots become widely available in the 2030s.

As we discuss in trend #3 this month, that requires overcoming three huge parallel challenges: unit cost, functionality, and market acceptance.

Today, each remains daunting, but we’re confident that all three will be largely resolved in time to address the coming global “skills shortage.