Today I thought I’d give you something to think about over the Easter break while you’re travelling to be with family, waiting for the Easter Bunny or creeping to the Cross. (Here in New Zealand we get Good Friday and Easter Monday off work – it’s the last public holiday for ages…well, actually two weeks …anyway… )
More and more we are seeing in the news a recognition that the world is not going to continue in the same manner as it has for the last 50 years or so. We can no longer rely on an increasing young population to support the smaller previous generation in old age and continue to grow the economy. The latest example of policy makers trying to come to terms with this changing demographic landscape is from Canada. According to the Bank of Canada Deputy Governor, Jean Boivin, in the future the world’s aging population will lead to increased wages and lower interest rates and lower returns on capital investments. He is grasping the nettle (or at least asking someone else like a politician to grasp the nettle):
“As our society ages, we can either accept a lower standard of living or we can try to be proactive and adjust … The stakes are high and we cannot afford to ignore them,” Boivin said.
“There is no free lunch in that context; something will have to give and someone will have to pick up the tab, so the least we can do is accept this fact and ensure that the bill remains small and that the burden is shared fairly.”
With a shrinking workforce, there will be greater demand for the workers that are left to fill job spaces. Thus, there will be higher wages. Furthermore, the scarcity of labour (relative to capital) will lead to lower returns on capital and “eventually to persistently lower global interest rates”. So, what can we do to prepare for this changing economy?
He said Canada faced three options to avoid drastic declines in living standards or shifting too much burden onto the next generations: more work, greater productivity and higher savings…
Boivin also highlighted the important contribution of immigration to dealing with the aging problem. The budget announced plans to eliminate a backlog of stale applications by foreign skilled workers so that immigrants whose skills are in greater current demand can enter Canada faster.
So, in summary: work harder. Produce more. Save more. Introduce more immigrants.
I can think of a much more fun solution for the longer term: Go Forth and Multiply!