In an effort not to get completely bored and kill the time peacefully, this weekend I wanted to figure out if an economy based on debt and fiat currency is dependent on a constant population growth in order to be sustainable. Among the reads i did, i have found the Open Yale Course on “Global Problems of Population Growth” (which is excellent btw).

Here are the facts.

Countries with a constant high birth rate have actually a decreasing GDP per capita. The fact is that the more children a family has, the higher is the financial burden for the family. All their income goes into sustaining the family. Without a population that accumulates savings, the country economical development relies mainly on FDI. Add to the fact that countries with high birth rate are very poor, with a poor healthcare and education systems and you have the receipt for generalized and continuous mass poverty.

What was discovered is that actually a high birth rate followed by a drop in the birth rate will lead in 10-15 years to an economic boom. This is excellently well detailed in the course above. This is explained by the fact that in 10-15 years you have a boom of workforce that doesn’t have a high ‘dependency ratio’ – which is your number of workers, divided by your number of children and your number of old folks. It’s only after a delay of 15 to 20 years that you have this huge number of people in working ages, very few children behind them, and the ratio of workers to dependents becomes very good. This is called the demographic gift. If a country gets its fertility down – it can generate its own capital and does not need to depend on foreign sources and foreign control.

The third case is the aging population. Small birth rated leads to an aging population. The working age population ages and eventually becomes a burden again and slows the economic progress. This is accentuated as we live longer and retire earlier (retirement ages has been reducing with about 1 year per decade). Possible solutions are: raise birth rate (it’s just going to increase the problem due to excess births that will actually increase the dependency burden), take in immigrants (causes social problems) and raise the retirement age (one possible solution but difficult politically).

To conclude, constant high population growth is necessary. If the birthrate stabilizes at ~2 children, the population pyramid becomes rectangular: there are approx equal numbers of people at all ages (except the very old) and is sustainable. Countries with aging population might have to raise the retirement age.
On a secondary conclusion, it’s now just so obvious that ‘early retirement’ scheme promoted in Romania have killed the “demographic gift” that Romania could have used in the early 2000. Our 2000-2008 growth was mainly fueled by FDI and savings sent by Romanians working abroad. The good part is that Romanians working abroad continue to send money to Romania and according to the latest reports of the national bank our population is increasing their the savings. Two major sectors need massive changes: education and health. Like everyone in the world, we need to realize that uneducated, poor skilled and sick adults –are not very productive.

Anyway … I really had a lot of free time this weekend.