Monday, September 10, 2018

End of Growth Among "Haves" Dooms Growth Among "Haves" & "Have Nots" Alike

The global economic system is premised on growth, not just any growth, but growth where it matters (economically).  However, population growth (the foundation of economic growth) among the high and upper middle income nations of the world is rapidly winding down.  As I have outlined previously, total births have been declining among the combined high/upper middle income nations since 1988 and now births are declining everywhere but among the low income nations of the world (HERE).  Without growth among the importers of the world with the income, savings, and/or access to credit...there is no growth for exporters.

The high and upper middle income nations represent 49% of the worlds population but 91% of global GNI (gross national income) and 89% of total global energy consumption (as well as gross commodity consumption).  The decades, or more properly, centuries of growth among these wealthier under 65 year old populations (that drove economic activity) will cease around 2022.  All subsequent population growth will be among the 65+ year olds of the wealthier nations, particularly among the 75+yr/old population and the masses of the poor nations.  The end of population growth and subsequent reversals in these wealthier nations is ushering in an era of economic and consumptive decline unlike the contemporary world has ever seen.

FYR - The national income groupings are based on the World Bank Atlas method (detailed HERE) and listed in full at the articles end.  High income nations have per capita incomes over $12k/yr (and as high as $80k/yr) and upper middle nations have income per capita ranging from $12k/yr to $4k/yr.  This is compared with lower middle income nations with per capita income ranging from $4k/yr to $1k/yr and low income nations below $1k/yr.  All population data is based on UN data and medium variant forward looking estimates.


The chart below shows the annual population change of the high and upper middle income nations, further broken down by which age segments are growing, from 1950 through 2050.  Annual total population change among the high and upper middle income nations (yellow line, below) essentially double peaked in 1969 (+42 million/yr) and again in 1988 (+44 million/yr).  During both those years, the 0-64 year old population increased by 38 million/yr (blue columns) while the remainder was growth among the 65 to 74 (maroon columns) and 75+ year old populations (black columns).  The forward estimates assume current rates of immigration...absent that, the under 65 populations would fall away significantly faster.

In 2018, total high and upper middle income population growth will be +22 million persons or just half of that of the 1988 peak...but the distribution of that growth is unlike anything seen previously.  Unlike '69 or '88 when over 85% of the growth was among the under 65 year old population...in 2018, just 21% of the consumer nations population growth will be among the under 65 year olds, 62% will be those aged 65 to 74, and the remaining 18% will be among the 75+ year olds...and it rapidly worsens from here.
The changing source of population growth from young to the elderly changes everything.  As the chart below details, income and expenditures (along with workforce participation rates) are a simple bell curve.  Based on the age of the head of household, income, expenditures, and labor force participation rise and then peak in the 45 to 54 year old portion of ones life.  Income/expenditures fall in half by the time one is 75+ years old.  Labor force participation at 75+ years old is just a meager 8% and only expected to rise by a few percentage points over the next decade.  Obviously, this is US data, but the point is true throughout the high and upper middle income countries.If we focus solely on the annual growth among the potential workforce and their participation rates (70% among 0-64, 27% among 65-74, 8% among 75+ year olds), alarm bells should be ringing.  The chart below shows the annual population change, broken down by age segment and multiplied by US participation rates...US rates are far higher than most the rest of the world).  That is to say, the collapse in the potential workforce shown in the chart below is far too optimistic and the reality is closer to the annual changes among the 0-64 year old population (blue columns).  Clearly, the breakdown of growth in potential employees is a breakdown in growth of potential consumers and the negative feedback loop is off and running.
The high and upper middle income nations of the world haul in 91% of the global income.  The chart below details gross national income (GNI), by national income groupings.  High income nations (black line, below) represent 64% of the global income while upper middle income nations (yellow line) represent 27%.  The lower middle income nations (maroon line) are 3.1 billion persons in 2018 but produce just 8% and the low income nations of the world are about 700 million persons (blue line) but produce less than 1% of global income.
Total primary energy consumption (all energy consumed including oil, natural gas, nuclear, coal, renewable) by group in quadrillion BTU's, below.  High income nations consume 48% of global energy but their energy consumption (black line) peaked in 2007.  The high income nations global energy consumption continues declining.  The upper middle income nations consume 41% of global energy and are presently in the energy consumption peaking process (yellow line).  The lower middle income nations consume 11% of global energy and the low income nations consume less than 1% of all global energy.
The end of growth among high and upper middle income nations under 65 year old populations is an absolute game changer.  The remaining growth among the 65-74 and 75+ year old populations neither supplies adequate workforces nor adequate growth in consumption to justify the growth in the workforce.  Workforce participation rates will continue to plunge.  The under 65 year old consumer population will peak about 2022 and be in decline indefinitely thereafter.  The global economy is set to suffer a massive convulsion from low interest rate fed overcapacity versus the inescapable collapse in demand.

Of course, federal government and central bank policies and activities (overt and otherwise...starting with The Farce That is the US Treasury Market like those of the EU and Japan) are driving asset prices inverse to the economic fundamentals (How Did America Go Bankrupt? Slowly, At First, Then All At Once!!! ).  Ludicrous asset prices are a sign of extreme weakness and fear of what "free markets" would do absent the invisible hand(s).  To highlight this rising disparity, the chart below shows US household net worth (HHNW, blue area) over $100 trillion representing the total current value of all assets privately owned versus US disposable personal income (DPI, green area) representing all income remaining after all taxation.  The yellow line represents net worth as a percentage of DPI.  Never has all forms of income been a smaller percentage of asset valuations (and it would be nearly 700% now had it not been for the recent farcical adjustments to DPI).  Said simply, asset prices are rising far faster than the sum of all income (and this is saying nothing about the great disparity among a shrinking cadre owning the bulk of those assets and reaping the bulk of the income).

This sort of asset price fixing in the face of organic economic weakness has never worked.  This time, in the face of large scale declines underway in the consumer populations of the world, this price fixing is only exacerbating an already monumental shift from a high growth to low/no growth world...and ultimately to a global economy that must remodel itself to survive for decades or even perhaps centuries amid secular economic decline.

Extra Credit - US federal debt growth per period versus 15 to 64 year old population growth versus full time jobs growth per period (below).  As population growth among the 15 to 64 year old population wanes, jobs growth wanes, but debt creation goes berserk.  One can only guess at the minimal jobs growth and massive debt growth over the next decade as working age population growth will be minimal (and the estimated population growth over the next decade assumes immigration at higher levels than the US is presently experiencing...so significantly lower 15 to 64yr/old population growth is not just possible but probable).
Charted below is the federal debt added per period as a percentage of GDP growth per period vs. 15 to 64 year old population growth and full time jobs added per period.  We are truly off the map in the most recent period but the coming decade gets far more dire.
Finally, just for quick reference, a listing of all the nations in each grouping, by income per capita, below:


HIGH-INCOME ECONOMIES ($12,056 OR MORE, 81 Nations)

  • Andorra
  • Germany
  • Oman
  • Antigua and Barbuda
  • Gibraltar
  • Palau
  • Argentina
  • Greece
  • Panama
  • Aruba
  • Greenland
  • Poland
  • Australia
  • Guam
  • Portugal
  • Austria
  • Hong Kong SAR, China
  • Puerto Rico
  • Bahamas, The
  • Hungary
  • Qatar
  • Bahrain
  • Iceland
  • San Marino
  • Barbados
  • Ireland
  • Saudi Arabia
  • Belgium
  • Isle of Man
  • Seychelles
  • Bermuda
  • Israel
  • Singapore
  • British Virgin Islands
  • Italy
  • Sint Maarten (Dutch part)
  • Brunei Darussalam
  • Japan
  • Slovak Republic
  • Canada
  • Korea, Rep.
  • Slovenia
  • Cayman Islands
  • Kuwait
  • Spain
  • Channel Islands
  • Latvia
  • St. Kitts and Nevis
  • Chile
  • Liechtenstein
  • St. Martin (French part)
  • Croatia
  • Lithuania
  • Sweden
  • Curaçao
  • Luxembourg
  • Switzerland
  • Cyprus
  • Macao SAR, China
  • Taiwan, China
  • Czech Republic
  • Malta
  • Trinidad and Tobago
  • Denmark
  • Monaco
  • Turks and Caicos Islands
  • Estonia
  • Netherlands
  • United Arab Emirates
  • Faroe Islands
  • New Caledonia
  • United Kingdom
  • Finland
  • New Zealand
  • United States
  • France
  • Northern Mariana Islands
  • Uruguay
  • French Polynesia
  • Norway
  • Virgin Islands (U.S.)

UPPER-MIDDLE-INCOME ECONOMIES ($3,896 TO $12,055, 56 Nations)

  • Albania
  • Fiji
  • Namibia
  • Algeria
  • Gabon
  • Nauru
  • American Samoa
  • Grenada
  • Paraguay
  • Armenia
  • Guatemala
  • Peru  
  • Azerbaijan
  • Guyana
  • Romania
  • Belarus
  • Iran, Islamic Rep.
  • Russian Federation
  • Belize
  • Iraq
  • Samoa
  • Bosnia and Herzegovina
  • Jamaica
  • Serbia
  • Botswana
  • Jordan
  • South Africa
  • Brazil
  • Kazakhstan
  • St. Lucia
  • Bulgaria
  • Lebanon
  • St. Vincent and the Grenadines
  • China
  • Libya
  • Suriname
  • Colombia
  • Macedonia, FYR  
  • Thailand
  • Costa Rica
  • Malaysia
  • Tonga
  • Cuba
  • Maldives
  • Turkey
  • Dominica
  • Marshall Islands
  • Turkmenistan
  • Dominican Republic  
  • Mauritius
  • Tuvalu
  • Equatorial Guinea
  • Mexico
  • Venezuela, RB
  • Ecuador
  • Montenegro


LOWER-MIDDLE-INCOME ECONOMIES ($996 TO $3,895, 47 Nations) 


  • Angola
  • Indonesia
  • Papua New Guinea  
  • Bangladesh
  • Kenya
  • Philippines
  • Bhutan
  • Kiribati
  • São Tomé and Principe
  • Bolivia
  • Kosovo  
  • Solomon Islands
  • Cabo Verde
  • Kyrgyz Republic
  • Sri Lanka
  • Cambodia
  • Lao PDR
  • Sudan
  • Cameroon
  • Lesotho
  • Swaziland
  • Congo, Rep.
  • Mauritania
  • Timor-Leste
  • Côte d'Ivoire
  • Micronesia, Fed. Sts.
  • Tunisia
  • Djibouti
  • Moldova
  • Ukraine
  • Egypt, Arab Rep.
  • Mongolia
  • Uzbekistan
  • El Salvador
  • Morocco
  • Vanuatu
  • Georgia
  • Myanmar
  • Vietnam
  • Ghana
  • Nicaragua
  • West Bank and Gaza
  • Honduras
  • Nigeria  
  • Zambia
  • India
  • Pakistan  



LOW-INCOME ECONOMIES ($995 OR LESS, 34 Nations)     

  • Afghanistan
  • Guinea-Bissau
  • Sierra Leone
  • Benin
  • Haiti
  • Somalia
  • Burkina Faso
  • Korea, Dem. People's Rep.
  • South Sudan
  • Burundi
  • Liberia
  • Syrian Arab Republic
  • Central African Republic
  • Madagascar
  • Tajikistan
  • Chad
  • Malawi
  • Tanzania
  • Comoros
  • Mali
  • Togo
  • Congo, Dem. Rep
  • Mozambique
  • Uganda
  • Eritrea
  • Nepal
  • Yemen, Rep.
  • Ethiopia
  • Niger
  • Zimbabwe
  • Gambia, The
  • Rwanda
  • Guinea