March 03, 2009

Satyajit Das Reviews The Age of Aging

Satyajit Das, the world's leading expert on credit derivatives, has a blog that is worth checking out.

Here's his review of The Age of Aging: How Demographics are Changing the Global Economy and Our World

George Magnus (2009) “The Age of Aging: How Demographics are Changing the Global Economy and Our World”; John Wiley & Sons

In 1798, in the “Essay on the Principle of Population”, Thomas Malthus predicted that that by the middle of the 19th century the growth in population would mean there would no longer be enough food to feed the population of the globe. The modern version of the survival argument is the challenge of “climate change”.

The financial equivalent of the Malthus thesis is that the aging of the global population creates massive financial challenges for governments and societies in providing for this non-working group. The effect of growing longevity and falling birth rates means that the average age of populations increases. This will result, based on current predictions, that in 2050 the world will have about 2 billion people aged over 60, three times as many as today - around 30-40% of the total population in the developed world and 25-30% in the developing world. The overall effect is that the working population will have to support a vastly increased number of dependants. The “demographic time bomb” argument is not new having been highlighted by the World Bank and others.

The author of the “Age of Aging” is George Magnus, a senior economic advisor to UBS Investment Bank (UBS formerly stood for United Bank of Switzerland but humourists now claim it means ‘Ugly Balance Sheet’ or ‘Used to be Smart’). The book is a well-researched analysis of the problem of “global graying”. It provides mind numbing statistics on the problem and some options for avoiding the worst of the problem such as expanding the work forces (through later retirement and greater female participation in the workforce) and higher productivity.

The book alludes to but is relatively inconclusive on a central issue – the need for individuals to save for old age and retirement. Over the last twenty years, governments have privatised retirement savings and also the investment risk of such schemes to a large degree. The Global Financial Crisis has devastated retirement and pension arrangements. Structural problems in these compulsory retirement saving schemes also abound. “Age of Aging” also does not cover, in any detail, the possible effects on asset prices, retirement poverty, availability and economics of old age health-care or intergenerational conflicts.

Perhaps as Thorstein Veblen observed: “The outcome of any serious research can only be to make two questions grow where only one grew before.”

Clearly this topic will become an increasingly more important story as the world approaches 9 billion people (the upper limit acknowledged by most demographers). Some day we will have to learn to live with a population that is more elderly than young. And that time is coming fast.

Satyajit Das's thoughts on this book are pithy, relevant, and entertaining.

Posted by Mary at March 3, 2009 09:59 PM | Recommended Reading | Technorati links |