Taps Coogan, December 12th, 2020

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Amid the ongoing debate about whether or not America’s future will be inflationary or deflationary, it’s worth mentioning that the US working age population officially started shrinking in 2019 for the first time on record.

US Working Age Population Growth

Why does this matter? GDP is, in essence, the economic productivity of the average worker times the number of workers in the country. Sustaining overall economic growth with a shrinking workforce requires ever higher worker productivity, something that the US has had a particularly hard time generating since the Global Financial Crisis. To make matters worse, as the working population shrinks, the rapidly expanding federal debt falls on the shoulders of each remaining worker even faster.

Destination Japan?

Japan’s working age population peaked in the fourth quarter of 1997. Since then, it has experienced roughly zero nominal GDP growth and vanishingly little growth in the benchmark Nikkei 225 stock index (until the Covid bailouts sent stocks surging this year).

Japan Nominal GDP, Yen

Nikkei 225

Since 1997, Japan’s government debt has surged from 106% of GDP to a world record 236%, which has necessitated ever more debt monetization from the Bank of Japan. That monetization has pushed Japanese overnight rates negative since 1999, devastating its economically vital banking sector.

Is this the destiny for the US?

The UN projects that the US working age population will continue to grow (slightly) through 2100. So far, their projections have over-estimated growth. A main reason cited for the over-estimation is spiraling drug overdoses and suicides among prime working age Americans in forgotten rust-belt towns and cities. Just as the tide was maybe starting to turn on the opioid epidemic and manufacturing employment saw its biggest jump in 30 years, Covid struck. In addition to directly killing a small percentage of people in the working age population (less than a typical year of opioid overdoses), the economic ramifications of lockdowns are inevitably going to lead to a spike in drug and suicide deaths that will likely far outweigh and outlast Covid for this demographic. Economic recessions, pessimism, and over-indebtedness also tend to lower the fertility rate.

Time will tell if the working age population returns to growth or not, but if not, add it to the pile of headwinds that we face once we get through the inevitable economic bounce-back next year.

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