Chart of the Day, 17 Jan 2015: Growth and Demographics

I have been struggling to find the time to complete long-form posts, but am continuously coming across subjects of interest to this blog. To capture some of this great content I have decided to introduce a Chart of the Day to highlight topics relating to climate change, resource constraints, economic growth and human welfare. Accordingly, I am kicking off with this chart from a McKinsey report on growth and ageing demographics (click for larger image):

17 Jan 2014 McKinsey jpeg

Basic message is get used to slower growth, since much of past growth was achieved on the back of an expanding labour force. As usual, a big caveat: growth does not equal welfare, although it does more so in less-developed countries.

Separately, I think the productivity forecasts look a bit rich, which means the growth slowdown could be even more extreme. The dance between technology and productivity is a hot, hot topic in economics at the minute and I will return to this theme later.

Finally, the McKinsey numbers fail to capture the impact of resource constraints and climate change, both of which will be kicking in with a vengeance well before the 50-year forecast comes to pass. Economic welfare, at both the household and state level is a function of both income and wealth. For example, if a country’s wealth (capital stock and infrastructure) is getting trashed by climate change then economic welfare will fall even if income (GDP) is holding up.

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