How Much Decline = Permanent Recession?

One of the reasons this website exists is that the detrimental effects of population decline on capitalism haven’t been acknowledged yet.

While it has long been known that increasing the population is good for the economy, it is rare for someone to put a value on it. Recently the WSJ reported:

Historically, nearly half of the country’s economic growth has been driven by the expansion of the working-age population, including immigrants, said Neil Howe, an economist, demographer and managing director at Hedgeye Risk Management, an investor-oriented research company. Recent federal-budget projections suggest the potential labor-force growth rate will hover just above zero for years to come, down from a range of 2.5% starting in the mid-1970s to 0.5% from 2008 through last year.

So, whatever the economic growth was since 2008 (roughly 2.2% per year), half of that was due to a 0.5% increase in the working age population.

If we see that population growth become zero, then the GDP will grow by half, say 1.1% per year. If population declines by 0.5% per year, GDP growth will be zero.

Anything worse than a 0.5% drop in working age population, presuming that is ongoing, will mean a permanent recession.

This is best seen as an example of what will happen in other countries, because the US is such a magnet for immigration that they will have that as a way to counteract population decline for a long time. And while a drop in GDP has historically signaled doom, other, more meaningful metrics might emerge.