DEMOGRAPHY AND ECONOMIC GROWTH: Tyler Cowen links to this study on shifting demographics of a society in relation to financial market returns, and cautiously suggests there might be something to it.  I agree perhaps there is.  But strikingly, it is precisely what I’ve been turning over in my mind since reading Tyler Cowen’s fine, short essay, The Great Stagnation: How We Ate All the Low-Hanging Fruit.  I think, actually, it should have been subtitled, How We Ate All the Low-Hanging Fruit and After That All the Next Generation’s Seed Corn.

The essay suggests that we’ve already absorbed the easy gains that more or less follow on the genuinely history changing Industrial Revolution, and that incremental gains are much tougher to come by, unless we are fortunate enough to find some new scientific or technological breakthrough of a kind that is difficult to predict, let alone will into being. (I’m simplifying and perhaps editorializing.) Even as I read it, however, my reaction was that it did not take into account – in multiple directions – the effect of an aging population.  Which is what the cited paper attempts to do.  Aging populations take less risk, innovate less, make fewer breakthroughs in new technology, consume more but not necessarily in ways that produce increases to the general standard of living.  And when the aging generation has political power from numbers, they tend to think in terms of themselves – and call it social justice.  Insofar as they have not produced lots of new children, they are less invested in the future after themselves, and are perfectly willing to eat the next generation’s seed corn.

I think all those effects have a huge impact on Cowen’s “low-hanging” thesis, which seems – perhaps I am mistaken – to oddly operate from a demographically static model.  Yet thinking there is something right about this thesis is not the same as saying that investors can easily benefit from it, precisely because it is a generalized effect across markets, asset classes, investment opportunities.  The growth rate in innovation slows – in part for the reasons that Cowen’s essay identifies, and in part for reasons that older populations simply innovate less. The general mean in innovation shifts, perhaps only slightly, but with impacts on the future.  How do you short that?  Go long on populations with lots of young people?  That assumes that they have not just youth and energy, but also education, societies that provide the coherence necessary for innovative ideas to pay off, and lots of other things … that almost none of them has.  The places that have lots of youth are not the places that have the other elements necessary for innovation to take hold and become sources of increase in the standard of living.

(Also, if this sounds like I think my Baby Boomer Generation is morally the most preening and objectively The Worst … yeah.)  [And this post should have been titled: Man-Corn, after that greatest of all coffee-table photo books.  ed.]