Europe's new population bomb

graeme at 6:22 a.m. Sun 28 Feb 2010

The threat of a lack of population is becoming as scary as the threat of too much. The term “population bomb” was coined to describe the strain of resources caused by what looked like exponentially rising populations. Now the problem is an ageing population. Although ever investor should be aware of it already, Eurosharelab has a nice summary of what is expected in Germany.

The problem is pretty clear, and affects most developed countries (and an increasing number developing ones). It is worth considering the impact of the possible solutions. The result has to be some mix of these.

Reduce the cost of old people

This is simple, if unpalatable. Reduce pensions and benefits. Reduce medical services or ration care to older people (the last few years of someone’s life are by far the most expensive in medical terms).

This is once of the two most likely outcomes.

Increase the proportion of resources spent on old people

Drastically increase taxes. It will also reduce the resources going into investment in future growth, and will drain the work force away from from other activities to looking after the old, this is the worst option in terms of the long term impact on the economy (and investment)

An ageing electorate that is unlikely to tolerate too much in the way of cutbacks makes this a near certainty.

Increase the retirement age.

This is an easy way to increase the workforce. The British government is planning on doing this.

Increase immigration

Probably the best option for investors (growing workforce, and immigration by young people who will have children will mean sustainable growth in the workforce) but politically unlikely in Europe.

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