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The Economic Implications of an Older World

People are living longer, but having fewer children. Michael Falk and Laurence Siegel debate the ramifications for global growth.

Paul Kaplan, 02/10/2014

In late 2012, the CFA Institute’s flagship publication, the Financial Analysts Journal, published a thought-provoking essay by the research director of the institute’s research foundation, Laurence B. Siegel, titled “Fewer, Richer, Greener: The End of the Population Explosion and the Future for Investors” (November/December 2012). Siegel predicted that the world’s population would level off and might even begin to decline within two generations (hence, “fewer”), that humanity as a whole would be wealthier (“richer”), and that these improvements in the human condition would provide the means to reverse the damage that industrialization has had on the physical environment and even improve it (“greener”).

Siegel’s optimistic predictions, however, are not without risks and challenges that must be faced if they are to pan out. While the size of the human population may be leveling off, its age composition is changing dramatically. We are becoming older, but not necessarily healthier. Michael Falk, CFA, a partner with the Focus Consulting Group and the chief investment strategist at Mauka Capital, has been studying global demographic trends and the implications for investors for many years, especially for those nearing retirement. He has lectured on this topic at meetings of CFA societies throughout the world.

Siegel and Falk both spoke about their respective work on these topics at the Morningstar Investment Conference in Toronto last year. We thought that readers of this magazine would benefit from their wisdom, especially on the practical advice that they have for investors. We brought them together for a discussion on Dec. 23. Our conversation has been edited for clarity and length.

Paul Kaplan: Larry, for our readers, could you briefly summarize your article “Fewer, Richer, Greener: the End of the Population Explosion and the Future for Investors.”

Laurence B. Siegel: My main point is that outside of tropical Africa and parts of the Middle East, the population explosion is over. In other words, the whole world has adopted first-world levels of population growth. This takes tremendous pressure off of the world’s resources and environment and enables a lot of problems to be solved more easily, especially environmental problems that are hard to solve when the population is growing 2% to 3% a year.

I also expect that the economic growth that has taken place over the past couple of centuries is going to continue at about the same rate during the rest of this century. That growth rate has averaged 1.8% a year, real, per capita.

Kaplan: William Bernstein responded to your article with his own piece in the Financial Analysts Journal, titled “The Paradox of Wealth” (September/October 2013), about the implications of your long-term forecast. He’s less optimistic about security returns.

Siegel: Bernstein makes a second-order point that’s correct, but I make a first-order point that’s also correct, which is that the economy is going to continue to grow, so returns should be roughly similar to those in the past.

Paul Kaplan is the Quantitative Research Director for Morningstar Europe.

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