Robots Are Demographics

Two things struck me recently that really made me step back and think hard...

First, Elon Musk has been writing on Twitter many, many times that the biggest threat to humanity is the ongoing collapse in global population. He is always cryptic as to why it’s an issue. Sure, global GDP might go down but GDP per capita probably rises. I just thought he was being alarmist on an economic level, much like Malthusians on the other side of the spectrum.

But in my conversation with Balaji Srinivasan, one of the best thinkers and futurists I know, we stumbled across something by accident – a realisation that robots and AI are demographics. Indeed, robots and AI will replace the missing population over time.

These two separate ideas rolled into a much larger idea for me and something that the future of humanity will rest upon. Yes, it is that important.

Let’s dig in...

Population collapse

Elon is of course correct that global population growth is collapsing. This is something I have been writing about for a long time. The baby boom in India and the Middle East (plus a few other mainly Muslim countries) has given those countries incredible demographics but hide the fact that birth rates in those countries are falling sharply.

The fall in population growth rates are due to a mix of influences: lower child mortality (means families in poor countries need less kids to support the family into old age); increased longevity (improving access to healthcare and breakthrough in medical science); rising costs of living in real terms (real wage growth is low); rising costs of housing versus incomes; rising costs of education; globalisation creating tough competition for jobs; and finally, the rise of technology which replaces people in the workforce.

The simple view

The take from this would be that if world GDP still grows (albeit at a slower pace) but human population declines, then per capita GDP rises and competition for scarce resources eventually declines too.

But this is first order thinking...

 The big picture

Let’s start with framing what is going on with a few charts...

Population growth globally is now only 1%...

And the collapse in future growth is already baked into the cake due to fertility rates... humans are only just being born above replacement rates...

By 2100, growth will hit zero and the global population will be shrinking...

... and when you put it together, it is pretty shocking...

There is the view that falling populations are beneficial in that they use less environmental resources, which is true, but the issue is that large parts of the world are coming into peak consumption and more than offset the loss of population in the West (i.e., global population continues to grow) ...

Age matters

The average age of 1.4bn Indians is 28.7 years old! They are just about to come into peak wealth creation and consumption, much like the Baby Boomers in the US back in the 1970s. Pakistan has an average age of 22 and Bangladesh has an average age of 27.6.

That accounts for 1.8bn people about to come into their peak consumption and investment cycle. This is a quarter of the entire world’s population!

This is one of the key reasons I’m immensely bullish on the region. The future of world growth is going to move to the Indian subcontinent.

We need new energy

This is also a reason for the world to shift very quickly to renewable energy. We simply can’t use fossil fuels to deal with a rise in India’s per capita electricity consumption from 1,200 kWh per year to the 6,000 per year that China consumes, or 12,000 per year that the US consumes, or the EU at around 7,000.

The race to solve this is one of the key battlegrounds for the future of the world.

Rich nations are the other problem

But a collapse of growth in world population by 2100 only shows part of the picture. The world’s richest nations are already shrinking in population growth....

The rate of change chart shows this very clearly...

As of 2022, Europe, Japan, and China account for 2.2bn people but, each year going forwards, they will account for less...

The US has the best demographics of the developed world, but it basically hits zero growth by the end of this decade.

The maths

If GDP = Population size + Productivity then for developed countries to keep growing against the demographic decline, the only answer is to increase productivity or there will be an economic collapse.

In the US, the Labor Force Participation Rate keeps falling and is projected to fall even further...

This decline in the working population has driven two things; a massive debt cycle to maintain growth (by robbing from the future) and an ongoing increase in the Fed Balance Sheet to help service that debt, and also drive up the value of assets to support retirees (via debasement) ...

As we all know, this mechanism is also at play in Europe, Japan and China. The trend rate of GDP is declining in line with the demographics. It’s a big fucking mess...

... with the only answers currently being more debasement...

... and more debt...

Tech is the answer

The trend is so alarming for economic growth that the only way to actually change this debt/debasement equation is through the application of technology to increase productivity.

Technology is going to play a crucial role in creating a more economically sustainable future by replacing the loss of population and increasing the productivity of the working population.

We can see this in every part of our lives. Technology is making our lives better, faster, cheaper.

That all sounds lovely and rosy, but it isn’t...

You see, the technology that needs to be applied at scale is the “applications” layer of computers and the internet: AI and robots. These key technologies are growing at such an exponential rate that they are going to dwarf human productivity and crowd out humans from the work force in larger and larger numbers. Real wages will continue their decline because robots are cheaper than humans.

More on this in a bit...

Manufacturing Employment

The number of Americans employed in manufacturing has halved since 1980...

As a percentage of the total labour force, it is now down to 8%...

But as employment has fallen in the sector, GDP from manufacturing has kept rising as factories have become more efficient and productive...

But as Manufacturing GDP has risen, payrolls have not kept pace. This is the hollowing out of the working and middle classes as capital takes a much larger share of the pie versus labour...

But, against this, manufacturing wages have risen 50% since 2006, in line with CPI...

So, if you are a manufacturer, you are highly incentivised to lower the production costs further. At first that was done via offshoring to China and other countries, but increasingly it is coming down to the rise of the robots...

As you can see, the world is quite a big fucking mess... but it seems increasing likely that the exponential changes that are coming will change this. Stick around for part 2 coming out next Sunday.

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