But if demographic decline is not generally a consequence of economic decline, surely it must be a cause? In a crude sense, yes. As populations shrink, GDP growth will slow. Some economies may even start to shrink, too. The result will be a loss of economic influence.
Governments hate the idea of a shrinking population because the absolute size of GDP matters for great power status. The bigger the economy, the bigger the military, the greater the geopolitical clout: annual GDP estimates were first introduced in America in the 1940s as part of its war effort. Companies worry, too: they do not like the idea of their domestic markets shrinking. People should not mind, though. What matters for economic welfare is GDP per person.
The crucial question is therefore what the effect of demographic decline is on the growth of GDP per person. The bad news is that this looks likely to slow because working age populations will decline more rapidly than overall populations. Yet this need not happen. Productivity growth may keep up growth in GDP per person: as labour becomes scarcer, and pressure to introduce new technologies to boost workers efficiency increases, so the productivity of labour may rise faster. Anyway, retirement ages can be lifted to increase the supply of labour even when the population is declining.
People love to worry-maybe its a symptom of ageing populations-but the gloom surrounding population declines misses the main point. The new demographics that are causing populations to age and to shrink are something to celebrate. Humanity was once caught in the trap of high fertility and high mortality. Now it has escaped into the freedom of low fertility and low mortality. Womens control over the number of children they have is an unqualified good-as is the average persons enjoyment, in rich countries, of ten more years of life than they had in 1960. Politicians may fear the decline of their nations economic prowess, but people should celebrate the new demographics as heralding a golden age.
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