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Page added on December 7, 2012
The Next Black Swan: Global Depopulation
We’ve all heard the thesis on real estate investing: “They’re not making any more land.” It turns out that before too long we may not be making enough people either.
Global population has been expanding since antiquity, interrupted by wars, disasters, pandemics and famine. Malthusian predictions of overpopulation, unsustainability, and resource depletion have also been a part of conventional wisdom since antiquity and remain popular today (see Paul Gilding’s “The Earth is Full” TED talk). It is, after all, a common trait of the human mind to assume that the past is an accurate predictor of the future.
In contrast with these apocalyptic forecasts, over 40% of the world’s population live in nations with sub-replacement fertility (defined as any rate below 2.1 children per woman)—a common feature among the most prosperous countries. Population is already declining in many other countries, including China, Brazil, Germany, Japan, Italy, Singapore, Hong Kong, Hungary, Latvia, Lithuania, Bulgaria, Moldova, Estonia, Kazakhstan, Georgia, Armenia, Bosnia, Croatia, Slovenia, Ukraine and Belarus. Many more are on the brink. The total population of the continent of Europe, including Russia and non-EU countries, peaked in the year 2000.
For some developed countries such as the United States, sub-replacement fertility is being masked by immigration from poorer countries that are still growing in population. However, the number of such developing countries is shrinking as they convert to developed status. Moreover, a report by the Foreign Policy Research Institute states that the phenomenon of sub-replacement fertility rates is rapidly spreading to developing countries. Should all of these trends continue global population will peak–but then experience a secular decline.
The potential consequences of global depopulation could be substantial, and many could be quite positive. Stress on infrastructure and services would diminish. Land might be abandoned and natural habitats could reappear, along with fauna and flora. What happens to the war over natural resources when the scarcest one of all is human resources?
For investors, the impact on asset prices could be striking. Competition and demand for natural resources such as water, minerals, and oil could wane, leading to deflationary pressure on commodity prices. Real estate prices and debt would also face similar situations. Much would depend on whether the central banks would choose to allow low-grade deflation or otherwise continue to target low-grade inflation in the face of declining aggregate demand.
Where would yield be found in a depopulating world facing the forces of deflation? Bonds would have a low supply of issuers, high demand and a negligible yield. Buildings provide a rent yield, while land provides crop yields. Gold and commodities have negative yields due to storage costs. Stocks—equity ownership in human endeavor—could be the best place to find yield, especially in segments such as healthcare, an industry that will benefit from the rapidly rising average age of the population, accompanied by falling fertility rates. Whatever the strategy may be, it would be prudent for institutions with long-term investment horizons to devote a small but material allocation to the depopulation hypothesis as a hedge against their overall portfolio.
Strikingly, global depopulation risk is not baked into any investment manager’s model today. Although current data and trends suggest the possibility of global depopulation on the horizon, it is priced at zero today. The long history of investing has shown that low-probability, high-sigma scenarios currently priced by the market at zero can yield windfall profits. Even though many investors talk about Nassim Taleb’s The Black Swan: the Impact of the Highly Improbable, you know the market will still miss the next big trend hiding in plain sight.
13 Comments on "The Next Black Swan: Global Depopulation"
Kenz300 on Fri, 7th Dec 2012 2:26 am
Forbes — right wing agenda driven media.
Trying to stir up the religious right into producing future voters for the Republican party.
House on Fri, 7th Dec 2012 3:46 am
Oh Snap!!
I see what your trying to do there Forbes, but I ain’t buyin’ it.
Peak oil and climate change gonna get us long before depopulation becomes an economic problem. Oh, it’s gonna be a problem, the depopulating of the earth (we’re talking humans, we’re already taking care of everything else), but once the depopulatin’ really gets rolling, no one’s gonna be worrying about commodity prices.
Remember, you’ve already survived Peak Oil, the real challenge is to survive Peak Cannibalism.
SilentRunning on Fri, 7th Dec 2012 4:57 am
Right now, the human population continues to swell. Worrying about population decline at this time is like an 800 pound man worrying that he will die of anorexia.
BillT on Fri, 7th Dec 2012 6:02 am
I’m not worried. The population in the West can disappear. Asians will be glad to fill the vacancies.
However, I think Mother Nature has a plan to take care of our resource problems. We call it extinction. She calls it reset. After all, she has billions of years to come up with a replacement for the current system dominated by homo(non)sapiens. If fact, she may try hundreds of new ideas over then next billion years. We humans may have just been an accident.
Pacman on Fri, 7th Dec 2012 9:42 am
This might be a concern if you are a family with huge global wealth trying to pick what to invest in for the extremely long term (150 years+) But thats too big a timescale for my money. I would imagine owning a catchment area at the headwaters of a river system might be a good choice for people with this dilemma. The again climate change could wreck that in the long term
Arthur on Fri, 7th Dec 2012 9:56 am
http://money.aol.co.uk/2012/10/30/the-world-s-most-prosperous-countries/
If you look at the global wealth pecking order the list is dominated by white protestant nations (with strong zionist influence). The US used to dominate the list until it began to gradually stop being a white protestant nation and dropped out of the top ten. Zionist owned Bloomberg is one of the finest representatives of the protestant-zionist alliance that conquered the world since the defeat of Napoleon in 1815, with global capital London until 1918 and New York since the twenties.
The only perspective Bloomberg has considering the global population development is how to make a buck of it, as witnessed by this article. I stopped being a protestant for thirty years and there is still a void.
Science sans conscience on Fri, 7th Dec 2012 1:30 pm
It’s just an agenda to push for more immigration.
Rick on Fri, 7th Dec 2012 4:31 pm
As I was reading this, the article made less and less sense. Then I saw it came from Forbes.
Depopulation is NOT happening. Though as BillT mentioned, Mother Nature will most likely do it for us.
ken nohe on Fri, 7th Dec 2012 11:21 pm
And let’s not forget that The great pestilence of the 14 Century brought us the middle age revival and the Renaissance! Depopulation is actually positive in the sense that it makes everybody richer… provided you inherit wealth, not debts.
But I agree that depopulation should not be a current concern globally although it is close to becoming one locally. That is the case in Russia and even more so in Japan, especially in the countryside where some areas are dramatically depopulated with an average age above 75 years.
JeffBC on Sat, 8th Dec 2012 6:02 am
Population is not declining in China and Brazil. They seem to confuse it with sub-replacement fertility. It takes many years for it to cause population decline since the mortality rate can be even lower due to increasing longevity or a baby-boom bulge.
GregT on Sat, 8th Dec 2012 6:48 am
Does anyone here live in an area where it is not apparent that the population has been increasing dramatically?
I haven’t seen evidence of a decrease in my travels, but I am very curious as to others’ experiences.
ken nohe on Sat, 8th Dec 2012 10:22 am
Greg, the world population is still exploding globally but there are many, many places where you can see depopulation. But you have to go out of the beaten path. What is exploding is urban areas, especially in under developed countries. The countryside in most developed places is less and less densely populated. It is most obvious in Eastern European countries and of course in Japan. One of the very first country to experience this phenomenon was France between the two world wars. Population was stagnating and the movement towards the cities was still rapid. As a consequence many villages lost half or more of their population. It just made, not-very-dynamic old and rather pretty villages! You can see that too in Italy. But you have to go far from the cities as the exurb trend is currently repopulating all the village around urban centers. This trend may soon reverse though due to the high price of gasoline.
Kenz300 on Sat, 8th Dec 2012 3:31 pm
The world adds 80 million more mouths to feed, clothe and provide energy for every year. This endless population growth is not sustainable on a finite planet. The worlds poor are having the most children keeping them poor and hungry.
Access to family planning services needs to be available to all that want it. Every country needs to develop a plan to balance its population with its resources, food, water, energy and jobs. Those that do not will be exporting their people and their problems. We will all be impacted by the worlds growing population and demand on resources thru higher prices for goods, resource shortages and higher immigration.