Patrick Schwerdtfeger is not an economist. He is an author and speaker who specializes in global mega trends and online marketing. The very existence of online marketing is the result of one mega trend (technology) and demographic shifts around the world are another. Developed countries are aging and have a relative “youth deficit” while emerging economies have “youth bulges” and are growing quickly. These demographic shifts are reshaping our world.
Patrick’s underlying premise is that a country’s GDP is driven primarily by it’s own population and the age profile of that population. Young people (age 0 to 24) are generally healthy but not productive. Working people (age 25 to 64) are generally healthy and productive. Retired people (age 65 and older) are generally not healthy and also not productive. These are clearly generalizations. There are exceptions in each group. But measured across an entire population, these generalizations are valid.
As a result of these age generalizations, it can be said that younger people have a neutral to slightly negative impact on GDP, working people have a very positive impact on GDP and retired people have a negative impact on GDP. So by measuring the population and how heavily the different age categories are represented, you can make broad predictions about the economy and what direction it is likely to evolve. Better still, because population is easy to forecast, these economic predictions can look literally decades into the future.
There are obviously many other factors that impact GDP, so the forecasts included on this site incorporated a number of “adjusters” to the demographic foundation. First, the projected population in 2050 was adjusted for the age profile expected at that time. The middle-aged working group was weighed heavier while the youth and retired groups were weighed less. The population was then adjusted again to reflect expected increases or decreases in per capita income (or the standard of living). Incomes in many developed nations are flat or even falling slightly while incomes in developing nations like China are rising quickly.
This adjusted population base was then adjusted for international trade. The portion of GDP that is not exported was calculated to grow in proportion to the population while exports were calculated to grow in proportion to the global population. The final growth numbers were then ranked from zero growth (or even contraction) to strong growth. The fastest growth was calculated in Nigeria, a country whose population is expected to grow by 145% between 2010 and 2050. The slowest growth was calculated in Japan, whose population will shrink by 17% during the same time period.
Political volatility is primarily a function of a country’s youth. Young people tend to be under-employed, financially frustrated and politically restless. Looking back in history, the correlation between youth bulges and social unrest is extremely high. America had significant social unrest when its baby boom was in its teenage years and early twenties. When a population has a lot of young people in it, protests often follow.
To calculate political volatility, the model began with the young component of the population and then added adjusters for government debt and economic growth. Countries with high government debt (as a percentage of GDP) have less resources to appease the protesting population. Spending programs and stimulus packages are no longer an option. And in extreme cases, governments have to impose austerity measures, reducing wages and entitlements, to balance their budgets. While necessary, these measures add to social unrest.
Meanwhile, strong economic growth tends to reduce social unrest. When an economy is doing well and unemployment is low, protests tend to decrease. Conversely, economies struggling with slow economic growth and high unemployment tend to have more protests and political volatility. So the demographic foundation was adjusted for economic growth to arrive at a final volatility measure. The 23 countries studied were then ranked from 0 to 100 where Germany and Spain tied for the lowest score at 9 and Pakistan ranked the highest with 94.
Again, please keep in mind that these projections are designed to reflect the a 40-year time period. Because this is such a macro-oriented approach, reality my vary widely from these projections along the way, but the general trend should follow it over time. It also does not account for the skewing affect the media has on current events. Russia, for example, had protests when Vladimir Putin was re-elected in 2012 and the media covered those protests extensively. The model projects Russia to remain politically stable. The reality is probably somewhere in the middle. The media exaggerated the protests and the volatility was also in a short-term abnormally high point.
The demographic projections for 2010, 2030 and 2050 were taken from the World Bank website, as was government debt, imports and exports, consumer spending as a percentage of GDP and projected per capita income by country. Government debt was later cross-referenced with a different table on Wikipedia, which was also the source of median age and life expectancy by country.
DISCLAIMER: Do not base any investment decisions on these projections. They are provided for illustrative purposes only. The model used to calculate projected GDP and political volatility are extreme simplifications of real life. Real economies are affected by countless variables which are not reflected in these projections and calculations.
