Demographics are Not Destiny (due to Automation)

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SimpleGift
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Demographics are Not Destiny (due to Automation)

Post by SimpleGift » Mon Jul 08, 2019 2:11 pm

For years, it's been accepted wisdom that those countries with the most rapidly-aging populations (e.g., Japan, Germany, South Korea, soon China) would be experiencing declining economic growth, relative to those countries with generally younger workforces (like the U.S.). However, recent research is disproving much of this theory. This post highlights recent findings:

1. Aging countries have had slightly faster GDP growth since 1990, not slower.
The lack of a strong negative correlation between population aging and economic growth has been a puzzle in recent years. The chart below shows the correlation between aging (the change in ratio of the population above 50 to the population 20-49) and a country's GDP growth per-capita (in constant dollars):
2. Aging countries have been the largest adopters of robotic technologies.
Countries experiencing more rapid aging are the ones at the forefront of adopting automation technology (notably South Korea, Germany, Singapore), especially industrial robots (chart below).
3. Aging countries adopting robotics need not have reduced GDP growth, and may in fact increase it.
While the effects of aging on productivity are ambiguous, in the presence of population aging, industries with the greatest opportunities for automation are experiencing more rapid growth of productivity relative to other industries.

If interested, a WSJ article summarizing this recent research can be found here, plus the original studies can be downloaded as PDFs, both a 2019 paper from MIT and an earlier introductory 2017 paper.

Any thoughts?
Last edited by SimpleGift on Mon Jul 08, 2019 8:20 pm, edited 1 time in total.

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Re: Demographics are Not Destiny (due to Automation)

Post by alpine_boglehead » Mon Jul 08, 2019 2:44 pm

Great post as always, thanks.

Combining this finding with the insight (e.g. from this thread by SimpleGift :D ) that GDP growth and stock returns are not really correlated, I wouldn't know what to make of it, except that it adds support to the nobody-knows-nothing hypothesis.

My takeaway is once more that it's wise to be a humble investor, own a worldwide diversified portfolio and don't act upon some vague beliefs.

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Re: Demographics are Not Destiny (due to Automation)

Post by nedsaid » Mon Jul 08, 2019 2:46 pm

I guess I will need to consider my future robot caregiver in my will. :wink:
A fool and his money are good for business.

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Re: Demographics are Not Destiny (due to Automation)

Post by alpine_boglehead » Mon Jul 08, 2019 2:49 pm

nedsaid wrote:
Mon Jul 08, 2019 2:46 pm
I guess I will need to consider my future robot caregiver in my will. :wink:
HAL9000 : Affirmative, Ned. I read you.

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Re: Demographics are Not Destiny (due to Automation)

Post by SimpleGift » Mon Jul 08, 2019 3:11 pm

alpine_boglehead wrote:
Mon Jul 08, 2019 2:44 pm
My takeaway is once more that it's wise to be a humble investor, own a worldwide diversified portfolio and don't act upon some vague beliefs.
I agree. Reading this research reminded me of the old Mark Twain quip: “What gets us into trouble is not what we don't know. It's what we know for sure that just ain't so.”

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Re: Demographics are Not Destiny (due to Automation)

Post by nedsaid » Mon Jul 08, 2019 4:52 pm

alpine_boglehead wrote:
Mon Jul 08, 2019 2:49 pm
nedsaid wrote:
Mon Jul 08, 2019 2:46 pm
I guess I will need to consider my future robot caregiver in my will. :wink:
HAL9000 : Affirmative, Ned. I read you.
Just don't euthanize me please. :wink:
A fool and his money are good for business.

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Re: Demographics are Not Destiny (due to Automation)

Post by Top99% » Mon Jul 08, 2019 5:57 pm

Automation can certainly help address a reduction in workers but the big question I have is how a shrinking work force will affect the demand side of the economy, especially if this becomes a world-wide phenomena in developed countries. Certainly demand for some goods and services are more coupled to overall wealth than population but many are not. For example, consumer staples.
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Re: Demographics are Not Destiny (due to Automation)

Post by KlangFool » Mon Jul 08, 2019 6:06 pm

Top99% wrote:
Mon Jul 08, 2019 5:57 pm
Automation can certainly help address a reduction in workers but the big question I have is how a shrinking work force will affect the demand side of the economy, especially if this becomes a world-wide phenomena in developed countries. Certainly demand for some goods and services are more coupled to overall wealth than population but many are not. For example, consumer staples.
Top99%,

Declining real wages are affecting the demand side of the economy.

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Re: Demographics are Not Destiny (due to Automation)

Post by SimpleGift » Mon Jul 08, 2019 6:17 pm

nedsaid wrote:
Mon Jul 08, 2019 2:46 pm
I guess I will need to consider my future robot caregiver in my will. :wink:
Robot caregivers may not be as far off as one might think. From what I've read, the robotics market today is dominated by industrial machines (about 95% of all robots produced), the sort used to assemble cars or electrical equipment. But as population aging speeds up, service robots are projected to become much more important.

From a recent article in The Economist: "Japan’s government reckons that 8% of nursing homes now have lifting robots, and its national robot strategy (every country should have one) calls for four-fifths of the elderly receiving care to have some care provided by a robot by 2020." Yikes!
Top99% wrote:
Mon Jul 08, 2019 5:57 pm
Automation can certainly help address a reduction in workers but the big question I have is how a shrinking work force will affect the demand side of the economy, especially if this becomes a world-wide phenomena in developed countries.
My sense is the automated industries in the aging developed countries will be (and are today) increasingly selling their wares to the expanding population of middle-class consumers in the emerging economies (chart below):

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Re: Demographics are Not Destiny (due to Automation)

Post by nedsaid » Mon Jul 08, 2019 9:40 pm

Actually I have seen articles talking about robots for eldercare in Japan. As the population in many developed countries gets older and older, there is a greater need for caregivers. I have noticed that there are companies forming to provide these services and also have noticed that nursing homes are having troubles maintaining full staffing. Robots being caregivers for the elderly is almost like a script that just writes itself. Don't have to be a genius to see this coming.
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Re: Demographics are Not Destiny (due to Automation)

Post by visualguy » Mon Jul 08, 2019 10:58 pm

Or you can have the caregiver operate the robot remotely until the AI is advanced-enough (to let you know you're dying in this example :oops:):

https://www.bbc.com/news/world-us-canada-47510038

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Re: Demographics are Not Destiny (due to Automation)

Post by SimpleGift » Mon Jul 08, 2019 11:05 pm

If the adoption of greater automation — including both industrial and service robotics — is highly correlated with population aging (as the OP research indicates), the world appears to be in for a monumental transformation in the nature of work.

To wit, this year for the first time in the history of the planet, the population of those over 65 is greater than the population of those younger than 5 (chart below) — and this trend will only accelerate. Due to low global birth rates and increased longevity, it's already baked in.
Japan, Germany, South Korea and soon China may be on the leading edge of this automation revolution, but it won't be long before countries with somewhat younger workforces today (like the U.S., Canada and Australia) will be affected as well. What the societal impacts will be on these currently stable, mostly developed economies is an open question.
Last edited by SimpleGift on Mon Jul 08, 2019 11:43 pm, edited 1 time in total.

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Re: Demographics are Not Destiny (due to Automation)

Post by stlutz » Mon Jul 08, 2019 11:14 pm

One thing to be careful of is mixing overall economic growth and GDP per capita.

A country with a flat working-age population and 3%/yr. efficiency gains has GDP growing at 3%. A country with 10% working-age population growth and no productivity growth has an economy growing at 10%.

Which number you care more about probably reflects your thinking on a whole host of other questions (most of which we don't discuss on this forum).

Also, when this discussion comes up I always do have to point out that overall US productivity is not growing that fast right now. Everybody talks about automation, but it actually isn't progressing near as fast as it has historically.

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Re: Demographics are Not Destiny (due to Automation)

Post by CarpeDiem22 » Tue Jul 09, 2019 1:07 am

stlutz wrote:
Mon Jul 08, 2019 11:14 pm
Also, when this discussion comes up I always do have to point out that overall US productivity is not growing that fast right now. Everybody talks about automation, but it actually isn't progressing near as fast as it has historically.
Is that because low interest rates (cheap capital) is keeping unproductive companies alive, thereby discouraging innovation?

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Re: Demographics are Not Destiny (due to Automation)

Post by Alchemist » Tue Jul 09, 2019 1:23 am

SimpleGift wrote:
Mon Jul 08, 2019 3:11 pm
I agree. Reading this research reminded me of the old Mark Twain quip: “What gets us into trouble is not what we don't know. It's what we know for sure that just ain't so.”


Indeed!

Thank you for bringing attention to these papers, I was unaware of this area of research until seeing this thread. Unfortunately I was not able to read the WSJ article due to the paywall but was able to read the papers.
SimpleGift wrote:
Mon Jul 08, 2019 11:05 pm
Japan, Germany, South Korea and soon China may be on the leading edge of this automation revolution, but it won't be long before countries with somewhat younger workforces today (like the U.S., Canada and Australia) will be affected as well. What the societal impacts will be on these currently stable, mostly developed economies is an open question.
Emphasis added.

As another poster pointed out, this research addresses the supply side of the economic equation and the countries in question with the most advanced demographic aging also happen to be major exporters of manufactured goods. Thus the adoption of robots to replace workers in manufacturing would lead to continued GDP growth via exports to other markets with customers to purchase those goods. This can become a liability if your export market begins to stumble or have demographic challenges of its own. A possible example of this is the current recessions/sharp slow downs in Germany and South Korea as China's economy rapidly cools. Without an export destination for those goods and fewer domestic customers their economies are finding it hard to grow. This could be temporary, and they could find new customers elsewhere in the developing world but the current effect is quite striking.
stlutz wrote:
Mon Jul 08, 2019 11:14 pm
One thing to be careful of is mixing overall economic growth and GDP per capita.

A country with a flat working-age population and 3%/yr. efficiency gains has GDP growing at 3%. A country with 10% working-age population growth and no productivity growth has an economy growing at 10%.
The papers exclusively talking about GDP per capita did strike me as a bit odd. If your population overall is declining; then your per capital GDP can even stay the same while your GDP writ large is actually decreasing or standing still. Regardless the countries in question did have positive GDP growth despite aging demographics over the time period in question. But this does bring up another point...

What if you have positive demographics and increasing automation? Could the increase in automation, as it has throughout history, boost per worker productivity? Or would it just create massive unemployment? I don't know but it would be an interesting question to continue along in this line of research. One thing we do know is that the developed markets with positive demographic trends have had higher GDP growth in the last decade than the countries with aging demographics and higher automation use.

Below is a link to a chart comparing the U.S. and Australia (positive worker growth) to the Eurozone and Japan (negative worker growth). Look at the chart below the map and keep in mind that the working age population in Japan peaked in the early 1990's and across the Eurozone shortly after 2010.

https://www.imf.org/external/datamapper ... ?year=2019

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Re: Demographics are Not Destiny (due to Automation)

Post by visualguy » Tue Jul 09, 2019 1:26 am

CarpeDiem22 wrote:
Tue Jul 09, 2019 1:07 am
stlutz wrote:
Mon Jul 08, 2019 11:14 pm
Also, when this discussion comes up I always do have to point out that overall US productivity is not growing that fast right now. Everybody talks about automation, but it actually isn't progressing near as fast as it has historically.
Is that because low interest rates (cheap capital) is keeping unproductive companies alive, thereby discouraging innovation?
I find that innovation (including automation) progresses fast when there is a technological breakthrough, but then slows down once the opportunities based on the breakthrough get exploited. AI seems to be the breakthrough that people are touting now, but not sure how much hype vs reality is there right now. Not an expert on the topic (although I studied it years ago), so will abstain from saying anything definitive, but it feels like people have unrealistic expectations from what we have at the moment.

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Re: Demographics are Not Destiny (due to Automation)

Post by CurlyDave » Tue Jul 09, 2019 1:34 am

Top99% wrote:
Mon Jul 08, 2019 5:57 pm
Automation can certainly help address a reduction in workers but the big question I have is how a shrinking work force will affect the demand side of the economy, especially if this becomes a world-wide phenomena in developed countries. Certainly demand for some goods and services are more coupled to overall wealth than population but many are not. For example, consumer staples.
I have great faith in the ability of lifestyle creep to increase demand for a long time.

Those on this forum are self-selected to be resistant to this phenomenon, but the typical US family spends almost all of their income.

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Re: Demographics are Not Destiny (due to Automation)

Post by Top99% » Tue Jul 09, 2019 7:02 am

CurlyDave wrote:
Tue Jul 09, 2019 1:34 am
Top99% wrote:
Mon Jul 08, 2019 5:57 pm
Automation can certainly help address a reduction in workers but the big question I have is how a shrinking work force will affect the demand side of the economy, especially if this becomes a world-wide phenomena in developed countries. Certainly demand for some goods and services are more coupled to overall wealth than population but many are not. For example, consumer staples.
I have great faith in the ability of lifestyle creep to increase demand for a long time.

Those on this forum are self-selected to be resistant to this phenomenon, but the typical US family spends almost all of their income.
While I agree that lifestyle creep will help sustain demand for some products, it won't help much for consumer staples. For example, if my net worth or income suddenly doubles I won't increase the amount of toilet paper or dishwasher detergent I buy. I might spend more on wine which would mean less sales for Bota box and more sales for fancy bottled wine. There are still a lot of goods where demand is highly tied to the number of consumers.
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Re: Demographics are Not Destiny (due to Automation)

Post by firebirdparts » Tue Jul 09, 2019 7:05 am

SimpleGift wrote:
Mon Jul 08, 2019 3:11 pm
alpine_boglehead wrote:
Mon Jul 08, 2019 2:44 pm
My takeaway is once more that it's wise to be a humble investor, own a worldwide diversified portfolio and don't act upon some vague beliefs.
I agree. Reading this research reminded me of the old Mark Twain quip: “What gets us into trouble is not what we don't know. It's what we know for sure that just ain't so.”
We are swimming in an ocean of jibber-jabber.

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Re: Demographics are Not Destiny (due to Automation)

Post by SimpleGift » Tue Jul 09, 2019 8:59 am

stlutz wrote:
Mon Jul 08, 2019 11:14 pm
Also, when this discussion comes up I always do have to point out that overall US productivity is not growing that fast right now. Everybody talks about automation, but it actually isn't progressing near as fast as it has historically.
Looking up the United States in the OP studies, it scores 0.3 on the global aging scale (from 0.0 to 0.6) and scores 0.2 on the global robotic adoption scale (again from 0.0 to 0.6). Thus, it's relatively middle of the pack today when it comes to population aging and relatively low in industrial automation.

So given that the U.S. still has a somewhat younger workforce, and a comparatively low automation adoption rate, it doesn't seem too surprising that the U.S. hasn't yet seen the kind of productivity boosts from automation being realized by aging countries like South Korea or Germany.

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Re: Demographics are Not Destiny (due to Automation)

Post by CurlyDave » Tue Jul 09, 2019 11:04 am

Top99% wrote:
Tue Jul 09, 2019 7:02 am
CurlyDave wrote:
Tue Jul 09, 2019 1:34 am
Top99% wrote:
Mon Jul 08, 2019 5:57 pm
Automation can certainly help address a reduction in workers but the big question I have is how a shrinking work force will affect the demand side of the economy, especially if this becomes a world-wide phenomena in developed countries. Certainly demand for some goods and services are more coupled to overall wealth than population but many are not. For example, consumer staples.
I have great faith in the ability of lifestyle creep to increase demand for a long time.

Those on this forum are self-selected to be resistant to this phenomenon, but the typical US family spends almost all of their income.
While I agree that lifestyle creep will help sustain demand for some products, it won't help much for consumer staples. For example, if my net worth or income suddenly doubles I won't increase the amount of toilet paper or dishwasher detergent I buy. I might spend more on wine which would mean less sales for Bota box and more sales for fancy bottled wine. There are still a lot of goods where demand is highly tied to the number of consumers.
Let me just address the two examples you use.

Toilet paper: Just a few days ago I read that toilet paper is becoming less sustainable https://www.theguardian.com/environment ... hers-warn as consumers opt for more luxury. Clearly more luxury is going to come with higher prices. Economists measure productivity and output in terms of dollars, not square feet. So right there, demand is increasing.

The very same article points out that only 30% of the world uses toilet paper. It looks to me like there is plenty of room for growth there. Exports count as "demand".

Of course, they put the usual negative environmental spin on the data, but ignore that and just look at the strong demand. No one seems to believe that trees not only can be farmed, but also sequester carbon, making more luxurious TP an environmental benefit, not to mention the jobs created by farming more trees.

Dishwasher detergent: It used to be that there were only a few kinds of dishwasher detergent on the supermarket shelf. Today, when I look on Amazon, just at Cascade brand, they now have powdered and liquid (just like in the olden days) but now there are at least 5 different kinds of "action packs" -- little clear packages of detergent with rinse agent that you put in the dishwasher as a whole package. There is: pure, lemon, complete, platinum and platinum plus.

I am certain you understand that the prices per use are higher for these little packs, so there is plenty of room for lifestyle creep without actually running more loads in the dishwasher.

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Re: Demographics are Not Destiny (due to Automation)

Post by garlandwhizzer » Tue Jul 09, 2019 2:04 pm

Very interesting post, as always, SimpleGift, and interesting discussion.

I find myself wondering about the limits to predictability on this question of demographics going forward into the future. Automation can drive an aging export driven economy, no doubt, but in order for that to work effectively there has to be growing global aggregate demand to purchase the exported industrial products. Fortunately following the Great Recession there has been growing global demand to absorb these products. What is needed also for this to work going forward is an international trade/tariff structure that allows such export driven economies to prosper. Global economic growth seems now to be slowing everywhere even in the US to some extent and the trade/tariff situation is still up in the air. So many variables can impact this demographics/automation equation and it seems hard to reliably predict where it will go in the future.

The duo of increasing total debt plus aging demographics seems to me a potential threat to global aggregate demand growth going forward, but I must admit that so far the developed world as a whole and especially the US has prospered in spite of these potential problems. Japan which is the poster child for unfavorable demographics has managed to maintain and even improve the standard of living for its citizens in spite of these challenges for decades. The people have done well. Their stock and real estate markets have not.

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Re: Demographics are Not Destiny (due to Automation)

Post by SimpleGift » Tue Jul 09, 2019 4:12 pm

garlandwhizzer wrote:
Tue Jul 09, 2019 2:04 pm
So many variables can impact this demographics/automation equation and it seems hard to reliably predict where it will go in the future.
Especially for stock returns. The OP research indicates a slightly positive correlation between aging populations and GDP growth per capita, which is ascribed to productivity gains from automation. But it doesn't appear these productivity gains have been filtering down to stock returns for the index companies in these countries.

The chart below shows the relationship between 10-year stock returns and the old age dependency ratios (those over 65 to the working age population, ages 15-64) for the 20 major countries that are the most far along the aging spectrum today (Japan, Italy, Germany, France, Sweden, Denmark, U.K., and so on down the line.)
  • Image
    Note: Stock returns are 10-year nominal returns, in USD, as of 6/28/19.
    Data Sources: Old age dependency ratios from World Bank; stock returns from MSCI Country Indexes.
Whatever productivity gains these aging countries may be realizing from automation, the ones with the worst demographics are still the ones generally with the worst stock returns over the last decade (though the correlation isn't terribly strong).

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