Demographers, economists, and other fiction writers make an excellent living turning demographic statistics into some seriously terrifying predictions.

The UK government will go bust because there won’t be enough taxpayers to support an ageing population.

The NHS will crumple under the strain of caring for the elderly, unless we ration healthcare more than we already do.

We’ll need more than two million age-care workers by 2040. They’ll account for more than 5% of the workforce. We’re already short by more than 100,000.

Euthanasia and working till your 70s are the only options.

And so the arguments go…

Demographic alarmism is replacing climate change as politicians’ favourite excuse to cause chaos.

They’ve even copied the same methodology (but not the science).

One recent documentary about the population crisis features Miss Japan as an analyst of the demographic situation.

Yes, the demographic doom-mongers have their own Greta Thunberg.

However preferable Miss Japan may be, it’s hardly scientific progress.

Whether you’re worried about too many people or too few, both sides make the same mistake.

They ignore half the equation.

It’s like a cost-benefit analysis that only takes into account the costs, not the benefits.

What have demographers (deliberately) missed?

Pensioners may well be a fiscal burden.

They may also place greater demands on the labour force.

They need pensions, healthcare, age care, and more.

Worst of all, they have the gall to sell their investments to fund their retirement.

How are property and stock markets supposed to withstand such a large wave of sellers?

Thanks to demographic decline, there supposedly aren’t enough young people to buy all those assets. Not at today’s prices, anyway.

But it’s the other end of the demographic pyramid I want to focus on today. After all, our demographic “decline” had to start somewhere.

Believe it or not, falling fertility rates are actually a substantial fiscal and labour-market tailwind. That’s precisely the opposite to what the doom-mongers are warning about.

That’s because kids cost time and money. Having fewer of them frees up both.

Yet the prophets of demographic doom simply ignore this.

Which group has quietly offset much of the cost of an ageing population?


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You can’t just ignore children

Children cost the state about 2/3rd the cost of a pensioner per year. That’s largely because pensioners receive cash benefits, most notably the state pension.

Excluding those cash transfers, children actually cost more thanks to the enormous cost of education.

The point is simple: Fewer children means lower government spending.

Caring for children also uses up a lot of the workforce. Parents leave work, while childcare workers, teachers, and leisure workers all support them.

If we have fewer children, it frees up a lot of workers.

And we are having fewer children.

So, what does the net effect look like?

We’ll get to that in a moment.

First I want to make you aware of just how dodgy the demographic alarmists are behaving.

In order to make their alarmist projections, demographers are excluding the impact of having less children from the analysis.

They simply stopped counting kids as dependents. Instead of analysing the dependency ratio, they focus on the old-age dependency ratio. It looks more scary.

Optimising for alarmism

For every panic, an entire industry erupts to support it.

The internet’s algorithms, optimised for clicks, happily oblige.

Do an online search for “dependency ratio” and you might not even notice how smoothly the internet simply reroutes you to charts and analysis of the “old age dependency ratio” instead.

Government reports do the same, conveniently ignoring the falling number of children.

Academic studies often skip the dependency ratio and focus solely on the old-age dependency ratio.

And the media is only reporting on the studies that show the scarier results – the ones which consider the old age dependency ratio only.

Why?

Because that’s what pays.

It results in government grants, political votes, YouTube video views, and advertising revenue.

The kids call it “doomscrolling” because terrifying stories dominate social media feeds.

It’s another alarmist gravy train.

Everyone profits except investors, who need the truth.

Because the outlook for financial markets is the real concern you should have.

What does a more honest calculation look like?

The child dependency ratio measures the amount of children relative to the working-age population.

In the UK, it has fallen dramatically since the 1970s because fertility declined.

The old-age dependency ratio measures the amount of people over 65 relative to the amount of people of working age.

It’s rising sharply as the Baby Boomer generation retires and life expectancy increases.

That’s what the latest demographic panic is about.

But here’s the extraordinary part: The overall age dependency ratio is surprisingly stable over time. It oscillates instead of rising. And it’s projected to keep doing so.

By the late 2080s, the UK’s projected total dependency ratio will be similar to where it was in the early 1970s.

Even the projected peak in the 2050s remains well below the level reached around the turn of the century.

In short: There is no demographic crisis.

Pensioners are simply replacing children as the main fiscal and labour burden.

We are talking about a transition in the dependency ratio, not a sustained increase.

What’s the point?

If you’re managing your own money, this lack of a demographic crisis takes away one of the standing excuses for sitting in cash.

If you’ve been told an ageing Britain means a decade of forced selling across property and equities, that warning rests on a ratio chosen because it frightens people, not because it describes the country.

The burden is moving from school-age to pension-age and the bill comes out roughly the same size.

Plenty can still go wrong from here, the tax mix will keep getting worse for anyone holding assets, and government will keep misallocating spending… but demography is not the thing most likely to destroy investor portfolios.

Look at what actually moves earnings over the next 10 years, which right now is the buildout of AI, compute, memory, and the power to run it.

And when the demographic panic gets loud enough to knock prices about, remember that’s other people selling things at a discount for reasons that don’t hold up.

Until next time,


Nick Hubble
Editor, The Fleet Street Letter

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