It is one of the most important drivers of change, but we pay scant attention to it. But the baby boomers are retiring, and it is set to change the world, and this year marks a significant development.
This year, and for the first time outside of a recession since the 1980s, the non-working population will rise faster than the working population.
The baby boomer generation – those born between 1946 and 1965 – is beginning to retire. The oldest of this generation are now 70. The youngest will reach 70 in 2035. And then things will look different.
Maybe the biggest tragedy of the baby boomers, that generation that so often looks down on the generations that follow it, is what poor use it made of the demographic sweet spot. This generation fully entered the work force in the mid-1980s – and ever since, growth has been anaemic, and the last ten years saw the one of the weakest periods of growth ever recorded. The fact that the working population was so high should have meant boom.
But what will happen when they retire?
For one thing, regardless of how much money they have saved, the dwindling working population will have to produce more stuff or we will have a problem. To explain: When the baby boomers start dipping into savings to fund their retirement, unless there is a corresponding rise in production, we will get inflation.
And what will happen to house prices if the baby boomers do what many generations in the past did when they retired, and downsize?
But the real point is that the aging of the baby boomers is a worldwide phenomenon. We have already had a dry run. The ageing of the Japanese population is several decades ahead of the UK, and the economy has been in intensive care for over 20 years.
In the UK, immigration has mitigated against the effect of aging, and in any case the fertility rate is higher in the UK than in other parts of Europe. But across Europe, ageing is a more acute problem, this may explain why the EU economies are relatively weak.
They appear to be mirroring Japan, and maybe they are doing this because of demographics.
The economists Toby Nangle and Charles Goodhard have argued that as the baby boomer generation ages across the world, we may see the reversal of the global savings glut, and enter an era of much higher interest rates and higher inflation. See also, The World Is Running Low on Workers and Why That May Be a Good Thing