Cons of Shrinking Population – UPSC GS1

Cons of Shrinking Population:
  • Impact of Social Care: Fewer workers to pay the benefits of an ever increasing pool of retirees.
  • Impact on the economy: The economy will face many issues with the shrinking population. Such as:
    • The economy will not have a growing supply of new workers
    • New private investment has a harder time generating consistent positive real returns
    • The real return on ordinary physical investment fall so does the interest rate necessary to keep the economy humming.
Example of Japan:
  • Despite a technologically advanced and export-oriented economy, the Bank of Japan’s major policy rate fell steadily from 6% in 1991 to just 0.5% in 1995.
  • Japan also experienced an enormous property bubble in the late 1980s. This is because when businesses cannot generate enough profitable investment to match the savings rate of an older population. This resulted in huge investments in land.
  • Japan experienced an infamous ‘lost decade’, during which neither huge government spending nor persistently low-interest rates could fully revive the economy.
These are the similar trend the US is also experiencing post -2008 crisis.
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