It may not be much fun, but getting older is a fact of life. It is also an economic reality: in the UK and across major parts of the world, societies are ageing fast. In 1990, the median age of a person in the UK was 35. Today it is 40. In another 35 years, it could be 45. Staring into the future, the rise in the median age looks likely to continue as far as the eye can see. Coinciding with this demographic shift, we can expect major changes in consumption, saving, and investment, as well as people’s preferences for the patterns and types of work they wish to do.
An ageing society also creates a host of policy trade-offs. Among them are whether to raise taxes or borrow more to meet rising state pension costs and increased demands on public healthcare, or whether to renege on the lofty promise to provide adequate support for the ageing. None of these are easy choices.
Just as the rheumatics of old age can slow a person, the ageing of societies will produce economic aches and pains that could hamper dynamism and productivity. But this is only one half of the story. In the other half lies genuine hope that comes with the fruits of technological progress.
We are living through an era of huge leaps in AI, ever more rapid connectivity, advances in robotics, and a near-total free-for-all in media and news that has parallels to the invention of the printing press in the 15th century. Past developments like these tend to be highly disruptive but ultimately positive. When change is happening fast, it can be hard for societies to keep up, let alone understand the trends well enough to make educated guesses about exactly where things may end up. That is the job of investors.
The puzzle can be summed up as follows: how will economies resolve this apparent paradox between ageing societies and labour forces, and the adolescent growing pains that come with a new technological age? Let me speculate on two possible futures: one hopeful and one less so.
All being well, the dual fears of labour shortages arising from an ageing society and that AI will produce mass unemployment will prove misguided. Instead, as participation in the labour market declines with more people retiring, the opportunity for greater capital intensity that new technologies offer will make up the difference and keep living standards on their long upward trend. With advances in testing and ever more personalised and AI-driven health checks, people will enjoy longer healthy life expectancy and hence choose to work for longer.
If things do not turn out so well, I doubt it will be because we have fallen into some kind of technological dystopia that is so often the stuff of science fiction. No, the danger will come from the manifestation of misplaced fears of mass technological unemployment and strange dystopias in the stultifying policy and regulatory choices we may make.
How it ends is up to us. Will the wisdom of old age tell us to learn the lessons of the past and wholeheartedly embrace technological change? Or will a hardening of our political arteries inadvertently bring forth the sclerosis we need to avoid? If history is anything to go by, the former looks much more likely.
I forgot to mention, life expectancy in the UK was 75 in 1990. Today it is 80. What will it be in another 35 years? You can guess where I am going with this. If everything is relative, perhaps we are not as old as we thought after all. Who knows, maybe one day 60 really will be the new 40.
Kallum Pickering,
Chief Economist
