Arnott: Mind The (Expectations) Gap

July 03, 2013


The demographic profiles for each phase are illustrated in Figure 1. The solid blue line shows the profile of one of the first reasonably accurate demographic tables, produced by Edmond Halley for the city of Breslau (currently Wroclaw in Poland) in 1693.4 Not surprisingly, mortality rates were much higher than they are today. In particular, infant mortality was so high that there is an inflection in the curve right after age group 0–4: many newborns didn't last a single year, let alone five. Median life expectancy was only 24 years at birth, but 34 for those fortunate or hardy enough to survive that first lethal year.6 From our perspective, Phase I is a "steady state"; through the lens of our telescope, population structures were relatively stable for centuries. Obviously, for someone living through famine, wars, or decimating diseases, life was anything but stable.

ETF Explainer: VWO
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The second phase is represented by the green lines, which depict two distinct points in U.S. history—1950 and 2010—and the average for the intervening period. It is possible to see the peak of the baby boomers in 1950 (dashed line) and the subsequent increase in the relative size of the working force in 2010 (dotted line). In these six decades, tumbling support ratios provided a strong tailwind to economic growth, as children fell relentlessly to historical lows as a share of the population, the working-age population soared, and support ratios for senior citizens remained low. Interestingly, the dotted line for 2010 becomes almost flat up to approximately age 50, reflecting the combined effects of lower mortality rates and the transition to a new steady state (Phase IV below).



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