Arnott: Demographics And The New Normal

September 10, 2013

The fourth phase is not as troubling as the third one, but is still very distinct from the second one: Our forecasts imply stagnated growth for most countries (even negative growth for a few countries).2 However, it bears mention that this phase starts at a much higher level of economic development than any preceding phase. Would we rather live in a prosperous economy with slower growth, or a less prosperous economy with rapid growth? Most would prefer the former.3

Phase I. The Old Steady State
Hobbes' famous quote from "Leviathan" [1651] is too often shortened to its closing words. But the full sentence vividly captures the challenges faced in the first demographic phase of human development:

"In such condition [wherein men live without other security than what their own strength, and their own invention shall furnish them] there is no place for industry, because the fruit thereof is uncertain, and consequently, not culture of the earth, no navigation, nor the use of commodities that may be imported by sea, no commodious building, no instruments of moving and removing such things as require much force, no knowledge of the face of the earth, no account of time, no arts, no letters, no society, and which is worst of all, continual fear and danger of violent death, and the life of man, solitary, poor, nasty, brutish, and short."4

Keep in mind that we refer to those times as a steady state, from a distant observer's point of view. Clearly, for someone living through war, disease and all the tragedies of the time, demographic profiles seemed far from stable. Further, it's also important to separate external shocks that created temporary deviations from internal forces—such as medical advances—that fundamentally altered demographic distributions.

While it's hard to imagine in our information-driven society, data on the distribution of populations by age was not precisely recorded and readily available until the 18th century. For instance, according to Bacaër [2011], the city of London published bulletins with baptisms and burials that contained the cause of death—mainly to informs citizens about plague epidemics—but not the age of death. Therefore, when John Graunt published his life table in 1662, it required a great deal of approximation and guesswork to infer the age of death from the cause of death.5 Even considering the uncertainty in its figures, "the book was nevertheless very successful, with five editions between 1662 and 1676. Several cities in Europe had started to publish bulletins similar to that of London" [Bacaër, 2011, pg. 6].

The first reasonably accurate life table is attributed to Edmond Halley (1693).6 Halley obtained data—including age of death—for the years 1687-1691 from the city of Breslau (currently Wroclaw in Poland, but then part of the Habsburg Empire) and proceeded to calculate detailed life tables and other important knowledge, such as mortality rates and life expectancies, that could be used for other cities in Europe. Even more impressive were his calculations of varying prices of annuities according to different ages, an innovation that essentially launched the life insurance industry.



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