LONDON – Is a shrinking population always a bad thing? Judging by the lamentations of some economists and policymakers in the advanced economies, where people are living longer and birth rates have fallen below replacement levels, one certainly might think so. In fact, the benefits of demographic stability – or even slight decline – outweigh any adverse effects.
To be sure, an aging population poses obvious challenges for pension systems. And, as economists like Paul Krugman have suggested, it could also mean that advanced economies face not only a slow recovery, but also the danger of “secular stagnation.”