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Three Big Things: The Most Important Forces Shaping the World

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Collaborative fund - Three Big Things: The Most Important Forces Shaping the WorldAn irony of studying history is that we often know exactly how a story ends, but have no idea where it began.

Find something that’s important to you in 2019 – social, political, economic, whatever – and with a little effort you can trace the roots of its importance back to World War II. There are so few exceptions to this rule it’s astounding.

But it’s not just astounding. It’s an example of something easy to overlook: If you don’t spend a little time understanding World War II’s causes and outcomes, you’re going to have a hard time understanding why the last 60 years have played out the way they have.

You’ll struggle to understand how the biggest technologies got off the ground, and how the most important innovations are born from panic-induced necessity more than cozy visions.

Or why household debt has risen the way it has.

Which raises the question: What else is like World War II?

What are the other Big Things – the great-grandparents – of important topics today that we need to study if we want to understand what’s happening in the world?

The three big ones that stick out are demographics, inequality, and access to information.

There are hundreds of forces shaping the world not mentioned here. But I’d argue that many, even most, are derivatives of those three.

Each of these Big Things will have a profound impact on the coming decades because they’re both transformational and ubiquitous. They impact nearly everyone, albeit in different ways. With that comes the reality that we don’t know exactly how their influence will unfold. No one in 1945 knew exactly how World War II would go on to shape the world, only that it would in extreme ways. But we can guess some of the likeliest changes.

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1. A demographic shift that reconfigures modern economies.

Here’s what’s happening:

demographic shift - Three Big Things: The Most Important Forces Shaping the World

In 1960 there were three times as many Americans age 0-4 as age 70-74. By 2060 those groups are about even.

The share of young workers is declining.

The share of older workers is rising.

The share of retired people – or those in retirement age – is surging.

There have been about 100 billion humans born during the 200,000 years we’ve existed.

For practically all of that time, making more people wasn’t an issue. Keeping them alive is another story. But having lots of babies has been a fundamental part of humanity for tens of thousands of years. This is more than biological; there’s a strong cultural element to reproducing.

In his book Strategic Effects of Demographic Shocks, James Holmes quotes Aristotle’s view of ancient Sparta:

The legislator, wishing there to be as many Spartiates as possible, encourages the citizens to have as many children as possible; for there is a law that one who has fathered three sons is exempt from [military] duty, and one with four is exempted from all taxes.

In the Soviet Union, Joseph Stalin awarded the Mother Heroine Award to women with more than 10 living children.

America wasn’t shy either. Gallup has asked Americans what their ideal family size is for seven decades. In 1944, 77% of Americans said having more than three children was ideal. The average woman had 3.4.

Then things changed.

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The baby boom of the 1940s and 1950s was an aberration, and the economic boom that ensued led to a predictable trend: there is a long history of women having fewer children as they get richer.

Part of this is that rich countries have better healthcare, so more kids survive into adulthood. Adam Smith wrote in the 18th-century book The Wealth of Nations: “It is not uncommon in the Highlands of Scotland for a mother who has borne twenty children not to have two alive.” This was a real problem in America just 100 years ago. Twenty-eight percent of Americans died before age 5 in 1900; today it’s about half of one percent.

And wealthier families move the goalpost of expectations for raising kids, lowering the number of desired kids. Education costs in particular create a paradox where the number of kids you think you can afford declines as you get wealthier, since providing the same education opportunities you likely had is a financial burden that can’t be provided to multiple children. Then there’s the time and expense of parents’ own education, which typically takes place during peak childbearing years.

Think of it this way, and then remember that the percentage of the population with a college degree has skyrocketed in the last 50 years:

Fertility in America has declined from 120 births per 1,000 women age 15-44 in the 1950s to 59 in 2018. In raw numbers, there were more babies born in America in 1952 than there were in 2018, despite the overall population more than doubling. Life expectancy at birth increased from 68 to 80 during that time.

Fewer babies while everyone else lives longer is a Big Thing, because it means the population ages. And when the population ages everything from economic growth to workplace culture to the global order of nations gets shaken up.

One thing that changes is that America’s competitiveness increases relative to most of the rest of the world.

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Lower births are a global phenomenon, particularly in the developed world. And while America ages and population growth slows, the rest of the world’s major economies turn into a Florida retirement community and population growth in many cases is on track to turn negative.

Here’s what happened over the last 30 years - and what's projected to happen over the next 30 years:

population by country now and in 30 years - Three Big Things: The Most Important Forces Shaping the World

It’s hard to overstate how big a deal this is.

When people talk about what nation will own the next century they point to leadership in AI and Machine Learning, where China looks so competitive. But it’s staggeringly hard to grow an economy when you lose a fifth of your working-age population in a single generation. China could invent something as big as the next internet, but when mixed with its demographics have an economy that muddles along. Europe, Japan, and South Korea are the same or worse.

Demographics will slow America’s economy, but they’re a five-alarm fire for other countries. So even assuming equal levels of productivity growth, the U.S. is head and shoulders better off than other developed nations, just given its demographics alone. America could drop the ball on technology while China/Europe/Japan make all the right moves, and America could still remain a much larger and more powerful economy.

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People like to talk about new technologies and innovations, because that’s fun. Demographics aren’t fun. But they’re going to be as important, if not more, to overall economic growth than most innovations over the coming decades.

Another thing affected by demographics: Fewer births means more reliance on immigration for population growth.

The year 1920 was a big year for immigration. The end of World War I reshuffled global migration. Just over 800,000 people immigrated to the United States that year.

But 2,950,000 people were born in America that year. So the ratio of new residents skewed toward American-born citizens over immigrants.

That’s the way it went for most of the 20th century, especially as immigration rates fell.

But as the birth rate falls, the ratio shifts. “By 2035, immigration will add twice as many people as natural births and deaths to the population,” writes Derek Thompson of The Atlantic.

The number of workers whose parents were born in the United States is expected to decline by 8.2 million over the next 15 years, according to Pew. That’ll be offset by a rise of about 13 million new workers with immigrant parents. First-generation immigrants will rise by almost 5 million by 2035.

Immigration forecasts are a wildcard, blowing with the political and economic winds. But the decline of naturally born workers is set in stone – it’s already happened – so even if immigration projections are off by multiples, a rising share of immigrant Americans is nearly guaranteed.

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America was built by immigrants, who have shown to be more entrepreneurial and better educated – immigrants are 13% of the population but 27.5% of entrepreneurs. The political dynamics aren’t as clear. Derek Thompson writes:

Today the rich and mostly white upper- and upper-middle class pay the majority of federal income taxes, which often support programs to help lower-income minorities. This contributes to a “makers” vs “takers” narrative that often skirts dangerously close to dividing the country on racial lines. But within a generation or two, this picture will change. As America’s offices diversify faster than its retirement communities, the minority-white labor force will be supporting the majority-white retirees.

America’s major immigration boom took place in the late 19th and early 20th century. The coming decades could see a lower rate of immigration but with just as great effect, since the proportion of new citizens is magnified by a lower domestic birth rate.

2. Wealth inequality that’s grown for four decades hits an inevitable breaking point.

Inequality is one of the most divisive topics that exists, because it pits capitalism against fairness in ways that feel zero sum – me vs. you, your gain is my loss, etc. It’s tribal in nature, and tribal debates can escalate into fights because you feel like your identity and dignity are on the line.

But in this story it doesn’t matter whether you think inequality is right or wrong, good or bad, or what we should do about it. Someone else can tackle those topics.

All that matters here is that it happened, and happened enormously. It’s a Big Thing that impacts all kinds of other topics.

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