The last few decades have been characterized by the easy availability of workers: The high-population baby boomers were of working age, and the labor force participation of women rose in parallel with falling fertility. In addition, the populous countries of Asia and Eastern Europe were integrated into global production through globalization and migration.
But now, due to global population aging, workers are becoming scarce. Baby boomers are reaching retirement age. The working population is also falling in the countries of origin of immigrant skilled workers, and the potential for globalization has also been exhausted for the time being. At the same time, demand for goods and services is increasing, particularly in the health and care sector.
We have been aware of demographic developments for decades and yet it hits state institutions and a large part of the population unprepared. The monetary system and monetary policy are largely responsible for the lack of adjustment to demographic changes. For decades, expansionary monetary policy has promoted immediate consumption and thus hindered preparedness, efficiency, austerity and future-oriented planning.
Bitcoin makes it easier for us to deal with scarcity, including that of workers — and enables us to deal better with the challenges of the demographic transition. But bitcoiners should also be explicitly aware of demographic changes and their effects. If there is a shortage of workers, goods and services may not be available even for the best money.
In addition to ecological limits, the demographic border is becoming the most important economic challenges of the 21st century: the limited availability of workers, their skills and their knowledge. This is a result of low fertility and a sharp increase in life expectancy with a constant retirement age.
The population structure of most European countries is characterized by a baby boom in the period from 1950 to 1970, with the characteristics and exact period of time varying between countries. In Germany, the baby boom peaked in 1961-1967 with over 1,000,000 births per year and a fertility rate of 2.5 (fertility rate: number of children per woman). However, as early as the second half of the 1960s, the number of births and fertility began to fall sharply. Since the mid-1970s, the fertility rate in German-speaking countries has been between 1.3 and 1.5 children. A fertility of around 2.1 children would be necessary to keep the population constant throughout births.
While the number of births fell, life expectancy rose from around 70 years in 1970 to currently over 82-84 years. Even before the COVID crisis, the constant increase over decades leveled off somewhat. It remains exciting to see whether life expectancy will start to rise again in the next few years. However, the current population structure is clearly influenced by the increasing proportion of the older population. In Germany, for example, the proportion of the population aged 65 and over grew from 14 percent of the total population in 1970 to 22% in 2022.
In Austria, Germany and Switzerland, some of the low fertility rates were offset by heavy immigration. Migrants from Eastern Europe in particular met part of the need for skilled workers, particularly in crafts and care. In recent years, net immigration has contributed to around a third of population growth, and births to 2 thirds. In 2015 and also in Germany in 2023, net immigration even exceeded the number of births. Immigrants will probably not be scarce in general in the future, but those of qualified professionals will be scarce. Because prosperity is also growing in the traditional countries of origin in the Balkans and Eastern Europe, and the population is also aging and shrinking there.
The change in population pyramids shows the aging of the European population very impressively. In 1990, 14% of the population was 65 or older and 27% of people under 20 years of age. In 2040, 27% will be aged 65 or older, while the proportion of people under 20 years of age is just 18%.
The so-called old age quotient summarizes the demographic changes and the associated economic challenges well. This is defined as the number of people over 65 years of age per 100 people of working age of 20-64. The old age ratio was very low in all German-speaking countries at around 25 people aged 65+ and then began to rise, in Austria and Switzerland to 32 today, in Germany even to 38. The age dependency ratio will rise sharply again, especially by 2040, if the baby boomers reach the age 65 achieve. In all German-speaking countries, there are around 45-50 people aged 65 and over for every 100 people of working age.
Economic and income growth since around 1980 is largely based on demographics. The decline in fertility opens up potential for an increase in income and production — a so-called demographic dividend. The lower number of children increases the proportion of the population of working age, while at the same time, the lower fertility enables a higher participation of women in the labour market. This increases income per capita, enables higher investments and offers incentives for women in particular to pursue higher education.
Die demographic limit The economy, the availability of labor and human capital, is being pushed far outwards as a result of the decline in fertility and enabled production and consumption to expand. But the demographic dividend must be used to prepare for aging and future scarcity. Otherwise, the increase in production and income is a temporary phenomenon.
The expansionary monetary policy of recent decades is closely linked to demographic developments. The availability of labor, combined with cheap fossil energy, made it possible to fuel demand without creating price pressure on consumer goods.
But it was precisely with monetary-fuelled demand that Fiat money has torpedoed the adjustment to the aging population. This is because cheap money has promoted debt and low-productive investments: Companies, households and the state have expanded their consumption and made investments that consume a lot of resources but create little added value. A large part of these enterprises will not be able to be sustained under the new demographic reality. Three examples include the real estate boom, government spending and the healthcare sector.
Real estate booms are also driven by demographics. The entry into working life of high-birth groups is followed by a high demand for real estate a few years apart, as these generations then start a family and their own household. With a loose monetary policy, this demand is further reinforced, as savings in money are increasingly devalued and real estate is used as a store of value.
The real estate and construction boom is therefore driven less by an increase in population than by population structure and an increase in settlement and living space per capita. In Austria, for example, the population rose by 6% between 2008 and 2020. However, the number of apartments rose by a remarkable 13%. And although disposable income per capita stagnated over the period, real estate prices in 2021 were 70% higher than in 2008.
The real estate boom in the tourist areas of the Alps is developing extremely: These are being literally paved with credit-financed giant hotels and chalets, as well as with second homes as stores of value. Building land is barely affordable even for high-income locals.
Demand for real estate is likely to weaken due to higher interest rates, at least temporarily, and demographic developments. In 10-15 years, baby boomer real estate will also come onto the market. Demographic changes alone would have driven up demand for real estate enough. Fueling this with cheap credit will prove to be an enormous waste of resources. The victims are primarily young adults, who have no access to cheap housing and home ownership due to inflated prices.
Many European countries used the demographic dividend and cheap credit to inflate government benefits and administration. The most illustrative example is Italy. Due to the baby boomers, Italy has been in a very favourable demographic situation in recent decades. During this phase, government debt was inflated from around 60% of GDP in 1980 to 150 percent in 2021. The demographic challenge is just ahead: The proportion of the population aged 65+ rose from 13% in 1980 to 24% in 2023 and will rise to 32% by 2040.
In addition to explicit government debt, there is also implicit government debt. This refers to promises, e.g. in the form of pension payments, which are not covered by expected contributions. Bernd Raffelhüschen calculates this implicit government debt 325% of GDP for Germany. Implicit government debt can be interpreted as assets that the state must have in order to finance spending promises without additional tax increases or spending cuts. This means that in the demographically favorable phase, enormous value promises were made well into the future, but without taking appropriate precautions.
Demographic change is changing the structure of supply. Not all sectors are equally affected by labor shortages — also depending on the age structure of employees and changes in demand due to demographics.
There is already extreme scarcity in the care and health sector. The current shortage of care is determined on the one hand by the scarcer supply of nurses and by the strong birth rates of the Nazi period up to around 1940, which are now demanding care services. Of course, health and care is particularly affected because baby boomers will disappear as workers in around 15-20 years but are increasingly being added as patients and caregivers. An aging population will require more health and care services.
The creation of fiat money fuelled resource consumption, with temporary economic booms, asset price bubbles and an unsustainable expansion of benefits as a result. In a period of cheap energy and readily available workers, this is not a problem on the surface, because production and consumption are increasing despite massive waste. But the wrong decisions and misallocations associated with money supply inflation will massively affect our prosperity in the long term. Due to demographic developments and the need to reduce the consumption of fossil energy, the negative consequences will also not be concealed.
It is obvious that the demographic dividend opportunity was not taken advantage of. The temporarily favourable demographic development, together with the simultaneous expansion of the credit supply, has undermined an economical, efficient and future-oriented economy. In a non-inflationary monetary system, recent years would have been characterized by deflation and falling prices. This would have increased prosperity without inflating consumption and production beyond sustainable levels.
Bitcoin makes it easier for us to do business within demographic limits and to protect ourselves from inflated consumption and its consequences. After all, acquiring hard money requires real savings: production that is not consumed directly. In doing so, three pillars of sustainable economics are promoted.
Wealth makes it possible to maintain claims for goods and services for the future. Securing these claims is anything but easy. Financial assets can be used flexibly, but suffer from the sharp devaluation of these claims due to monetary inflation. Real estate assets are less easily inflationable, but require enormous amounts of resources and represent demands on a very specific asset. If you use the property yourself, everything is fine. If not, or trust that someone else needs it and is willing to pay for it accordingly. However, this is precisely what is uncertain in view of population development and inflated prices. The same applies to stocks. They represent specific capital, suffer from inflated prices and an uncertain future.
Gold is a flexible, value-stable asset, but there are huge storage costs and it is extremely impractical for transactions. Bitcoin is a perfect asset and money: Creation is limited, flexible in exchange for desired goods and services and can be used directly for transactions.
The concept of wealth can be extended in many directions. Social capital, such as family and friends, is one of the most important assets we own. Relationships with others give us joy, we get satisfaction from them, and they are part of our identity. These relationships also have functions that can certainly be described in monetary terms: Support in difficult life situations, including those in need of care in old age. With demographic change, this function will become even more important.
One asset that is always available is your own productivity. Labor shortages are a problem when you depend on the labor of others. For workers themselves, however, it certainly has advantages, for example a better position in price negotiations such as wage and working conditions.
However, productivity is not just about paid work. Everything that we produce ourselves at home creates independence from others and, in many cases, also joy. This includes household work, your own garden, Bitcoin mining, your own node and the PV system on the roof. Maintaining and expanding their own production capacities is a top priority for most Bitcoiners, probably also due to justified skepticism about the state and the monetary system.
Money that is covered by proof of work requires real savings: more production, less consumption. This promotes efficiency. You don't make yourself dependent on things that you can barely afford in the long term. And that is excellent provision for the future that receives far too little attention: being able to reduce consumption without significant losses in prosperity and quality of life.
Bitcoiners have the prerequisites to reduce wealth losses due to the tightening demographic line. First, Bitcoin is a valuable and flexible asset that secures claims for goods and services in the future. Second: Bitcoin focuses on personal responsibility and own production. Third, the staking of Bitcoin forces you to reduce consumption and use your own economic resources more efficiently.
But the consequences of population aging will also pose challenges for bitcoiners. For example, when health or care services become scarce. Dealing with this requires early adjustment; some health and care services may no longer be available even for the best money. It pays off to closely monitor demographics, how they change, and the consequences. And adjust future plans today.
Urs has worked in geriatric care since 2001. Social connections and developments, particularly from a demographic perspective, have been affecting him for many years. Since he discovered Bitcoin around 3.5 years ago, he has been obsessed with the question of whether and how demographic change is influencing Bitcoin adoption. “Humanity has reached its demographic limit, which is why we need money for the future that also has a limit: Bitcoin.”
Bernhard Binder-Hammer is a population economist at the Institute of Demography at the Austrian Academy of Sciences. He is obsessed with the question of how we can improve and maintain the quality of life for all generations — and how we can also measure that. His research focuses on the integration of demography into economic data. This includes in particular the measurement and analysis of intergenerational transfers by the state and families, as well as the analysis of economic crises and their impact on different age groups.
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