The World Turns Gray
How global aging will challenge the world's economic well-being
FROM HIS OFFICE high above Park Avenue, Peter Peterson surveys a booming city of leveraged deals and paper profits that, almost every day, add to his bounty. As the Dow rallies once again beneath the fading winter sky to the south, this son of Greek immigrants can only count his blessings, which range from a summer home in the exclusive Hamptons whose inflating value he can scarcely believe, to a secure position as the chairman of the Blackstone Group, a prestigious New York investment bank.
Yet Peterson, 72, is worried about the future. These days, as most, he's thinking about aging--and not just his own. The world is going gray, and one day soon, the implications of that trend could unnerve today's boom psychology. "The scenario I see is that one or more developed countries, say Italy, is going to decide that the political cost of reforming their pension systems is just too high," says Peterson. "Then they will try running high deficits--much higher than limits set by the European Union's monetary authorities--in an attempt to finance their way out of the problem. When the financial markets wake up to this news, there will be a broad realization that we have a global aging crisis that is going to be unrelenting in its economic consequences."
The bull brought to its knees by too many Italian retirees? In some ways, the world should be so lucky. Not long ago, experts worried not about how to finance a world going gray but about a cresting wave of kids. And for good reason. Worldwide, as recently as 1972, a woman gave birth to an average of 5.6 children over her lifetime. Global population, as a result, was doubling every generation. Citing the trend, a hoary group of intellectuals known as the Club of Rome issued an influential study, titled "The Limits to Growth," that told what it all meant. The 21st century, said the club, would inevitably be marked by declining standards of living as human population exceeded the "carrying capacity" of the Earth, leading to mass famine and energy shortages.
But in the years since this Malthusian prophecy, a change has occurred in human behavior that is as revolutionary as it is unheralded: Around the world, fertility rates are plummeting. Today, women on average have just half the number of children they did in 1972. In 61 countries, accounting for 44 percent of the Earth's population, fertility rates are now at or below replacement levels.
That doesn't mean the Earth's population will fall anytime soon. Thanks to the high fertility rates of the past, a large percentage of the world's population is still of childbearing age. Life expectancy is also up. Globally, the average life span has jumped from 49.5 years in 1972 to more than 63 years. Consequently, according to projections by the United Nations, the world's population will slowly increase at an average rate of 1.3 percent a year during the next 50 years, and it could decline by midcentury if fertility continues to fall.
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