To answer the question in the headline, in a word, it means stagnation.  Economic systems exist (perhaps contrary to the feelings of investment bankers and autocratic governments) to enhance the welfare of the human beings comprising them.  If there are fewer human beings, ceteris paribus, the system will not grow, particularly when the humans comprising the system already have achieved a comfortable standard of living (i.e., one that ensures the necessities of life are met, and at least a few of the superfluous desires are obtainable as well).  The US, no matter how despondently presidential candidates might like to portray things, is fantastically rich.   Though the wealth is not evenly shared, even the poorest Americans have all their needs met, and quite a few of their wants satisfied.  Without a growing population, what is there to drive aggregate economic growth?  How can Coke, for example, sell more colas in America if the American population ceases to grow?  It may be able to juice its market share a bit on the margins, but the foundation for growth in consumption of really anything (including those things that comprise inputs into final consumption) is population growth.  And it appears America, who has enjoyed continued economic vibrancy long after the old men of Europe started wheezing and coughing, is closing fast on an age of much slower population growth, which if trends continue, will, like a good many of America’s developed world cousins, turn negative. 

Where is the evidence?  Pew Research recently completed a study on Mexican migration to the US that concluded, if net immigration were not already negative, it was likely no better than net zero, from the report:

After four decades that brought 12 million current immigrants — more than half of whom came illegally — the net migration flow from Mexico to the United States has stopped and may have reversed.

The standstill appears to be the result of many factors, including the weakened U.S. job and housing construction markets, heightened border enforcement, a rise in deportations, the growing dangers associated with illegal border crossings and the long-term decline in Mexico’s birth rates.

This is not the proverbial canary in the coal mine, so far as aggregate economic performance goes.  It is the disaster that the canary’s death foretells.  Why? Because without positive net immigration, America’s population growth, and thereby economic growth, skids in the ditch.  Americans are not producing babies at a rate sufficient to replace themselves, as data from the National Center for Health Statistics attest:


Total fertility rate

The total fertility rate (TFR) estimates the number of births that a hypothetical group of 1,000 women would have over their lifetimes, based on age-specific birth rates in a given year. The rate may be expressed as the average number of children that would be born per woman. Because it is computed from age-specific birth rates, the TFR is age adjusted and can be compared for populations across time, population groups, and geographic areas.

The TFR for the United States in 2009 was 2,007.0 births per 1,000 women, 4 percent lower than the rate in 2008 (2,084.5), the largest single-year decline since 1973 (Tables 4, 8, 13, and 14) (12). After generally increasing from 1998 through 2007, the rate has dropped to a level comparable with that in 1999. The TFR declined for most race and Hispanic origin groups in 2009, falling 3 percent for non-Hispanic white and AIAN, 4 percent for non-Hispanic black, 5 percent for API, and 6 percent for Hispanic women. Among specified Hispanic groups, the rate for Mexican women fell 8 percent; TFRs for Puerto Rican, Cuban, and ‘‘other Hispanic’’ women (Central and South American and unspecified Hispanic subgroups) did not change significantly.

In 2009, the U.S. TFR was below replacement for a second straight year after being above replacement in 2006 and 2007. ‘‘Replacement’’ is the level at which a given generation can exactly replace itself, generally considered to be 2,100 births per 1,000 women. The rate had been below replacement from 1971 through 2005. Rates for most race and Hispanic origin groups were also below replacement in 2009, including non-Hispanic white (1,780.0), non-Hispanic black (2,026.0), AIAN (1,779.5), and API (1,956.5) women. Despite the decline, the TFR for Hispanic women remained above replacement, driven in part by the high rates for Mexican (2,636.5) and ‘‘other Hispanic’’ (3,506.0) women (Tables 8 and 14).

Read the last sentence again—neither whites, blacks, American Indians/Alaska Natives or Asian/Pacific Islanders are reproducing at a rate sufficient to replace their existing populations.  Only Hispanic women are having enough babies to replace and grow their population, and with net immigration at or near zero, at least for far and away the largest contingent of Hispanics (Mexicans), that figure is sure to decline.  Gathering statistics like these is quite cumbersome and tedious, so 2009 is the latest date for which there is a final tally, but the initial results from subsequent years don’t show any change in the trajectory. 

Even at below-replacement rates and net zero migration, the US population will continue to feebly grow for a few more years, but it will age precipitously, and finally, when the aging turns to dying, will begin declining. 

The Economist recently published an article, Demography: China’s Achilles heel that attempts to explain that the fatal weakness in China’s economic strategy relative to the US is its looming demographic implosion.  Yet the article uses outdated fertility rates for the US, putting the US fertility rate at 2.08, whereas the rate in 2009, according to the NCHS (first sentence of second paragraph, above) was only 2.007 per female (2,007 births per 1,000 women).  In other words, the US, in aggregate, is already below replacement, which is considered to be approximately 2.1 children per female.  Had The Economist used accurate fertility rates for the US, things would not have looked as good relative to China.

China does indeed face a more immediate demographic impact to its economic growth prospects than the US, and China has yet to get rich, or as the demographers like to say, “China will grow old before she gets rich”.  By comparison to the US, China looks marginally worse demographically.  But that’s not to say America enjoys the rosy prospect, such as she fancied herself manifestly destined at her founding, of growth unto eternity.  Because China isn’t yet rich, she ought to be able to continue to expand aggregate economic activity through much of her demographic demise.  America is already rich, but her demographics can support growth for a bit longer than can China’s.  On balance, I believe neither to be much better off than the other, so far as the prospect for aggregate economic growth goes.

Why no babies?  This is truthfully the $64,000 question, and really, no one knows the answer.  Declining fertility rates are highly correlated to the increasing incomes that come with industrialization and economic modernization.  Why women (and make no mistake, it is always the case that the women are the final arbiters of how many babies their bodies will bear) decide to have fewer babies as economic development obtains, incidentally, exactly the opposite of what Malthus predicted would happen, is a great mystery.  But like all economic activities (and if you don’t believe raising a child is an economic activity, then you’ve never had any), the perceived benefits of childbearing and rearing must be something more than their perceived costs for the transaction to be undertaken.  Apparently, for women in developed, and some developing countries, the marginal cost of raising children roughly equals the benefits to be gained thereby at about two children, and no more.  In my estimation, while there are any number of factors that play into the child/no child calculus, primary among them is that as development proceeds, the expectation that every child will survive until adulthood is greatly enhanced, while the opportunity cost of bearing children increases dramatically, as industrialization and mechanization makes it possible for women to compete with men for jobs.   Women no longer need to leverage their wombs to survive as industrialization renders male advantages in size and strength irrelevant, so women have only the children they wish to have, just enough to succor their maternal instincts and no more.  In essence, children have become luxury goods, but ones that have a steeply diminishing marginal utility. 

Would the economic demise that population demographics portend operate to reverse the trend?  That’s hard to say, because there are very few societies (if any) that, having seen the decline in fertility due to economic development, suddenly reversed course to become less developed and modernized economically.  But the experiences of Russia, with the demise of the Soviet empire, and Japan, with its decades-old economic stagnation, perhaps offer insight as to whether total fertility rates might climb above replacement once economic growth stalls.  According to the CIA World Factbook, Japan’s 2012 total fertility rate is still well below replacement, at 1.39 births per female, and Russia’s is not much better, at 1.43 births per female.  In both countries, demographic demise has already begun—Japan and Russia’s populations are actually now declining, not just experiencing a decrease in an otherwise positive rate of growth. 

Whereas China’s Achilles heel may be its rapidly aging and dying population, at least she has not yet achieved a sufficient level of wealth that her citizens expect the state to care for them in their dotage.  The US long ago did (along with other developed-world countries, particularly in Western Europe), which is America’s own Achilles heel.  The Social Security Trustees’ recently released report explains that the Social Security Trust Fund faces depletion earlier than it had previously imagined, by 2035, and the portion of it exclusively devoted to disability insurance faces depletion even earlier, by 2016.  Medicare fares little better, its trust fund is expected to be depleted by 2024, but it already fails the “long range test of close actuarial balance”, meaning that general revenues have been necessary to supplement Medicare since 2008, and will continue to be needed indefinitely, if current trends continue.

Not a single economic thinker considered that long-term economic growth might be permanently forestalled by the failure of human populations to grow.  Everyone from Keynes to Hayek to Friedman devised their theories of how to achieve continual economic growth predicated on the assumption that human populations ceaselessly grow.  No one paid any mind to simple mathematical and biological principles.  No creature ceaselessly grows.  The 21st century challenge for the developed, and much of the developing, world will be to devise economic strategies, (like paring down debt instead of continuing to pile it high), that enhance the ability of aging and declining populations to nonetheless survive and thrive for so long as they are able.