Thursday, February 10, 2011

Great Inflation in 2030?

Population is shrinking nowadays. It is shrinking in term of rate of birth, not the additional people who are born and die. I just finish my reading, a book written by George Friedman entitle The Next 100 years, who makes a prediction about what will happen in this century. One part of the discussion in that book is about the baby boomer and population shrinkage.

The decline of the rate of the population depends on the educational system and the mentality of the people. For instance, 30 or maybe 40 years ago, people married in the early age; around 15 or 16 years old, because they did not need to follow the educational system that have been fixed like nowadays. Many of them did not go to school to study, and some of them were primary level of studies that could make them merely read, write and calculate numbers, but not in detail. It was very rare at that time to have people who were well-educated, proceeded their studies in the next level; due to the effect of colonialism which wanted to discourage the knowledge from being spreading among the people who were under their power.

Therefore, instead of having education, they became a worker (for man) at that early age which raise their maturity of thinking; to survive and to have something to eat. For a girl, they had been developed to do a lot of homework, to be more feminine and 'mother'. The responsibility that they learnt from the process of real life (working situation) increase their maturity, then would lead to their marriage. This early marriage then, would lead to the born of a lot of child (logically); by using the assumption, everything is equal (ceteris paribus) while the main variable is the years that they live.

George Friedman in his writing insists that the quantity of the children at that time was a blessing as the society was agricultural-based society. Thus, they needed a lot of workers to work or run their land. As the society develop, having a lot of children became a problem as the lifestyle and life-budget became unstable, due to the more spending was needed compared to the wages or salaries especially in industrial-based society and services-based society. The rule of the world, such as the stricter laws imposed to forbid child labor in the industries and every child need to go to school until some age, put a burden into the family. Instead of having children to lend a hand to them, now, they need to support them financially to fulfill the need of the rules of the society. In this case, in my own opinion, the laws imposed to prevent child labor must be seen into two aspects; negative and positive. The positive effect is it will prevent the exploitation of child as they are paying less amount rather than adult (capitalist system emphasizes on the profit rather than social welfare). However, the negative effect is more worst! As the family does not have money to support their children to study, while the laws do not allow them to work, they will be a load for that family.

Anyhow, this is the view from the eye of the capitalism. However, through this consciousness, people are having family planning in order to cope with this situation which actually result in the problem of human resources in a long term. There is a forecast (the word prophecy is something that I do not like to use here), where this world will face economic crisis around 2030 regarding to the shrinkage of population. As the life of people will be extended due to the development of sciences or consciousness about the importance of health, there will be a lot of old people; the pension people. The amount of them cannot be balanced with the workforce who are entering the service or job industries.

Then, how could this affect the economy? The old people, as they are not working anymore, they do not contribute for the expansion of economy due to the concept of productivity as they are out of labor force. However, their consumption is high, and the young people who are just entering the job industries could not afford to fulfill this demand. Therefore, from my point of view, there will be a chaotic inflation which I believe it is demand-pull inflation.

As I said before, this is from the view of capitalism. I still read some ideas from Umar Chapra in his book entitle Islamic Monetary System to gain some understanding about how the Islam look at this situation. Insya Allah, after I finish my reading, I will discuss it in my next post.

Mohd Hasbullah Mohamad Faudzi
Economics and Management Sciences
International Islamic University Malaysia