There is NO Solution to this Problem
AI can replace workers... but it cannot replace shoppers.
Artificial general intelligence is, for all intents and purposes, here.
For those uninitiated in AI-speak, artificial general intelligence (AGI) is the point where AI can effectively replace a human. Rather than doing one-off tasks at a command prompt, an AGI agent can think across disciplines, transferring knowledge from one domain to another and actually think.
As a case in point, check out Moltbot. This is an AI agent that can effectively run your office for you, checking and replying to emails, go through the check-in process for your flight, and doing everything but getting you coffee.
Great!
We really are on the verge of a major quantum leap in productivity. AI will soon be able to almost anything.
I say “almost” for a reason.
While AI will be (and already is!) able to replace workers, it can’t replace shoppers. It can’t replace renters or homebuyers. And it certainly can’t replace taxpayers.
I pondered this as I read this week that China’s birthrate just plunged to a record low. Last year, China recorded more deaths than births. It was the the fourth year in a row, and the streak won’t be breaking any time soon.
Per the New York Times,
The government on Monday said 7.92 million babies were born last year, down from 9.54 million in 2024…
The number of births for every 1,000 people fell to 5.63, the lowest level on record since the founding of the People’s Republic of China, according to official government data.
Around the world, governments are contending with falling birthrates. But the problem is more acute for China: Fewer babies mean fewer future workers to support a rapidly growing cohort of retirees. A worsening economy has made addressing the challenge even more difficult.
China’s top leaders have redoubled their efforts to try to boost the national birthrate enough to reverse the decline, something that demographers have said is probably impossible now that China has crossed a demographic threshold where its fertility rate, a measure of the number of children a woman has over a lifetime, is so low that its population is shrinking…
China has tried everything to boost its birthrate, even going so far recently as to tax condoms. None of it has worked.
The Chinese economy — encompassing everything from the price of schooling to the size of apartments — is geared for small families. That’s the norm and now has been for decades. Relaxing the One-Child Policy, as the country did a decade ago, didn’t lead to a meaningful increase in the birthrate. Chinese families organized their lives and their budgets around the idea of a small family.
Meanwhile…
China has experienced a sudden and rapid decline in the working-age population, as the number of citizens age 60 and over is projected to reach 400 million by 2035. Young people often express reluctance to contribute to the public pension fund because of the financial burden.
Stop and think about that. 400 million people is a huge number. In less than a decade, China will have a significantly bigger population of retirement-age people than the entire population of the United States.
Retired people don’t upgrade their cars as often. Why would they? They drive less and cars are expensive.
Retired people don’t upgrade their houses and buy McMansions. Why would they? Their children have left the nest.
Retired people don’t buy much in the way of furniture and appliances. Why would they? They already have plenty.
I could go on all day, but you get my point. China’s domestic economy is doomed. AI can and will (and already is) replace workers. China’s economy will get drastically more efficient. But who is going to buy what all of those AI bots are busily building when there are fewer consumers with every passing year to sell to?
China’s not alone here, of course. Much of East Asia is on the precipice of demographic collapse, as are parts of Europe. It’s just that China happens to be the world’s second largest economy and one its two primary growth engines.
So… what are the implications?
To name a few…
Persistent downward pressure on Chinese property prices.
Weak domestic spending leading China to depend ever more heavily on exports.
Slow growth for Western brands looking to sell to Chinese consumers.
Sluggish loan growth for Chinese banks, as well as potential issues with bad loans.
Slower global growth as the Chinese engine sputters.
As for solutions… there aren’t any. There is literally nothing China can do at this point to stop demographic collapse. Even if they were to somehow convince Chinese families to have four children each (despite not having anywhere to put them given that the country’s housing stock was built to accommodate small families), it would be 20-30 years before their spending was meaningful.
China’s goose is cooked.