The Well-Read Investor

Episode 12: Paul Morland

Renowned authority on demography, Dr. Paul Morland and Well-Read Investor host, Mike Hanson, discuss what demography tells us about our past and future.

Today we have Dr. Paul Morland to discuss his book, The Human Tide: How Population Shaped the Modern World. Paul is associate research fellow at Birkbeck College, at the University of London, a business consultant, and a renowned authority on demography. The Human Tide is available widely on amazon and other online venues.

Demographics are a timely topic right now given the global pandemic still gripping the world. Demographic trends unfold at what you’d call a “glacial” rate—very slowly, over generations. And that fact has led many to ignore the topic for investing. We’ve even said on this program stock markets really don’t price in events more than about 30 months into the future. So why look at Demographics at all?

Think of it as a baseline awareness issue—a contextual issue. Not knowing the story of demographics can very much lead you to false assumptions about here and now.

And that’s why we’ve brought Paul on to discuss. For a topic that unfolds in far longer stretches than it takes paint to dry, Paul is an energetic and lively thinker with great insights. We hope you enjoy!

Michael Hanson (00:08):

Hello and welcome to the latest edition of the Well-Read Investor, the podcast that profits your mind and your money. I’m your host, Mike Hanson.

If you’re enjoying our show, we think you’ll also love our book reviews. Coming soon, the Well-Read Investor will have many more book recommendations with pithy insights and summaries to take you beyond the podcast. Follow us on twitter @wellreadpod and Instagram at @wellreadinvestorpod for all the latest. In fact, you can even see what I’m reading every week, and post your own book suggestions too. On to the show.

Today we have Dr. Paul Morland to discuss his book, The Human Tide: How Population Shaped the Modern World. Paul is associate research fellow at Birkbeck College, at the University of London, a business consultant, and a renowned authority on demography. The Human Tide is available widely on amazon and other online venues.

We’ve discussed the topic of demographics before with Larry Siegel and his book, Fewer, Richer, Greener. Some, of course, believe “demographics are destiny”, which is to say that ultimately population and its growth tell the final tale about economic prosperity, military and government power, and so on. Which is of course true and not true: many forces, including specific historical events, human ingenuity and technological advancement, and indeed, war and peace, and other things, play big roles in the shape and destiny of a civilization.

Demographics though,  are a timely topic right now given the global pandemic still gripping the world. Demographic trends unfold at what you’d call a “glacial” rate—very slowly, over generations. And that fact has led many to ignore the topic for investing. We’ve even said on this program stock markets really don’t price in events more than about 30 months into the future. So why look at Demographics at all?

Think of it as a baseline awareness issue—a contextual issue. Not knowing the story of demographics can very much lead you to false assumptions about here and now. For example, while many believe China will be ascendant as the sole global economic power this century, it’s very much worth keeping in mind the birth rate in China has fallen below many other nations. And even more, within a few decades China will rank among the most aged populations in the world.

That really matters in my view: it tells you much about why they are moving so aggressively to grow today—their window of big growth opportunity may not be as large as many hope or fear. And, does Japan’s demographic malaise explain their generally turgid economy over the last decades, does it explain deflation and low interest rates? Maybe—you’ll have to decide for yourself. But obviously, demographics are worth a thought here.

And that’s why we’ve brought Paul on to discuss. For a topic that unfolds in far longer stretches than it takes paint to dry, Paul is an energetic and lively thinker with great insights. We hope you enjoy!

Mike Hanson (03:17):

Paul, thank you so much for doing this and taking the time. We start our interviews always the same way, which is why should every well-read investor be interested in your book, The Human Tide?

Paul Morland (03:28):

Well, what would the last 200 years look like, historically, if we assume demography actually made a difference? If you think that people matter in investment as consumers, as producers, as employers, employees, shareholders, whatever, then the numbers of those people, where they are, what they're doing, the level of education they have, how they're fitting the economy has got to matter. I'm a business consultant, as well as a demographer. Two examples I can give of the relevance of demography to investment and business. In one case I was working with a set of financial advisors. You might call them brokers in the States, who advise UK citizens, who basically have retired and moved off to the European continent, to Spain, to France, Portugal, where the weather's better. And a lot of our retirees go like yours, go down to Florida.

Paul Morland (04:19):

And brilliant men who had founded a great business. And at some point they will sell it all, and they are constantly thinking about its value and they've created enormous value. I pointed out to them that if the peak age for their new clients is 60 to 65, something they'd never really thought about is the great baby boom in the UK peaked in 1964. So if you think about the value of that business, you really ought to be factoring in that they're only at the start of a really big way of people approaching their sixties, who are going to be going out and retiring. But however you model it, factoring in that there are going to be a lot more sixty-year-olds in five years, time than there are now is really relevant to the value of that business.

Paul Morland (05:00):

Another example, I was doing some work for an insurance company and while we were doing this strategy project, the Institute of actuaries in the UK revealed that life expectancy for people at the age of 60 in the UK, had fallen ever so slightly for the third year running, and three years running, they came out with the magic words: It's not a blip, it's a trend. Now, once they have said, it's not a blip, it's a trend, two things happen. All the insurance companies in the UK who write what we call annuity businesses, promise of an income after you retired, suddenly could stop assuming increasing life expectancy and slightly different the life expectancy, which can I have a really big impact on those funds.

Paul Morland (05:46):

And also companies with what we call defined benefit schemes. And there's some quite small companies with enormous schemes because they have very large numbers of legacy employees. The state of their pension fund at a particular moment can be incredibly important to their stock price. Suddenly they're told the size of the money you've got to chuck into your pension scheme for it to be above the water has massively reduced or possibly you've actually got a surplus there and you won't have to pay into it for a few years, because of a small life expectancy change. So again, that had a big impact on the insurers who had that exposure. And it also had an impact on the share price of companies with a large exposure to their own pension scheme.

Mike Hanson (06:28):

You're absolutely right. Whether it's pensions or actuarial tables, especially with the insurance business, demographics just matters so much to investing assumptions into the future. But as a business consultant, how did you come to want to write this book? What's the background of it and how did you go about doing it?

Paul Morland (06:43):

Well, I became an independent consultant in 2002. I'd worked for consultancies before then and for a couple of large companies and mostly working in financial services. When you go independent, there's a great joy of freedom in a sense, but there's also a certain amount of exposure. My first client was a three-month project that went on for five and a half years. Then 2008 hit and I had a really quiet year. And I'd always said, Oh, I'll do my PhD in retirement. And I've got lots of interests, but demography became more and more of an interest of mine. After a month or two of being rather  quiet I decided right now is the time to do it. So I started looking around a thesis, came out with an idea, my first book, which is not The Human Tide, but an academic book called Demographic Engineering.

Paul Morland (07:26):

That was my PhD thesis. And that was about war and conflict and demography. And the link between those things. I found myself, a supervisor who at the time was in Harvard for a year, by the time he came back and we kicked off, I was back doing the consulting. So I had to do it part-time. That's the way the world works, but I got it done in about three years and published that. As I was writing that, it occurred to me that demography is this incredibly powerful force. We just spoke about how it can turn a value of a company quite quickly. It just works through everything. And although if you read general history, you see demography there as a footnote sometimes, or even as that chapter, perhaps, and there are monographs on particular issues.

Paul Morland (08:07):

I didn't think anyone had written a really general history, which said, the fact that the U S population expanded enormously, the fact that China has the largest population in the world, but the fact that the Russians were shrinking as a share of the Soviet population from the early 1970s. What's the pattern that grinds those changes, which is essentially the demographic transition. And then how did it matter? How did it matter to economies? How did It matter to wars? How did it matter to how did it matter to international relations? And I thought nobody had really done that. So while I was writing the first book, I started thinking about the second one and whereas the first one was an academic work. My ambition for the second one was to make it a more accessible text.

Mike Hanson (08:47):

When you speak to people or readers, what surprises people the most about your findings and your story?

Paul Morland (08:53):

If you look at almost any big historical event in the last hundred, 200 years, it has a pretty important demographic angle. The inhabitants of the United States at the time of the Louisiana purchase, there were 100 times more of them, there were French people in the Louisiana purchase area. So they were going to roll across that area regardless. And similarly, if you look at the great acquisition of territory in the West and also the 1848 war against Mexico, well, the Mexicans had never really populated it. The US was able to take half of Mexico. And there was almost nobody there. If you look at the debates in Congress the way that the decision was taken, not to annex all of Mexico, but annex the Northern half, because that way you could get all this territory and almost no people.

Paul Morland (09:36):

So pick almost anything, the first world war, the second world war, the rise of the Soviet Union and the fall of the Soviet Union, the rise of China. I think the other thing that surprises people, in a very contemporary context, is the extent to which birth rates are falling and fertility rates are falling in so many countries. So India now is more or less a replacement level, not very much above replacement levels above two children. Most people would never guess that. People are amazed at how even still relatively poor countries have adopted quite low fertility rates. And a very good example of that is Mexico, where you've had a huge wave of Mexican immigration, but the oncoming cohorts of Mexicans are just smaller in number. And that's probably why we've seen many years now declining Mexican immigration, same in the UK. We have a huge wave of East European labor, particularly Polish. But if you look at the people who come in their twenties and you say, well, how many poles, whether in their twenties, 10 years ago, versus how many they'll be in 10 years’ time. The fact of this declining fertility rate is going to have a big impact on migration.

Mike Hanson (10:40):

Now, am I right to say a fertility rate of a 2.0 is the replacement rate, right? And above 2.0 is growing the population.

Paul Morland (10:46):

You can use that as a rule of thumb, because if you have a high infant mortality rate, lots of kids are dying, which was absolutely common and almost everywhere until 1800. And it's still fairly common in many places. But the higher that is, the more kids you need to have in order to get the women to the fertility starting line as it were. And through that. So that's why it's above two in some societies, but in a world where very few men or women have died before they've completed their fertility cycles, say by 50, 2 is good enough, but the other nuance I would say, and this is a little bit more complicated is that once you get to two, your population doesn't necessarily stop growing.

Paul Morland (11:23):

Because if you think of a population pyramid, if you've got loads of people at their fertile years versus elderly. And then each of those only have two each. So they're replacing themselves. But the dying cohort, the old folk, are very small, so every year you get loads of births, but few deaths. So that's called demographic momentum, in the long-term, the fertility rate of two will mean replacement would lower infant mortality. But once you get to two, you still have many decades of growing population where that pyramid flattens at the bottom, but it's still going up on the top. Bits are very narrow and there's a disappearing. You're going from a kind of triangle to a square.

Mike Hanson (12:00):

That's very interesting. I've never heard it explained like that. And you mentioned age. I'm interested in some of your views about the baby boom. You describe it as a bit of an anomaly in a larger trend, is that right?

Paul Morland (12:11):

Yeah. I'm quite interested in it because I was born in November, 1964, which the last great burst of the baby boom. So I'm a baby boomer by six weeks in the UK. So, what was really developed, partly in the interval years, immediately after the second world war was an understanding. Before 1800 and almost all societies. You loads of births, loads of deaths, high infant mortality. I always say people breeding like rabbits and dying like flies and fairly low population. Then first of all, you have a fall in mortality rates because people look after themselves, better, more public health. All this stuff leads to a fall in mortality rates. The population grows. The next stage is the fertility comes down and eventually you  get to smaller families. And the thing stabilized total population stabilizes at a higher rate.

Paul Moreland (12:56):

And just as people theorize that about 1945, so the family size had got down to about two by then, then we had this baby boom, and that was a bit of an anomaly because just as the theory realized, we'd kind of got to a steady state, bingo people started having larger families. They have three, almost four in Canada, but a blip. And then it came down again in the sixties, the pill, there was a change in social attitudes. You know, there's a generation of women who it seemed were not unhappy to have larger families and stay at home and fit in with what we now see as the sort of fifties. The culture changed in the sixties. And of course, contraception became even more available. So there was a real change. And then we got into low fertility. And now what we've got is very low fertility.

Paul Morland (13:44):

I often talk about what I call the infertile crescent from Portugal to Singapore. So Southern Europe, Eastern Europe, much of the former Soviet Union, China now, nothing to do with the one child policy it's largely been lifted, I make a strong argument in the book that the one child policy was unnecessary. They'd already got their fertility rate plummeting by 1980, when it was introduced. If you look up Chinese cultures outside China, Taiwan, Singapore, and other East Asian countries, they all have super low fertility rates without that kind of draconian policy. And I think it's too late in China. I don't think the fertility rate will go up. So all the way from, Portugal to Singapore, there are countries with really late fertility rates. And in these places, the spectra of population decline is very real. Some of them have immigration. Germany actually fits into that fertility category as well, but they have a lot of Immigration. And there are lots of countries where the best guess is they're going to lose a third, possibly even a half of that population over the next hundred years.

Mike Hanson (14:45):

So I've heard you describe this book as a work of history, not necessarily a work of science or forecasting, but you are working on a forward looking book, let's say on demographics and maybe a little bit of what the future holds, is that correct?

Paul Morland (14:58):

In The Human Tide, I was really talking about the last 200 years. But I did come to some kind of view of the future and spoke about the planet being more green, less white, and more gray, more gray because it's aging, less white, because European populations are definitely declining as a share of the global population. As I was working on this book, The Human Tide, I thought there really needs to be a sequel, which is never mind what happened in the US in the 1820s or in Russia in the 1940s. What are the current trends and how are they going to shape the world of the next 10, 20 and looking out  all the way to the end of the century. So I'm working on a book called Tomorrow's People, that should come out sometime next year or possibly very early 2022.

Mike Hanson (15:47):

So give us a, just a small preview. I heard you speak once and one of the things you said was that the future can surprise you even with demographics. And so what are some things you think, or things you think might be wrong?

Paul Morland (15:57):

There are certain things that are baked into demography and certain things that aren't. We know how many native born Italian, 30 year old Italians there'll be in 2030. It's very unlikely the mortality rate is going to rise significantly. So,  it's very unlikely that the fertility rate will rise. There is a certain amount of certainty. We can't exactly take out a crystal ball, just because you can't say something with absolute certainty because you can't forecast it 100%, doesn't mean there's not a lot of interesting stuff to say about it. And again, in investment, rarely, is any assumption, a hundred percent certainty. So the way I've decided to organize this book is around 10 numbers and they're all connected.

Paul Morland (16:34):

So I pick 10, which I think reflect what's happening in demography today. So one example would be the number one, number one is the fertility rate in Singapore. So I talk about low fertility in Singapore, and then I expand that discussion of low fertility to other countries and what it means. Another example would be the percentage drop in the Bulgarian population. So I pick a single number, and I talk about it. And then I use that to expound about urbanization, about low fertility, about massive population expansion in Africa, about population decline in Europe and so on. So that's eight of the chapters which are purely demographic and then I'd have two others.

Paul Morland (17:16):

One is about, the number is female literacy in Bangladesh, which is close to hundred percent now. And the other is the growth of the wheat output of Ethiopia. The reason I use those two is where they're not strictly demographic. I think there's a qualitative change in people. We have to think about the qualitative as well as the quantitative. So, when we think of workforce is when we think of economies, it's very different if you've got a million people who are totally illiterate to a million people, half of whom has got second secondary education or high school education, and half of whom have actually got degrees. So I think there's a qualitative aspect we need to think about. And then in terms of the food, the reason I wrote that was I thought, if we go back to Thomas Malthus and the foundations of demography, Malthus was writing around 1800 and he thought, well, if you double the population, roughly every generation. It would grow exponentially.

Paul Morland (18:08):

I did the math from basically the year zero. And I calculated that by now, if you'd have just that multi-school kids that survived and had four kids since the years era you'd be having 39 zeros on the number. And as I'm writing in the book that's the sort of number demographers don't deal with. One demographer said, ultimately humans would be expanding out of the universe, out into the universe at faster than the speed of light. So the reason that hasn't happened, yes, we've had wars. Yes, we've diseases and pandemics, but the key thing is famines. So we could never have produced enough food to support all those people.

Paul Morland (18:40):

And what’s happening now is because fertility is coming down every year, the population growth of the world is a bit lower. And roughly it's gone from 2% a year, back in the early seventies to 1% a year now, you know, for those people who do have a sense of compound growth, the difference between 2% and 1% is vast, and it's continuing to slip by the end of the century, it should roughly have flattened down. And then the other thing is our extraordinary ability to increase yields and to increase payroll output. So without which we could never have done any of the demography we've done. So there are eight purely demographic numbers. And then there are two which are about the qualitative aspect and about how the whole thing is underpinned by incredible human innovation.

Paul Morland (19:22):

And the exciting thing is that we live in an increasingly educated world. There are more of us, we're more educated and of course we're much more network than we were. So if you've got an interest in something, you can find the other person, you can work on things together. And so I'm very optimistic about the ability of human beings to find innovative solutions. So on that comes back to the, my kind of more green, I'm quite optimistic on the environmental stuff. I think there's a lot of reason to believe we will find our way out of problems. We're going to be surprised as a human race, how innovative we are, because there are going to be hundreds of millions of well-educated, well-networked people working on things.

Mike Hanson (20:00):

I tend to share that point of view and isn't it funny talking about the future of demographics. You always end up talking about Thomas Malthus, poor Thomas Malthus one way or the other. But I heard you once say that perhaps a grayer population might be a more peaceful one. Do you believe that? Do you still think that's true?

Paul Morland (20:18):

I do. I think there are pros and cons of the population getting older. It's inevitable, we will get older as a society. We have fewer children. And the other thing is we're living much, much longer. Now in the West that growth of life expectancy has had a few blips and it's slowing down perhaps, but in countries across the world the life expectancy is growing enormously. India might have had 20 years less life expectancy 50 years ago than the US or the UK. Now it's a handful of years. So people living much longer throughout the world, the world is getting older. We all know about the problems that gives rise to for social security, for pensions for labor forces. There's also a problem in investment.

Paul Morland (20:57):

If everybody's old, they've got all the money, they tend to want to buy safe investments rather than to be investing in more risky stuff. So there are some real and interesting economic problems. There's also the problem that who looks after them. But on the other hand, there's definitely a correlation between old age and peacefulness. So older societies don't tend to go to war and that's anecdotal, but there's some real social science that has correlated age and war. And the same with crime, we all know the violent criminals are young people, young men overwhelmingly. And as the center of gravity and the population rises, the median age rises. So societies become more peaceful and they become less criminal and there real benefits in that. And of course, Japan is the great laboratory of the future in that respect.

Mike Hanson (21:44):

I can attest it at age 41. The blood runs a little less hot than it did at 21. There's no doubt about it. Paul, are there any parting thoughts or things that you wish that every aspiring well-read investor ought to hear about?

Paul Morland (21:56):

I don't like to overclaim for demography and you know, people say to me, Oh, demography is destiny, is that what you're claiming?  You can't write a history of the world or think about the future through only one lens. And it would be stupid to say demography was the only thing that mattered; demography matters more than most people think. And I think if you've got a grasp of where populations are aging, where they’re young, the demographic dividends. If you have an understanding of that, if you have an understanding of what different age groups want to invest in different things and how that could be affecting bond yields and so on, I think you will have a richer and hopefully a more successful investment experience.

Michael Hanson (22:33):

So, to wrap things up, we always love to ask our authors, what else do you like to read, Paul?

Paul Morland (22:38):

Well, I read a lot of history, large scale historical works that cover long periods at the moment. I'm reading a history of the 18th century, late 17th and 18th century by a historian called Tim Blanning. I just finished Jude the Obscure by Thomas Hardy, which now it's very interesting. Cause I read that when I was a student and it was okay . But actually I really enjoyed it then, I’m rereading it. I think the understanding Malthus was really important. And Schopenhauer, we can go into Schopenhauer, that’s another question, a big influence on Hardy. But these poor children hang themselves and say, because we were too many, I think that's the sad Malthusian moment in British history. And then the other thing I just finished, which you probably won't be surprised I've read, was the Colombo book on global warming which suggests it's real and it's happening, but, but working around innovative solutions is probably the way to go on that.

Mike Hanson (21:35):

I've read that book as well. I think we might deal with it in a future episode of the podcast, but it's funny you bring up Schopenhauer relative to things like Thomas Hardy, because  Schopenhauer, his sort of style and romanticism really does come through in that book.

Paul Morland (23:45):

And pessimism above all above all, sheer misery of life. Thank God, if that was ever true. We've got beyond it.

Mike Hanson (23:54):

Well Paul, Thank you so much for being on the program. Your book, the human tide is one that I really do recommend as a fairly concise and great narrative of the story of population in the last couple of hundred years. Thank you so much again for being on the program.

Paul Morland (24:06):

Thank you for having me.

Mike Hanson (24:17):

That was our conversation with Paul Morland. One of my chief takeaways from our discussion is that demographics are not pre-determined—historical events can change the trajectory of population growth, and many of those events are fairly unpredictable. Truly fascinating.

So, our next episode arrives on December 2nd and promises something a little different: I sat down with Naj Srivivas, host of the Fisher Investments Market Insights podcast to talk about the Well Read Investor. I’ve known Naj for many years, and we have a blast talking about strategies for more effective reading, how to select books, and many other crazy topics including heroic mythology and why you shouldn’t worry about “remembering” everything you read. We’ll present to you bonus content from that podcast that gets even further into the wonky world of literary life.

Until then, here’s hoping your holiday season begins with peace, health, and an optimistic heart. And may all your reading profit your mind and your money. Take care.

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