The idea that developed nations are entitled to fast-growing prosperity is a misconception that will become apparent as low fertility rates of past decades lead to lower GDP growth  in many countries, says Rob Arnott, founder of Research Affliliates, a firm known for its investment theories and asset allocation strategies.

In a report coauthored by Denis Chaves, the firm's vice president of research, the two conclude that those past low fertility rates mean low or no growth in the young adult population, the dominant engine for GDP growth. Meanwhile, older adults at or near their peak productivity are set to retire. "The unequivocal good news of a steady rise in life expectancy means that these retirees will create a very substantial drag on GDP growth, as these seniors move from peak productivity to negligible productivity in just a few years," they say in a summary released today of a forthcoming paper to be published in The Journal Of Indexes.

The danger comes not from slow growth, but from an expectations gap in which people consider slow growth unacceptable. "If we expect our policy elite to deliver implausible growth, in an environment in which a demographic tailwind has become a demographic headwind, they will deliver temporary outsized “growth” with debt-financed consumption (deficit spending)," they say. "If we resist the necessary policy changes that can moderate these headwinds, we risk magnifying their impact."

To read more about the paper, click here.