Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape National Defense Spending
Transcript
- Lucas: When we talk about falling birth rates, we usually zoom in on pensions, housing, or the care economy. But there's one area that doesn't get nearly enough attention — national defense. Luna: You mean the military just can't find enough young people to enlist? Lucas: Exactly. And it's becoming a structural problem, not a cyclical one. Take Japan — the Self-Defense Forces missed their recruitment target by more than 50 percent in 2024. They had about 240,000 personnel, but they need closer to 250,000 to maintain their current posture. Luna: Fifty percent is huge. And Japan's not alone, right? Lucas: Not at all. South Korea, which has the world's lowest fertility rate at 0.72, is seeing the number of 18-year-old men drop by about 7 percent each year. The military there already requires conscription, but the pool is shrinking so fast that by 2030, they might not have enough conscripts to fill their ranks even with mandatory service. Luna: So they're looking at extending service times or lowering standards? Lucas: Both, plus new approaches. South Korea recently announced it's considering allowing women to volunteer for combat roles more broadly. They've also talked about raising the maximum conscription age from 28 to 30. And then there's Germany. Luna: Germany suspended conscription in 2011. How are they filling spots now? Lucas: They're struggling. The Bundeswehr had about 183,000 troops as of last year — 20,000 short of their target. A 2025 report from the German Institute for International and Security Affairs warned that without changes, they could be 50,000 short by 2030. Luna: And all this while NATO is asking members to spend 2 percent of GDP on defense. Demographics make that harder. Lucas: That's the exact tension. Even if a country hits the spending target, they might not have the bodies to field. Money doesn't automatically solve the recruitment crisis when the birth rate has already determined how many 18-year-olds exist. Luna: There's a RAND study from last year that quantified this. I think it was for South Korea specifically? Lucas: Right — RAND looked at the pool of military-age males in South Korea and found a 30 percent decline in eligible recruits between 2010 and 2025. And that's before accounting for health or education exclusions. The actual number of fit, willing, available young men is shrinking even faster. Luna: So what are the options? Automation, robotics, AI — do those fill the gap? Lucas: They're a big part of the answer. But it's not just about drones replacing soldiers. The whole defense industrial base is being reshaped. Companies like Palantir and Anduril are seeing growing demand for autonomous systems precisely because labor is scarce. Palantir's defense revenue was up something like 40 percent year-over-year in their most recent quarter. Luna: Forty percent is huge. But automation has limits — you still need humans for cyber, logistics, maintenance. Lucas: Absolutely. And that's where the competition gets interesting. The military isn't just competing with other countries — it's competing with tech companies for the same small cohort of young, skilled workers. A 22-year-old software engineer can make $150,000 at Google or $60,000 as a military cyber officer. The Pentagon has been trying to close that gap with signing bonuses, but it's an uphill battle. Luna: And a lot of those young people grew up in smaller families, so they're already more likely to be the sole caretaker for aging parents. That adds another barrier to enlistment. Lucas: That's a really sharp point. The 'sandwich generation' problem — caring for both kids and parents — makes it harder to commit to military service, especially in countries where parental care is expected. In Japan, more than half of young adults say they would not consider military service because they need to care for family. Luna: So it's a double demographic whammy — fewer recruits, and those who exist have more responsibilities. Lucas: Exactly. And look, this is a podcast that we put out for free because we think these conversations matter. A couple of dollars a month from listeners who get something out of it — that's genuinely what keeps these going. If walking through the economy with us has made something click, you can find us at buy me a coffee dot com slash fexingo. Luna: Yeah, it really does make a difference. Small amounts add up. Lucas: So back to the defense piece — one consequence that doesn't get talked about enough is how demographic decline might weaken alliance commitments. If a country physically can't field the troops it promised, NATO's Article 5 or the us south Korea mutual defense treaty becomes harder to fulfill. Luna: Is anyone modeling that? Like, what happens if Germany can only contribute 30,000 troops instead of 50,000? Lucas: There are some think-tank simulations. A 2024 CSIS paper looked at the NATO eastern flank and found that by 2035, Poland and the Baltic states will have a combined military-age population that's 15 percent smaller than today. That's the frontline states. Their ability to resist pressure without relying on reinforcements from Western Europe is diminishing. Luna: And Western Europe is in the same demographic boat. So the whole alliance gets thinner. Lucas: Right. And it's not just NATO. In East Asia, Japan and South Korea are both facing this. Their defense cooperation with the US hinges on being able to provide bases and personnel. If they can't, the US might have to rethink its force posture in the region. Luna: That's a huge geopolitical shift. So what's the most creative solution you've seen? Lucas: Probably South Korea's plan to integrate artificial intelligence into their conscription process. They're using AI to screen for aptitude and assign roles more efficiently, so they waste fewer recruits on mismatched jobs. It's not a silver bullet, but it's a smart way to get more output from a smaller input. Luna: And Japan is experimenting with extending the service age cap for reservists, I think? Lucas: Yes — they raised the maximum age for reserve service from 60 to 65 in 2024. And they're offering more flexible part-time roles. The idea is to keep experienced personnel around longer, even if they can't deploy full-time. Luna: But that only works for so long. Eventually, the cohort of 65-year-olds will shrink too. Lucas: That's the long-term worry. Some countries are looking at immigration specifically for military service. Israel already has a program that fast-tracks citizenship for volunteers who serve in the IDF. A few European countries are exploring similar schemes, but it's politically sensitive. Luna: Immigrant soldiers — that's a whole other episode. But it shows how desperate the demographic crunch is. Lucas: It does. And the economic side is fascinating too. Defense spending as a share of GDP might actually shrink in some countries, not because they don't want to spend, but because they can't physically spend it on personnel. So the money shifts to R&D and automation, which has its own economic ripple effects. Luna: Like more demand for engineers, less demand for infantry. That changes the labor market. Lucas: Exactly. The defense industrial base becomes more capital-intensive and less labor-intensive. That's good for productivity but bad for employment in regions that rely on military bases. There's a geographic dimension too — rural areas that send a lot of recruits to the military will feel the pinch. Luna: So demography isn't just reshaping the economy — it's reshaping the very structure of national security. Lucas: And the funny thing is, most defense planners still treat recruitment as a short-term problem to be solved with bonuses and ads. But the birth rate curve is already baked in for the next 18 years. The 2030 cohort of 18-year-olds was born in 2012 — the birth rate was already low. So the military has to adapt to a smaller reality, not wait for it to bounce back. Luna: It feels like we're going to see a lot more experimentation with robotics, AI, and new service models in the next decade. Lucas: No question. And the countries that figure it out first will have a strategic advantage. It's not just about having the biggest army anymore — it's about having the most efficient one, given the people you actually have. Luna: That's a good note to end on. Thanks, Lucas. Lucas: Thanks, Luna. Talk next time.