What are the macroeconomics of depopulation?

Few if any wealthy countries are breeding fast enough to replenish their populations without immigration.  So Matt Yglesias asks about the macroeconomics of population decline: how different would things be?

First we must distinguish between an aging population and a smaller population, although outside of wartime the two usually go together.  Most people who die are old, and most people, when they are born, are quite young (duh).

An aging population brings dissaving, slower growth, less innovation, and a worsening of the government's fiscal position.  Whether the stock market adjustment means ongoing lower rates of growth, or a one-time adjustment of prices is a complicated issue (I'll bet on something in between).  The biggest question is whether the economy is throwing off enough surplus to buy off the relevant interest groups and keep growth relatively untrammeled for the next generation.  The Western European economies are running a huge test of this proposition but so far they are failing.

That all being said, we must keep in mind the relevant alternative.  If it is more young people, great.  If it is shorter lifespans, give me aging.

A smaller population will bring lower land prices and lower aggregate values across the board.  I don't worry much about the transition path, given how slowly the changes usually come; plus monetary policy can make up for some of the nominal rigidities.  When it comes to assets such as land, it is again complicated to what extent we will see ongoing lower rates of return and to what extent we will see one-time adjustments in prices.  (Ask what is anticipated when, how liquid the market is, whether you can sell short, whether the asset has carrying costs, and whether anyone must own land for consumption reasons in the interim, while prices are falling.)

Small populations can in principle do quite well; just look at Singapore or Ireland.  Free resource movement will allow the region to reap increasing returns at the world level.  That being said, the biggest drawback of a smaller population is the brute fact that you simply have fewer people around.  To me that is a tragedy of foregone opportunity.

The bottom line: At least for countries with reasonably well-functioning institutions, we should be happy when the birth rate is higher.