Are We Tied to Demographics?

My Recent Posts

I've been doing research in my spare time lately about how demographics impacts our economic growth, or the lack thereof.  The research by Henry Dent and others suggest that the US benefited from a prosperous post WW2 generation buffeted by programs like VA Home Loans (making buying homes much easier) and VA college programs which enabled many veterans to attend college after the War.  In turn these measurers and others opened the way for an expansive consumer class.  A college degree in the 1950s was very much an instantaneous way into the path of social mobility. 

 

The Greatest Generation produced the Baby Boomer generations that also gained favor from a higher education level obtainment, a robust economy started by the Greatest Generation and of course technological advances.

 

Consequently, between soaring demand and technology making the way for new products the US economy grew at incredible rates, often topping 5%.  Once Europe and Japan recovered from the destruction of WW2 they also experienced similar trends.

 

By the 1980s the Greatest Generation was moving off the stage, retiring and often downsizing and spending less.  For awhile the Baby Boomers now approaching their 40s and beyond took up the slack. But 20 years later they began to downsize their lives.

 

Unfortunately, family sizes from Generation X on got smaller.  After the creation of the Internet technological advances have slowed considerably.  This has cumulated into lower demand from consumers and a smaller population as specifically among upper middle and middle classes Baby Boomers had fewer children. Both parents wanted careers and birth control made family planning much easier.

 

Since 2009, we've had one brief quarter of more than 3% growth.  Moreover, with more and more Baby Boomers downsizing the expectation is that 0% to 1% growth will be the new normal.  Add to this the way in which millennials are buying large ticket items such as homes and automobiles in lower numbers than previous generations.

 

The end effect is a long term stagnating economy for the next ten years until supply once again meets demand.  This will mean companies tied to the consumer industry such as retail will see a major constriction.

 

I think there is definitely something to this theory and explains to a certain extent that after nearly a decade since the "great crash" the economy in the US, Europe and Japan can't get the desired lift and momentum.  In fact, Japan which has even more adverse demographics than all of developed countries has been in recession for going on 30 years.

 

One final note of course is that all of the population growth is going on in less developed worlds.  The restricting factor here is that these people are poor, in some cases desperately poor and their growth in population can't come close to making up for the declines in more advanced countries.  Also in the US, pockets of population growth have come from typically the lower end of the income scale, unable to maintain any real purchasing power.  The loss of the upper middle and middle class even depresses their economics even further as the working poor often serve the needs of the upper middle and middle classes.  Think jobs such as a retail clerk or waiter in a restaurant.

 

One way to offset what will be temporary factors of meager growth until equilibrium is achieved would be to upgrade and replace our decades old infrastructure.  This would help bridge the gap that is being felt in the private sector.  However, I've argued this before and don't want to repeat myself.

 

Comments

wsucram15 Added Jun 14, 2017 - 1:57pm
Also George you have to (at least right now) consider the  psychographics as opposed to demographics  in purchasing.  While Age, education and income are a huge part of this...the unemployment was very high with younger people as well as older people.  So to understand that perhaps looking at lifestyles, values, attitudes and interests was essential during this time of change.
 
The infrastructure would help, but its going to have to look cleaner and actually be cleaner.  I heard NY is doing quite a bit of infrastructure building in the upcoming two years. But you are right, much of the funding for everything is coming from very tight purses, even in the middle class, in which one would expect a change in values and lifestyles.  I guess this is why so many stores are going out of business, its cheaper to buy from JIT distributors, usually with free shipping.
 
I believe the income level and lifestyle changes have more to do with changes in purchases than anything. As the "baby boomers" age..the income levels drop.  The newer generations have incomes but at part-time or lower level incomes with really high health care expenses.  So all this plays a factor. 
 
George N Romey Added Jun 14, 2017 - 2:08pm
Jeanne you are correct.  Baby Boomers particularly those born from the mid 1950s on will not have as comfortable retirements as the Greatest Generation and early Baby Boomers have.  The destruction of the pension, lower interest rates and the need to change employers multiple times during a working career, not to mention multiple layoffs will mean less money in retirement.  Hence, less spending and downsizing.
 
On the other side will be millennials hampered by crummy jobs (over 90% of the jobs created from 2009 to 2016 were part time, contract, gig or temporary), high levels of student loan and credit card debt, and more of income that needs to go towards housing.  Housing used to take an average of 30% of income, now that number is closer to half.
 
All of this spells a decline in demand which starts the never ending slow but sure collapse.  I have written about that numerous time here and on Medium and Niume. 
 
A WW2 style infrastructure program if done right could jump start the economy again eventually causing the private sector to create more jobs and more importantly better jobs.  The velocity of money could take over.  Companies might return to innovation and invention instead of buying back stock and buying their competition to gin up the quarterly EPS and stuff the pockets in the C suite full of cash.  However, given our current political environment I see nothing getting done unless a major economic collapse engulfs us.  Even then, it might be a repeat of 2008/2009 when the rich got bailed out and everyone took it up the you know where.
Jeff Jackson Added Jun 14, 2017 - 3:26pm
The greatest expansion since the 1970s was the 1990s. The technological sector began expanding tremendously, and Billy Clinton just happened to be president while both the tech boom and the economic policies of Ronaldus Magnus resulted in a great expansion. Of course, Billy took credit for that, why not. The tech boom was so great that companies would actually train you if you had any experience or education that they thought could help you with the tech stuff. Not so much anymore; everyone has to already know everything that you are supposed to know, that you might have learned at that internship where you made them $50,000 while they paid you nothing.
Of course, the right look, shape, age and ethnicity might get you a full-time position when you graduate from college nowadays. In demographics, the Europeans aren't replacing themselves, and the Americans are just barely behind them. The Europeans do not see any prosperous times on the horizon, and hence, see no future to give to another generation.
Save your money, you'll need it, try not to borrow any more than you absolutely have to, stop trying to live large. Live small. More education might do something, then again, maybe not. The best thing is to learn something that you can do to generate income without the help of anyone. Big business employs fewer and fewer people. If you can generate income on  your own, you can tell big business to get lost. Skilled trades are more in demand than ever, as the unemployed college graduates are finding out.
wsucram15 Added Jun 14, 2017 - 3:27pm
LOL..see I did learn something from your articles.  The rest I learned from my marketing and business management in college. 
50% of income on housing is a dangerous number by the by... its why I rent my house, now to my daughter who will eventually buy it or I will sell it.  I spend on average (except of glass in business) about 10-20% of my income in purchases.  I am very frugal.  I used to buy 250.-400 per pair shoes...now I love good shoes, but I buy less expensive still good shoes less often (usually on my birthday).  I buy far less in clothing..going from maybe 5-8k a year to maybe 4- 500.00.  I havent seen the inside of a tiffanys or any jewelry store in over 4 years.  I make my own glass instead of buying someone elses at hundreds of dollars per piece.
Laugh..but I lived pretty decent, its cut off now. I had money to replace what I spent here and there.  Now I dont...so I dont spend unless its needed.  I did buy stuff for my Granddaughter but I still only spent about 600.00, I bought quite a bit on sale or used.  Super tight with money anymore.  My BF makes good money, but I really miss walking into a store and buying stuff w/o looking at the tag.   
Patrick Writes Added Jun 14, 2017 - 3:58pm
If your argument is correct, could opening the flood gates of moneyed and skilled immigrants help things? Sounds like yes. 
 
People think in terms of what they know. Since 1964, the American immigration system has consisted of a lottery and family based system. And the result of that is 1 million immigrants a year who are usually very poor or at best middle class. Coupled with U.S. history means Americans hear "immigrants" they think "poor people with no skills". 
 
Many countries are moving to a skills based immigration system. If you have a degree in X field, are relatively young, have so many years experience in X field, or are just simply rich, come on in. It's helped countries like Australia and New Zealand attract talented people. 
 
Even the much maligned H1B Visa in the U.S., if they simply made that permanent (i.e. you can adjust to a permanent resident / green card after 3 years), you'd see a different effect I'd guess. Rather than living like refugees and banking all their money for when they have to go home after 5 years, I'd imagine they'd buy a house, put the kids in school and start demanding American wages (mortgages are expensive, so are private schools, whatever). 
The Objective Observer Added Jun 14, 2017 - 5:30pm
I believe the Theory of Demographic Transition predicts this type of population growth rate change. Stage III. If I understand what you are saying, you are indicating that there is an upper limit to the economy based upon population?
Bill Kamps Added Jun 14, 2017 - 6:13pm
No mention of the fact that in 1960 the US produced 35% of the world GDP with 5% of the population, because much of the world either hadnt yet industrialized, or was still recovering from the war.  That is an unnatural amount of productivity.
 
Population has an effect on GDP, and this is one reason that restricting immigration is not wise.
 
We also are seeing a tapering off of the benefits of the industrial revolution.  Most people that want stuff, have it.
 
All these factors point to slower GDP growth.  Trees dont grow to the sky, and economies cant grow 3% in real terms indefinitely.  If population growth slows, the economic growth slows, because people can only buy so much stuff.
 
People got spoiled from 100 years of rapid growth from the industrial revolution.  But 3% growth was not written in stone, and by historical amounts, is a rather large amount.  I know you  think history began with the Lucy Show, but history began a few thousand years ago, and historical economic growth generally has been pretty slow, with some quick accelerations from time to time.  We just went through one of those accelerations last century.
George N Romey Added Jun 14, 2017 - 8:03pm
Bill the problem is that business wants never ending rising quarterly sales and particularly profit.  This leads to bad short term decisions like offshoring, mass fires, less product quality and mergers and acquisitions that usually provide nominal benefit in the long term (I read yesterday that 80% of acquisitions never earn their cost of capital.)  Unfortunately, Corporate America doesn't seem to want to accept demographic limitations and assumes everything is infinite. 
Jeff Jackson Added Jun 14, 2017 - 8:46pm
Exactly George. They get expectation after expectation, and fire and fire and fire and hire more people, none of which meet expectations. I had a boss that had expectations that were impossible. I told I couldn't accomplish it, and neither could anyone at that organization, nor could anyone in the state meet those expectations.
McDonald's turned over employees for decades- yes, decades, and finally figured out that a little more per hour would lower turnover significantly. After decades after decades of turnover, lowering it significantly by paying a bit more. Who knew.
Bill, the American consumer might have heady expectations, but they pale in comparison with corporate America.
George N Romey Added Jun 14, 2017 - 8:50pm
Jeff Corporate America in their bid to never ending rising profits makes short term decisions that undermine profitability.  Senior management is expected to provide never ending profit gains or they are kicked out the door.  No wonder so many of them partake in senseless mergers and other gimmicks to at least gin up earnings for the next few quarters.
Mircea Negres Added Jun 15, 2017 - 2:30am
George, thanks for an interesting article. I agree with you insofar as my understanding of global demographics and the economic situation goes. Heck, South Africa's is in a recession since last week- at least officially, because it's been diving (not gracefully) towards a crash for the last 7 years- My question is: how long do you think this adjustment period for supply to contract in response to falling demand is going to last?
John G Added Jun 15, 2017 - 2:54am
Any sovereign government with its own currency and the institutions necessary to enforce the rule of law can maintain full employment at living wages.
But you settle for less and vote against your self interest because of the disinformation that you absorb.
Richard Plank Added Jun 15, 2017 - 8:42am
Sorry folks you have to get with the program;  it is called sustainability  Short term thinking is what gets us into the messes we then ask later generations to clean up.  I don't know what the limits to growth are;  I throw out a population of 4 billion to get an argument started it could be much more as the problem is so complex as to defy any meaningful attempts at measurement.  Whatever it is we have to try and consider the longer term consequences.  George I don't think too many people will argue with your notation of the need to improve the infrastructure;  I think that goes without saying.  Re transportation which I often focus on it is at least 30 years behind the growth of the population regardless of the demographics or psychographics.  None of the other areas I can think of are better, but perhaps you have more knowledge about that than I do.
Re comments on Demographics and Psychographics they are normally thought of and used complementarily in market research efforts to understand consumer behavior.  Psychographics came about in the late 60's early 70's as a reaction to the weakness of demographics which are really just descriptions of the population and people try to infer things from the numbers based on some observations which may be good or bad.  Typical is the notion of grouping people based on when they are born; boomers etc.  There is probably more variance in those groups than similarities, but you read the crap that comes across you get the sense they are somehow homogenous.  On a few pieces they might be, but even there we have variation and a mean without reported variation is of little use.  $my .02 
Dino Manalis Added Jun 15, 2017 - 8:45am
Demographics important, the United States is becoming part of Latin America!
Richard Plank Added Jun 15, 2017 - 8:51am
Oh and I think some of you are with the program;  just to give you some more academic background.  We primarily subscribe to a shareholder model in business and in politics also just substitute special interest.  Somehow shareholders become the most important group at the expense of all the other stakeholders in the situation.  So we get the behavior we observe.  Stakeholder theory and I use the term theory somewhat lightly as the theory, in my opinion, is not well developed;  seeks to consider all those who have a stake in the decision and to weight them in some manner.  Pareto Optimality is often cited as the best model of weighting.  I tend to think in terms of individual behaviors in decision making and use the word beneficence to describe what becomes essentially PO limited by the ability to even identify PO.  Anyway more pragmatically I mostly agree with those of you who cite corporate decision making as an issue, but also note this is done within a overall larger system that drives that kind of behavior. 
George N Romey Added Jun 15, 2017 - 10:17am
I don't think you can ignore the reality that family size has gotten smaller since the Greatest Generation and Baby Boomers.  However, the other factor at work is that the newest generation is relatively poorer (so far) and that Baby Boomers and Generation Xers have seen their purchasing power erode.  Consequently, we get soft demand.
 
Richard I agree the overall system drives bad behaviors and in some cases rewards them.  A CEO fires thousands as part of "cost containment" and is rewarded by the Board of Directors with even higher pay.  The studies I've looked at have rarely shown those mass firing achieving the long term planned gain, in some cases they've cost more money long run.  There was a time 30 years ago if a company had a mass firing it was because of failure of management and the CEO if he/she stayed worked for a $1 a year.
 
However, overall demographics do not work well for us presently and that is why significant infrastructure work would fill the void.  We would also have the velocity of money going for us and upward pressure on wages.  Don't forget such programs also employ thousands of accountants, programmers, HR professionals, etc, not just the guys and gals working on job sites.  We would also get the economic advantage of world class infrastructure.
 
Eventually demographics would smooth out.  The last of the Greatest Generation would be gone and most Baby Boomers would be in latter stages of life.  Generation Z I think it is (born from 2000 on) would be more comparable to the Millennials in composition and equilibrium would be restored.
wsucram15 Added Jun 15, 2017 - 1:39pm
Ricard is right..sustainability is right George, we have talked about that. For the near future though, we do need some job creation and infrastructure is one thing that could work.  But it will need to also interact with long term sustainability. Like all electric or something like the Vaxjo in Sweden.  Maybe the BRT-Lite for less expensive alternative? (Nigeria).  But water, more food (hydroponics) , less waste, no fossil fuel mass transit and good energy are the future. This all depends on the feed back of the people, their needs and design of each area.
 
Here is a article-https://www.weforum.org/agenda/2015/09/how-achievable-are-the-sustainable-development-goals/
 
And here is what Canada did-https://crcresearch.org/files-crcresearch_v2/File/SI_Final_Report.pdf
 
 
George N Romey Added Jun 15, 2017 - 1:50pm
Jeanne sustainability projects could and should be part of infrastructure.  Its not about just rebuilding roads but rebuilding transportation to encourage and make easy public commuting.  The good thing about millennials is that they have shown a desire to live closer to city centers and forgo cars (if only so they can text, email, FB and surf to their heart's delight while on the bus or train).   How about rebuilding crumbling water systems and plants (Flint, MI?) they are more environmentally sound?
John G Added Jun 15, 2017 - 2:29pm
Richard Plank. Somehow shareholders become the most important group at the expense of all the other stakeholders
Indeed, neoliberalism is a fake economic theory (really just a rehash of pre-Keynesian neoclassical gibberish) that puts the rentiers' interests over and above all else.
Keynes wished to 'euthanase the rentier'.
But people are still bewitched by the voodoo of the right wing, bought and paid for by the rich, Youtube economists screaming about deficits and debt.
wsucram15 Added Jun 15, 2017 - 2:48pm
George..sign me up, particularly about the water...NY will be first.
I have been writing in infrastructure here.  I know they are doing some things, but with the heroin epidemic, they are back to patches and people are drinking bottled water.
Tubularsock Added Jun 15, 2017 - 6:16pm
“Short term gains, long term pain.” That is how Tubularsock sees it.
When we allow our air and water to become dangerous to our own well being in order to obtain profit for a handful of investors we are killing ourselves. It is called suicide.
 
The amount of radioactive fluid still running out of Fukushima into the Pacific Ocean right now and has been for six years with no way to date to stop it should be a very effective wake up call and yet seldom do you here anything about it.
 
And when you do it’s like, “Well the Pacific Ocean is big” and yes it is BUT it is slowly becoming radio active. And so is the food supply.
 
We keep pushing for pipelines for jobs like we pushed for cutting down the forests for jobs without thinking about who is getting richer and who are working dead in jobs.
And yet it continues .......... we may want to consider the demographics of death. Pretty much 100% one way or another, Tubularsock guesses.
George N Romey Added Jun 15, 2017 - 8:05pm
Tularsock all of this outsourcing is causing massive pollution in the seas.  Remember the hunt for MH17?  There was so much crap floating in the seas that had fallen off cargo ships the Air Force was going nuts trying to figure out if it was crash related.  So companies and there ocean liners can pollute our waters to their hearts delight and nada is assessed to them.  You or me throw a beer can overboard a boat (which I am not suggesting is proper) and we are in front of a judge.
 
And yes MH17 there is more to the story than a downed commercial a/c that can't be found.
Tubularsock Added Jun 15, 2017 - 8:59pm
George, Tubularsock believes you mean MH370. MH17 was shot down by Ukraine over Ukraine. You know, by the guys the U.S. supported when we helped to overthrow their government.
Tamara Wilhite Added Jun 15, 2017 - 10:59pm
There is also the matter of economic incentives - high tax rates on married couples that want more children limit their family size while things from EITC to welfare programs incentivize single mothers with multiple children among the poorest. And it is the single mother household that multiples the risk a child is poor, uneducated, mentally ill or criminal 3-4 times that of married parents of the same income.
We could reduce the growth of our own underclass and encourage births among the middle and upper class by altering the incentives. Require long term fool proof contraception as a condition of receiving welfare and give married middle and upper class families larger tax credits. Incentivize what you want more of.
Patrick Writes Added Jun 16, 2017 - 1:58am
@Tamara, I think certain politicians want that trend so long as the "poor" vote a certain way. 
John G Added Jun 16, 2017 - 3:47am
MH17 was shot down by Ukraine over Ukraine. You know, by the guys the U.S. supported when we helped to overthrow their government.
Absolutely. But George can't sign up to the facts.
George N Romey Added Jun 16, 2017 - 10:19am
Sorry I meant 370 and I think MH 370 and MH 17 meet similar fates.
Bill Kamps Added Jun 16, 2017 - 11:00am
Bill the problem is that business wants never ending rising quarterly sales and particularly profit. 
 
Why is this  ? because there is an assumption that 3% compounded growth is possible, and it is not.  We did 3% on average for 100 years, because of the build out of the Industrial Revolution, that is tapering off, and 3% GDP growth will not be the average going forward.  Corporate and government assumptions have not changed, and need to change.
 
You also keep saying this is because we have stopped inventing things.  We continue to invent new things every day, it  is just that making those things dont employ 100K people like cars, and airplanes did.  We invent things that employ 100-200 people, instead of 100-200K people. 
 
Who  is going to do all the things you say should be done? private sector wont do it, because you cant make money with it, and government is already broke from borrowing so much  because of bad assumptions.
Jeff Michka Added Jun 16, 2017 - 7:47pm
Geo Romey pontificates: Sorry I meant 370 and I think MH 370 and MH 17 meet similar fates.-So instead of the "crazy second seat" theory, MH370 was victim of a missle, possibly fired by Russians, or by whom?  And what evidence do you have that might be the case?
Jeff Michka Added Jun 16, 2017 - 7:51pm
Tubularsock notes: We keep pushing for pipelines for jobs like we pushed for cutting down the forests for jobs without thinking about who is getting richer and who are working dead in jobs. -And the same dead job holders often refused retraining or education because they were "too old," so I guess being closer to the end want the dead jobs underground and in the woods. Hmmm, does Tubular find this problematic?
John G Added Jun 17, 2017 - 7:24pm
Kamps. 3% GDP growth will not be the average going forward.
Why not? Consumption will continue to grow as long as people have income to spend.
government is already broke from borrowing so much
A currency issuing government cannot by definition be broke in its own currency. Nor do currency issuers 'borrow' their own money. Federal debts aren't loans. 

Recent Articles by Writers George N Romey follows.