My last post (The American Dream is alive and well) got a mostly positive response. I am an optimist. I don’t think that the American Dream is out of reach for anyone. It’s simply a matter of making good choices and persevering. (Well, maybe it’s not simple. But it still works.)
There was one respondent, however, who believes that the loss of traditional values is responsible for our inevitable demise. He cited well-researched books asserting that America is in decline – The Decline of the West by Oswald Spengler and TheCollapse of Complex Societies by Joseph Tainter.
His response comes from the right wing of American society. However, he’s not alone. Recently, I met a politically active liberal at a social gathering. She asserts that our children will not be better off than we.
There is a natural human tendency to see conditions as static and trends as continuing ad infinitum. However, nothing could be further from the truth. Remember the tech bubble of the 1990’s and the housing bubble of the 2000’s? Many were convinced that what goes up doesn’t come down.
Economist Harry Dent (author of The Demographic Cliff: Howto Survive and Prosper during he Great Deflation of 2014-2019) takes a different approach. He has researched demographic data going back 150 years. His conclusion? The life cycle of American adults drives spending habits and the economy. Family spending tends to peak when the chief earner in the household reaches age 46 – the kids are older; you need a bigger house, the furniture to fill it and an SUV.
The pig in the python over the last 70 years has been the Baby Boom generation. The out of pattern birth rate following WWII drove a housing boom in the 1950’s and 60’s, the expansion of the university education system in the 60’s and 70’s and an increase in household income from women joining the workforce in the 80’s.
According to Dent’s analysis, spending for Baby Boomers would have peaked from the early 1990’s to the mid-2010’s. Seems about right.
So, what happens now?
The oldest Baby Boomers turned 65 in 2011. In retirement, spending on big houses and the stuff to fill them is over. Downsizing and spending on services drives the consumer economy then. In this decade, industries that have taken off include financial planning, insurance and healthcare.
Dent contends that we are at low ebb in the economy because Millennial spending hasn’t yet offset Baby Boomer retirements. The oldest Millennials turn 40 in 2020. They will get married and have kids. And, consumer spending will repeat the cycle -- housing, clothing, vehicles, education and so on. We’ll be back to the races again.
The last time we were in a similar demographic trough? The 1930’s!
His analysis may be outside mainstream economic thinking. However, it should not be dismissed. Dent predicted the stock market crash of 1989; the bursting of the housing bubble in 2007 and the dump the market took last summer.
Further, he has performed a similar analysis of the industrialized world and found demographic trends in Europe, Japan and China to be consistent.
So, I take issue with those who think that western culture is in decline. To be sure, US economic growth in the 21st Century means being more open to immigration and a more diverse, urban and open society.
Politicians and the media love to feed the fear frenzy. Conservatives blame immigration and the shift in values for our economic malaise. Liberals blame free trade. But, the real cause of our economic malaise – our lackluster growth – is the dip in aggregate demand for goods and services. Lack of demand means that businesses can’t raise prices and don’t invest in capital goods to expand. Ultimately, capital investment drives job growth and increased wages.
Politicians, even the president, can’t change these inexorable forces. The best response is to pursue trade agreements. The wealth of nations increases through the comparative advantage that results from global free trade. And, the agreements in play with Asian nations and the EU will increase American exports.
Unfortunately, comparative advantage means that the prospects of many improve while the prospects of others suffer. Free trade might mean more jobs for college grads but won’t much help someone who lost their factory job in High Point, NC or Messina, NY.
To help those who are disrupted, we need to focus on a combination of the best ideas of the left and the right: improved education, immigration reform, community development and a stronger safety net.
As for the impact of demography, we’ll just have to wait for Millennials to start having babies.
WHO WILL LEAD?