One of my arguments of the 12 Reasons America is in decline is that Demographics is Destiny. A recent report is showing that the American birth rate is at a 30 year low. This trend has some long term consequences that won’t be pretty. Europe is racing the US to the bottom (Forbes).
The American economy will be crippled
BBC – A fear of low fertility is that the lack of American babies will turn into a lack of American adults – adults needed to fuel the economy, pay into social security, and provide goods and services (especially services) for an ageing population.
Countries like Japan have been crippled by an ageing population and fewer young people to care for them.
But the US is in an enviable position. “Small changes in our own birth rates can be easily offset by changes in our immigration policy,” says Bronars.
“From my point of view as an economist, there’s a certain demand for workers and labour services, there are a lot of ways in which that demand can be satisfied.
“One is having children here, educating and training them and producing the next generation of workers. The other is to make up the difference by importing the workers from overseas who have the skills we’re looking for.”
While Japan has few immigrants, the US is still a top destination for those looking to have a better life. A sensible immigration policy, says Bronars, could help make up for a population on the decline.
Here’s an exert from my 12 Arguments:
Demographics is destiny. Just ask Japan, China and most of Western Europe. The birth rate which is the number of live births per 1000 population for a given year, in a particular country, is probably the most important number a country should pay attention to. The old adage of ‘if you’re not growing you’re dying’ could not be more important today in your local community or if you are talking about countries around the world. Demographic booms and busts are like two high-speed trains destined to collide but there is nothing that you can do but just watch.
If we look at Americas Baby Boom generation, born after post WW2 we see the impact of the largest run-up in the stock market when 401k rules were introduced that pushed billions of dollars into investments from Boomers earned during their peak earning years. The expansion of vacations homes, the Yuppie wave of the late 80’s, BMW’s, golf country club memberships, luxury cars, cruise travel on the growth mode. As Boomer, they start retiring in droves watch for their impact on all things medical, from home services to hospital and prescription medication. Watch for mandatory sell-offs of 401k plans starting at age 70.5. What happens when the Boomers are mandated to sell off their mutual funds? The opposite of what occurred through the 1980’s and 1990’s during the largest run-up of US Stock Market values in history. The laws of supply and demand dictate a massive sell-off of stocks and investments. The Fed has been meddling in the market dynamics but the can’t do that forever.
Economist and investor Harry Dent has been watching the global demographic trending for decades. He’s chronicled the rise and fall in a series of books; The Great Boom Ahead in 1993, The Great Jobs Ahead in 1995, The Great Depression Ahead in 2009, and The Great Crash Ahead in 2011 and most recently Demographic Cliff: How to Survive and Prosper During the Great Deflation of 2014-2019.
From his research here are some highlights of how demographics will change our world:
- Young people cause inflation because they “cost everything and produce nothing.” But young people eventually “begin to pay off when they enter the workforce and become productive new workers (supply) and higher-spending consumers (demand).”
- Unfortunately, the U.S. reached its demographic “peak spending” from 2003-2007 and is headed for the “demographic cliff.” Germany, England, Switzerland are all headed there too. Then China will be the first emerging market to fall off the cliff, albeit in a few decades. The world is getting older.
- The U.S. stock market will crash. “Our best long-term and intermediate cycles suggest another slowdown and stock crash accelerating between very early 2014 and early 2015, and possibly lasting well into 2015 or even 2016. The worst economic trends due to demographics will hit between 2014 and 2019. The U.S. economy is likely to suffer a minor or major crash by early 2015 and another between late 2017 and late 2019 or early 2020 at the latest.”
- “The everyday consumer never came out of the last recession.” The rich are the ones feeling great and spending money, as asset prices (not wages) are aided by monetary stimulus.
- The U.S. and Europe are headed in the same direction as Japan, a country still in a “coma economy precisely because it never let its debt bubble deleverage,” Dent argues. “The only way we will not follow in Japan’s footsteps is if the Federal Reserve stops printing new money.”
- “The reality is stark, when dyers start to outweigh buyers, the market changes.” It all comes down to an aging population, Dent writes. “Fewer spenders, borrowers, and investors will be around to participate in the next boom.”
- The U.S. has a crazy amount of debt and “economists and politicians have acted like we can just wave a magic wand of endless monetary injections and bailouts and get over what they see as a short-term crisis.” But the problem, Dent says, is long-term and structural — demographics.
- Businesses can “dominate the years to come” by focusing on cash and cash flow, being “lean and mean,” deferring major capital expenditures, selling the nonstrategic real estate, and firing weak employees now.
- The big four challenges in the years ahead will be 1) private and public debt 2) health care and retirement entitlements 3) authoritarian governance around the globe and 4) environmental pollution that threatens the global economy.
Another great book on this topic is from Mark Styne,
America Alone – Population growth peaked in the US, Western Europe and Japan peaked in the 80’s and annually, new population growth has been declining ever since. By 2008, the US population of 25-54 year old population went negative. The decline in consumers, spending on everything from housing to clothes, cars, and computers have been artificially propped up by years of borrowing, second mortgages and subprime credit. When the Great Recession popped in 2008 the Federal Reserve went into debt hyperdrive to keep the consumer economy primed. We are seeing that even the Zero Interest Rate Policy (ZIRP) isn’t enough to keep demand going. By artificially propping up the economy through debt we are masking the decline in demand. A decline we may not see come back for a decade or more.
The Cost of Aging – Medicare Problem
Alexis de Tocqueville, the French author of Democracy In America, visited America during our formation wrote about the amazing experience that was the United States. He opined about our morality, education system and a new form of government for the people and by the people. He also concluded that the society would eventually degrade into tyranny once politicians figured out the key to holding power is over promising benefits to the voters. “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”
― Alexis de Tocqueville
When the US Social Security program was first put in place, for example, the typical American male could expect nothing from it. He was expected to live to 61. He’d be dead before benefits kicked in. But as the 20th century led to the 21st, his life expectancy increased, and so did the burden of old people.
In America today, most Americans do not make enough to support a middle class lifestyle on a single salary. The following figures come directly from the Social Security Administration…
-39 percent of American workers make less than $20,000 a year.
-52 percent of American workers make less than $30,000 a year.
-63 percent of American workers make less than $40,000 a year.
-72 percent of American workers make less than $50,000 a year.
We all know people that are working part-time jobs because that is all that they can find in this economy. As the quality of our jobs continues to deteriorate, the numbers above are going to become even more dismal.
It was Alexis de Tocqueville who observed that democracy was doomed. He said it would soon degrade into tyranny. As soon as politicians realized that they could win elections by promising the voters more of other people’s money, it was just a matter of time until they overdid it.
Had he imagined how old people would get, he wouldn’t have been so optimistic. As things developed, politicians noticed two important things: that young people (especially those who hadn’t been born yet) didn’t vote… and old people’s votes could be bought fairly cheaply, at least so it appeared at first.