Economy is sluggish because population is aging, Fed researchers say

[Mr._Graybeard]

I've always thought that age demographics had a role in economic cycles. And some Fed economists have reached a similar conclusion, according to this WaPo article: https://www.washingtonpost.com/news/wonk/wp/2016/10/07/theres-a-devastatingly-simple-explanation-for-americas-economic-mess/?wpisrc=nl_draw2&wpmm=1

Not only are we near the tail end of the Baby Boom population bulge, but people are living a lot longer than they used to. With that abundance of less economically productive people to support, it's harder to maintain healthy growth rates.

From the article: "In the last decade, the effect of these trends has become even more pronounced, (economists) say, as more boomers have retired and effects of the IT boom have faded. And their model suggests that low interest rates, low economic growth and low investment are here to stay, since America’s working population is not set to grow much in coming decades. Other countries in Europe and East Asia, are undergoing similar transitions, with rapidly aging populations, too."

 

[GrayHare]

I don't agree with that gloom and doom:

"'Developed economies are about to experience a baby boom that will be bigger and longer-lasting than even the one that followed the Second World
War,' BCA wrote."

http://www.fool.com/investing/general/2013/09/23/a-new-baby-boom-americas-next-economic-miracle.aspx

"Importantly, America's working-age population is still growing, and projected to increase by 5.5 million over the next decade. Tobias Levkovich of
Citigroup writes that, for the first time since the 1990s, the number of Americans age 35 to 39 -- a sweet spot for spending -- is set to rise over the
next two decades, according to Census Bureau projections."

http://www.fool.com/investing/gener...-biggest-edge-over-the-rest-of-the-world.aspx

 

[timo2]

That's a good article. But isn't a slow but steady growth good? isn't fast growth inflationary? No one wants high inflation to come back. I'm not understanding the economists fretting about slow but steady growth.

Where I live in Colorado, the economy doesn't look sluggish to a casual observer like myself. In July the unemployment rate in CO was 3.8%. The housing market is up. etc. I don't have time right now to look up the details. And anecdotally, of the influx of people moving here, there seem to be many retirees, in addition to the usual construction workers and 20 somethings.

 

[Free bird]

It's good to know the Fed has all the answers but no solutions. Unproductive old people are the source of our troubles? Blame the boomers for not wanting drop dead at their w*rk stations? Not everyone can be a 85 year old double talking central banker who can entertain congress every now & then telling them they should practice spending restraint all the while expanding credit. Whipping the the backs of the aging w*rker to be as productive in their 60s & 70s as they were in their 20s & 30s. Gotta service those bank loans so the kingdom can thrive. OK close the early retirement Web site. That dream is dead. Get back to the stone so we quit circling the drain. You go first.

 

[razztazz]

This sort of fits in with that Harry Dent guy and his population theory of economics. I don't know where he is on the spectrum these days though

 

[target2019]

I'll take sluggish, consistent growth for the next twenty, thank you.

 

[walkinwood]

I don't agree with that gloom and doom:

"'Developed economies are about to experience a baby boom that will be bigger and longer-lasting than even the one that followed the Second World
War,' BCA wrote."

A New Baby Boom: America's Next Economic Miracle?

"Importantly, America's working-age population is still growing, and projected to increase by 5.5 million over the next decade. Tobias Levkovich of
Citigroup writes that, for the first time since the 1990s, the number of Americans age 35 to 39 -- a sweet spot for spending -- is set to rise over the
next two decades, according to Census Bureau projections."

America's Biggest Edge Over the Rest of the World -- The Motley Fool

The guy at Calculated Risk has been harping on this for a while. He's explained a significant portion of the lower participation rate using demographics too.
Calculated Risk: Largest 5-year Population Cohorts are now "20 to 24" and "25 to 29"

 

[eta2020]

I'll take sluggish, consistent growth for the next twenty, thank you.

+1 especially in low inflation environment like we have right now.

 

[Sunset]

I've always thought that age demographics had a role in economic cycles.......
Not only are we near the tail end of the Baby Boom population bulge, but people are living a lot longer than they used to. With that abundance of less economically productive people to support, it's harder to maintain healthy growth rates.
......"

Certainly can see it, as I've come to realize we don't need anything. Currently I'm doing a Consumer Commerce study by the Census and frankly it's embarrassing to state how little we spend.

Lots of other folks here at the site have commented about downsizing, going from 2 to 1 car, getting rid of stuff, so I know I'm not the only one.
When younger I was in the accumulation phase but now like many baby boomers that is past or even the opposite.

Japan seems to be like this, a very old population, and deflation or at best no growth to the economy.

 

[Shanky]

This is a real good reason to be pro immigration. The more we can legalize younger immigrants, the more chance we have to keep the party going. We have a substantially lower level of immigration by percent than the "good old days" Between 1870 & 1920.

 

[devans0]

We may have some small problems. China, thanks to it's one child policies, will be hurting. In a few years, the US is slated to have a labor shortage.

 

[haha]

Not only are we near the tail end of the Baby Boom population bulge, but people are living a lot longer than they used to. With that abundance of less economically productive people to support, it's harder to maintain healthy growth rates.

From the article: "In the last decade, the effect of these trends has become even more pronounced, (economists) say, as more boomers have retired and effects of the IT boom have faded. And their model suggests that low interest rates, low economic growth and low investment are here to stay, since America’s working population is not set to grow much in coming decades. Other countries in Europe and East Asia, are undergoing similar transitions, with rapidly aging populations, too."

One thing above all I value -haha, don't be too sure about anything. In 2015 millennials overtook boomers as the largest birth cohort in America. I am shortening duration, and getting my fixed asset allocation higher than usual.

Stay short, stay careful, and stay alive.

Ha

 

[meierlde]

The article cites Japan as the first case, where the upcoming generation is smaller than the baby boom era one. Interestingly if this idea has merit the Chinese economy will further stall over the next 20 years as the effect of the one child policy takes hold.

 

[Options]

It's always good to remember correlation does not necessarily mean causation.

For example, other factors which could be construed as a cause or the cause of the current "sluggish economy" are outlined here, for example, although while discussing another subject:

https://medium.com/mosquito-ridge/postcapitalism-and-the-city-6dda80bc201d#.y8r8lw8cf

...information technology is preventing the normal adaptation process, whereby capitalism — as a complex system — reacts to crisis, to the exhaustion of old business models, to the low profitability of old businesses and old sectors...

So falling prices and the automation of work have a very disruptive impact on the normal process of adaptation.

The typical process of adaptation involves: while old processes are automated and jobs destroyed, new processes are innovated requiring high-skilled work. The products command high prices. Wages rise in the new sectors, allowing high value consumption. The whole thing meshes together into what Carlota Perez calls a new techn-economic paradigm.

It’s happened four times in the history of industrial capitalism: the industrial revolution itself, the 1850s, the Belle Epoque before 1914 and then the post-1945 boom.

Today it is not happening.

The economy is a complex adaptive system, consisting of many inputs, too many of which are either unseen or outright unknowable (hence, the folly of making predictions). The best that can be said is that a range of probable causes exists, or a range of probable futures exist. The wise person always incorporates a sufficient margin of safety into their plans to account for unfavorable future circumstances.

 

[COcheesehead]

Anecdotal things I have observed:
The Millennials I work with don't have 8 - 10 pairs of jeans like we did in the old days, they have 2 or 3 and are happy with them for a longer time.
Millennials are more likely to "share" a car, than buy one. Denver even has a bike sharing program.
These, of course, are small things, but they add up. You take a percent or two out of the economy and you get a slow/sluggish growth rate.

 

[Walt34]

Certainly can see it, as I've come to realize we don't need anything. Currently I'm doing a Consumer Commerce study by the Census and frankly it's embarrassing to state how little we spend.

Pretty much the same here. We're trying to gradually get rid of stuff, not accumulate it, and when we buy something it is usually to replace something that's worn out or broken. We rarely travel beyond what can be driven round trip in one day, eat out about once a month or so, and I still have a jacket purchased during the Ford administration.

 

[explanade]

I thought the Baby Boomers just started retiring.

In any event, yeah I've heard similar things about the aging of the BB for declines or flattening of growth in productivity in the developed economies.

Also heard that reduced labor force participation rates may also reflect large numbers of workers retiring.

 

[GravitySucks]

It's all the unsold grass seed as we now spend our days telling the neighbor kids "Get off my lawn!"

Sent from my Moto G (4) using Early Retirement Forum mobile app

 

[Bir48die]

This is a real good reason to be pro immigration. The more we can legalize younger immigrants, the more chance we have to keep the party going. We have a substantially lower level of immigration by percent than the "good old days" Between 1870 & 1920.

What?

 

[Jaded salami]

This is a real good reason to be pro immigration. The more we can legalize younger immigrants, the more chance we have to keep the party going. We have a substantially lower level of immigration by percent than the "good old days" Between 1870 & 1920.

+1. Over the history of our country, isolationism has been economically disasterous. Hoover was a smart guy but he was very wrong about the global economy back then.

 

[Winemaker]

What?

+1

I have never heard anyone EVER be against LEGAL immigration!!!

Most of people I know are against ILLEGAL immigration or immigration where they cannot be properly vetted.

Back to growth subject.

I think most of the "growth" that occurred during the BB era was the initial purchases of autos and appliances. My maternal grandparents didn't get a car until 1959. BB families have at least 3 in our neighborhood, and we had 4. Heck, as a kid we had 1 b&w TV, but I have one in the basement game room, LR, BR and one in the shop in case I want to watch a football game. (The latest TV is 4 years old and was a gift).

 

[explanade]

At this point, illegal immigration is so embedded in the economy that it probably can't be replaced.

A lot of these low-skilled but hard jobs won't be filled by anyone else. Some jobs probably won't be filled no matter how much they pay.