Demographics drive marcroeconomy

Obviously more so this year than most, many are coming out with their predictions for our economy for the coming year.   Needless to say most of them predic either really dire circumstances or at best merely holding our own next year.  There is good news and bad news to digest as there is every year.   In the midst of the financial turmoil prices for oil have dropped very dramatically but that is offset by the fact that some folks may not have  a job and the lower price for gas won’t really do them much good.  Others, myself included, enjoy the lower prices but regrettably those lower prices are a symptom of the declining economic activity here and around the world.  That decline has decimated investment portfolios and the loss of tens of thousands or even more in IRA accounts and those losses take all the joy out of gas at $1.50.  The loss of thousands is not softened by saving $20 on a tank of gas.  Predictions as the famous Yogi Bera said are hard to make, especially about the future.

I predict with certainty that things will change.   How about that  one!  Despite the subprime mortgage problems  and  the fragile financial system there is another problem that no bailout or stimulus package can fix.   Those smart guys (we hope) are doing and proposing a plethora of actions to fix the financial system and the economy in a big way.   You know as well as me that the plans already implemented and those proposed add up to trillions of dollars.  The estimates vary quite a bit because everything is in such a state of  flux.   But even a conservative estmate would put the total to date over 7 trillion.   Maybe some of those proposals and plans will work.  A couple seem to have had an ameliorating effect already.   Regardless of whether or not any of them work as intended we face the problem of a marked change in our demographics.  The boomers are now moving into decline.   The “bust” generation is coming of age.   It is a fact that the most productive age for people is from around 35 to 55.   That is the time they buy and spend the most money.  They buy that final house, the big one.   They buy those nice cars and send the kids off to college and generally live higher on the hog during that period than they did before or they will do after 55.  They spent gazillions of dollars over the last 20 years or so and were a very, very significant factor in driving demand in our economy.   The group coming behind them is smaller.  That is just a fact of life.  Demand for everything you can think of from cars to toilets to nice meals out to vacations will drop and stay at a reduced level for years to come.   It is a matter of numbers.   Yes, our overall population  will continue to increase from birth rates and immigration.   But it won’t help that much.   The fact is that the immigrant popluation is on a lower socio-economic scale that the Boomers.   Again just a fact not a judgement.   That part of the population will spend of course and buy things but they will not have as much to spend–period.   Thus our overall economic activity will diminish significantly for almost a generation.  We won’t sell as many cars, houses, clothes, etc.  There won’t be as many kids going off to college.   The drop in demand is  just now entering the leading edge.  

Unfortunately, as our economic activity cools the demand for social security and medicare will increase with even fewer workers available to pay for those costs.   Those boomers will be expensive to maintain for the next generation.   Those planning their careers and new business opportunities should keep these facts in mind as they make their plans.   I don’t think we will suffer years of recession or anything like that but we likely will ride a lower plateau on our economy for  quite some time.   I think it could be a time for doing “OK” but I think the odds for boom times are quite low.  If there is some alleged boom in the next 20 years I warn you to examine it very carefully to make sure it is not the next bubble made on artificial speculation.   People do love to speculate.   Exhibit A–Lotto.   That aspect of human nature will not change.   At my age it won’t make a wit’s difference but you young folks out there give some thought to this concern of demographic changes.   If you think it is all balderdash, that is fine, but think it through as you plan your future and analyse whether it will have an impact on your life.

I notice that Siemens was fined this week for paying bribes around the world for business.  It is a large company and has projects around the world.   Payment of grease, juice, bakeesh is the prevalent method of doing business in so many parts of the world.   Those non western cultures view it as part of an accepted patronage system.   Many centuries ago traders went to China on a regular basis and faced that same system then as now.   Marco Polo was the most renouned but there were many others.  One of them wrote a guide top how to do get to China and how to do business there.    After he described the best way to hire guides and exchange your silver for the paper script of the Chinese Emperor, he wrote  quite candidly about dealing with the local level officials as follows: 

“and don’t forget that if you treat the custom-house officers with repect, and make them something of a present in goods or money, as well as their clerks and dragomen, they will behave with great civilty, and always be ready to appraise your wares below their real value”

Wouldn’t that have made good reading in a federal indictment for corruption? Maybe he was an ancestor of Blagojevich.   The year was 1340 A.D.

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Filed under Culture, Economics, history

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