We seem to be approaching Stage 2 of the Great Unwinding of policymaker stimulus, as the economic implications of demographic change become ever stronger.
The combination of today’s ageing populations with the collapse in fertility rates means it is totally unrealistic to expect growth rates to continue at the SuperCycle levels of the past. They were turbo-charged by the BabyBoomers being in their prime period of income and spending growth – especially as female Boomers entered the workforce in unparalleled numbers.
Yesterday’s New York Times confirmed this common sense fact for the US economy:
“Over the last 40 years, the American economy has grown at an average of 2.8%/year. That’s slower than the 3.7% average from 1948 to 1975, but the future looks even gloomier because that 2.8 figure relied on two favorable trends that are now over: women entering the work force, and baby boomers reaching their prime earning years.
“After 2020, with the percentage of the American population that is of prime working age shrinking, the Congressional Budget Office expects growth to stabilize at 2.2%….(given the) demographic headwinds caused by baby-boom retirements.”
It is also not difficult to look forward, and see where we will be in 5 years time, if we take off our rose-tinted glasses. John Richardson and I did this in chapter 4 of our eBook, Boom, Gloom and the New Normal’. We made 10 forecasts for the world in 2020:
- A major shake-out will have occurred in Western consumer markets.
- Consumers will look for value-for-money and sustainable solutions.
- Young and old will focus on ‘needs’ rather than ‘wants’.
- Housing will no longer be seen as an investment.
- Investors will focus on ‘return of capital’ rather than ‘return on capital’.
- The term ‘middle-class’ when used in emerging economies will be recognised as having no relevance to Western income levels.
- Trade patterns and markets will have become more regional.
- Western countries will have increased the retirement age beyond 65 to reduce unsustainable pension liabilities.
- Taxation will have been increased to tackle the public debt issue.
- Social unrest will have become a more regular part of the landscape.
The transition to the New Normal will be a difficult time. The world will be less comfortable and less assured for many millions of Westerners. The wider population will find itself following the model of the ageing boomers, consuming less and saving more. Rather than expecting their assets to grow magically in value every year, they may find themselves struggling to pay-down debt left over from the credit binge.
Companies therefore need to refocus their creativity and resources on real needs. This will require a renewed focus on basic research. Industry and public service, rather than finance, will need to become the destination of choice for talented people, if the challenges posed by the megatrends are to be solved. Politicians with real vision will need to explain to voters that they can no longer expect all their wants to be met via endless ‘fixes’ of increased debt.
We could instead decide to ignore all of this potential unpleasantness.
But doing nothing is not a solution. It will mean we miss the opportunity to create a new wave of global growth from the megatrends. And we will instead end up with even more uncomfortable outcomes.
Boom, Gloom and the New Normal is available for download in PDF or Kindle format