Demographics…My Dear Watson!

Posted By on April 10, 2011

Here is why things are broken for baby boomers, and unlikely to get a lot better any time soon!

The interesting thing about the post-war baby boom and our guns-and-butter generation isn’t what happened during or as a result of this population tidal wave, but what didn’t happen:  the birth rate in America abruptly fell during the mid-60s, and continued to fall even through to today.  Compounding the problem, on one hand you have increasing life expectancies and the expansion of benefits placing financial burdens on the retirement system.  On the other hand, increasingly competitive labor markets and trade liberalization placed further importance on education and technological adoption, which both increased the displacement of workers as the domestic value chain moved upstream and delayed the entry of individuals into the labor pool well into their 20s as they traded off starting a family for attaining college educations.  These lengthened dependant obligations (from both ends of the curve) have necessitated longer workforce tenures, and are simultaneously acting as an artificial floor to wages for those already at the peak of their earnings trajectory while creating a ceiling as the next generation is kept in an advancement holding pattern, denied the skills and experience needed to achieve their own maximum earnings potential.  The divide between rich and poor is as much a generational problem as it is access to education, technology, and capital resources.


The other interesting thing about the post-war baby boom was the impact on the savings rate.  The rising percentage of income coming from transfer payments (i.e. entitlement programs) as a result of displacement on one end of the economic spectrum coupled with multiple streams of household income and smaller family sizes on the other drove an insatiable consumer demand that depressed the household savings rate, increased demand for foreign goods, and lowered borrowing costs as a vicious cycle was created.  Attempts at intervening in the markets to protect trade and standards of living did little more than fuel government spending as the domestic value chain moved even higher, displacing more workers and shifting the demand for low-wage labor overseas.

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