Summary: Lost in yesterday’s festival about the latest meeting of America’s central planners (wielding tools that Kings of the pre-modern world would envy) was a small article in the Wall Street Journal announcing that we have passed a small milestone on the road to a harsh future. {1st of 2 posts today.}
America passes an important inflection point
The boomers pass through America like a sheep through a snake. In our wild and crazy younger days we dragged the nation into miniskirts and riots. In our old age into censors on our language and behavior.
Our effect on prices has been equally large. What we buy goes up in price. What we sell goes down. Our long journey into adulthood has put wind into the sails of home and stock prices. Our retirement will turn us into sellers of these assets, with the smaller and poorer generations following unlikely to replace our buying.
The Wall Street Journal reported that we have hit the next milestone on this path, as the decades long tsunami into 401(k) plans turns into a slow ebb tide when people retire, rolling over their 401(k) accounts to IRAs. Although this has little impact on markets, it is another step to the day money begins to flow out of retirement plans. We don’t have long to wait. The bottom 80% of Boomer’s have only small sums saved; many have only small pensions (or none) — and will begin withdrawals immediately after retirement is forced upon them either from disability (white collar cowboys have no idea how quickly bodies wear out from a lifetime of physical work) or inability to find a job.
This change in the US savings rate will affect every aspect of the economy, in ways difficult to imagine. Especially if prospects for the generations following them don’t improve. Corporations have found how to limit the increase in wages with age. They have crushed the unions and transformed a large fraction of their labor force into people whose work is contingent, part-time, outsourced, or independent contractors — all with the ever-present threat of having their jobs shipped overseas.
For more about this see As boomers retire they create a drag on US GDP that will last for decades.
This powerful but complex graph shows our future
Unfortunately, the coming slowing will hit a US economy already in slow-growth mode. The Federal Open Market Committee publishes the forecasts of US long-term GDP growth made by the regional Fed banks: the below graph shows their trend through the June meeting. The light gray area shows the full range. The dark gray shows the core forecasts. The line shows the average of all forecasts. The trend has been down since the bounce after the crash ended in 2010.
This does not include recessions, let alone hard crashes like 2008 — which pushed the trendline of GDP growth down. If correct, we have hard times ahead of us.
The revolution is coming
America is a nation geared for growth. We have millions of people expecting better years ahead Immigrants flooding in — a guaranteed source of trouble in a stagnant economy, as they decrease per capita income. Plus every sector — household, business, and government — has a large debt load to service, which becomes difficult without a nominal growth rate at least as high as the interest rate on the debt.
A long period of slow growth will upset many boats. Interesting times lie ahead, but nothing we cannot handle if we hang together and act smart. W appear to have lost the ability to do either.
Jeb Bush setting himself a goal of achieving 4% real GDP growth — a bold goal beyond the state of economic science. Growth in the past 40 years has been 2.8%, and only 2.0% in the 25 quarters since the end of the recession.
But the poet Robert Browning said, “a man’s reach should exceed his grasp.” If Jeb consults good people he might find some sound ideas, which would show that he might be a good president (he would become a great one by winning and then achieving faster growth). I suspect that instead he’ll advocate ideas from the Right’s faux economics, or follow Obama and ignore that goal once in office. His economic record in Florida was unimpressive, presiding over a housing bubble that he mistook for prosperity.
But it costs nothing to keep an open mind, and to hope. At least Jeb Bush has made a good start to his campaign, in this respect.
“So many challenges could be overcome if we just get this economy growing at full strength. There is not a reason in the world why we cannot grow at a rate of 4% a year. And that will be my goal as president – 4% growth, and the 19 million new jobs that come with it.
— From Jeb Bush’s announcement speech.
For More Information
We were late to see the effects of the Boomer’s aging. One of the first was by psychologist Ken Dychtwald: Age Wave: How The Most Important Trend Of Our Time Will Change Your Future
If you liked this post, like us on Facebook and follow us on Twitter. See all posts about demographics, and these about the future of economic growth…
- Some thoughts about the economy of mid-21st century America — Thoughts about future from one of the 20th century’s greatest minds.
- The dilemma of the US economy: can’t take off & too close to the brink, 9 July 2014
- Has America’s economy entered the “coffin corner”?, 10 July 2014
- As boomers retire they create a drag on US GDP that will last for decades.
- A secret of the new business cycle, & why good predictions have become so rare.
