The Importance of Demographics Now
The Importance of Demographics Now
What comes to mind when you see a headline with “Demographics” in it? For me it used to immediately shout “behaviors”. Like “Ok, Boomer” or “Millennials are privileged”. After diving deep into the effects of demographics on macroeconomics I can’t indulge another take on behaviors. Defining generations is nice shorthand to describe a group of people that were born in the same general timeframe. (Clarification here, in the context of macroeconomics I am referencing quantification of the age aspect of demographics not race, geography, and socioeconomic aspects which are more important for businesses in go to market strategy.)
You should care about the impact of demographics to be informed about why economies did so well as the Baby Boom generation were moving through their life cycle. More importantly you should care right now as Baby Boomers are leaving the workforce and taking their money out of capital markets. I know that you have heard about this, but it is worth taking the time to understand the deep implications.
I will start with very brief historical story telling. Post WWII there were a lot of babies born. I mean A LOT. The typical classification of the Baby Boom generation is people born from 1946 to 1964. 80 million babies, which means by 1970 they were about 40% of the U.S. population. In industrial economies kids under the age of 18 are an economic drag. They don’t work, they need food, shelter, clothing, education, they are expensive! The 70’s was a draining economic environment for many reasons, but certainly raising this generation was the overarching influence. From there let’s step through the next several decades:
Bring on the 80’s when Baby Boomers entered the workforce en masse along with their higher levels of education as well as higher participation of women in the workforce. At this point they are living a highly consumptive life, buying cars, homes, paying on college debt, they are borrowing. The boon stoked the global economy, especially as momentum built into the latter half of the decade. Talent was widely available which also primed the productivity growth of the 90’s.
Now we join our Boomers in the 90’s. Remember in the year 1990 they are ages 25-44. Still spending money consuming more than ever driving a demand based economic environment. On the supply side they are participating in an environment of consolidation, globalization, and applying new thinking to business processes. In parallel the breakdown of the Soviet Union, the banking crisis in Japan, and uncertainty in the future of the Eurozone delivered unprecedented amounts of capital to the U.S. monetary system. I like to say “It would have been really hard to mess up the 90’s economy”.
Moving along to the 2000’s. Staying with our demographics here the Baby Boomers were at a point in their lives when their kids had moved out, they were paying off debt, their wealth was accumulating and it had to be invested somewhere. Not surprising with the U.S. awash in cash two bubbles were born, the dot-com and Housing. Rising to the peak this money fueled the craziness as well as sensible investments in improving the structural foundations of businesses in general. Boomers were living their best life while delivering on their passion for building things.
We can look at the 2010’s as a period of rapid shock recovery from the Great Recession moving into an environment of steady economic growth. The Baby Boomers were at the peak of their earnings potential still adding to consumption of goods and hard assets. Their money was still in play in the equity markets as they looked forward to a golden retirement. The successful businesses that they built throughout their careers saw steady performance. Even to the point that at the end of the decade a jarring global pandemic became almost an economic hiccup.
Here we are in the middle of the 2020’s. Our Boomers that blessed the economy for decades are now serious about retiring. Removing their talent and sheer labor mass from the workforce. Removing their money from high growth potential investments to conservative portfolios. Starting to withdraw and spend their accumulated wealth while paying much less in taxes than they did. This is a precursor to my expectations for the 2030’s.
Looking forward to the 2030’s expect that the Baby Boomers still want their lifestyle intact. A political gerontocracy is inevitable to save government entitlements that they helped create resulting in an enormous impact on underlying economics. The expected “transfer of wealth” will be eaten away by inflation due to required monetary deleveraging. For this decade of reconfiguring it will mostly be economically unpleasant.
This story is really amazing. All of us participated in decades of economic conditions that are probably a once in a millennia phenomenon. It helped to create business as we know it. Now we are all facing a new business environment driven by this demographic effect, plus monetary debt reckoning, plus colliding geopolitical factors. We still have the coattails to ride for a few years that gives us time to review the strategic fundamentals of our businesses.
Now is the time to perform a deep review of your strategies. There are many complexities to consider beyond the day to day work of making things run. Step way back to take a long view and begin to put actions in place for your future. An engagement with Economics Designed expands your ability to evaluate your potential strategic actions.
This is the power of strategically designing the economics of your business!