I guess you can blame me for almost all of our economic problems.
Why? Because I am a baby boomer.
The Numbers
Far bigger than the silent generation that preceded us and each of the birth cohorts after us, 76 million baby boomers were born between 1946 and 1964:
This is the population bulge we have created:
Our Economic Impact
Trying to figure out why economic growth has been sluggish and interest rates stubbornly low, the authors of a new Fed paper suggest demographics are the reason. Their culprits are the baby boomers.
Employment Rates
Starting with the 1960s and peaking in 2000, baby boomers entered the labor market . With more men and women at work from so large a demographic, the ratio of workers to dependents grew. As a result, we boosted GDP growth and interest rates.
Family Size:
Meanwhile, the baby boomers had relatively fewer children. Some of the resources that would have been allocated to the family instead went to capital investment.
Life expectancy:
Here is where the problems start. We are still here and will remain around for awhile. But since we had fewer children and have begun to retire, there is less growth in the labor force. Responding, the pace of GDP growth and the rise in interest rates have also slowed. Even investment in capital–buildings, tools, equipment–is more restrained because there is less need for more when labor force growth has contracted.
Perhaps this graph summarizes it all. Through the labor force, first we fueled the economy and now we are under-powering it:
Our Bottom Line: Cyclical Problems or Secular Problems?
Two diagnoses have explained our current economic ills. Saying the problems are cyclical, some economists cite the remnants of the great recession. Others think we are suffering from a more fundamental disease that could include our demographics.
Why should we care? Because the diagnosis will determine how we cure the malady.
My sources and more: Thanks to the Washington Post Wonkblog for alerting me to the new Fed paper on demographics.
