Power of a Generation Part 2



There’s a peculiar theory of economics that lives inside the popular imagination of most Americans. It’s a theory that resembles a story. Like most stories, it’s peopled with heroes and villains, and these heroes and villains are invariably presidents. It begins with that villainous President Coolidge, who wrecked the economy, and that heroic President Roosevelt, who saved it. It goes on to Carter, who made the economy comatose, and Reagan, who resuscitated it. Then Bush 41’s economy stumbled, and Clinton stepped in to catch it. Bush 43 destroyed the economy, and Obama…well, Obama could not salvage it, unlike those before him.

It’s a simple theory and a delightful story. Straightforward, neat, with a surprise twist ending. It’s also total bunk. Our economy is the product of billions of people, domestic and foreign, each making thousands of decisions every day. Presidents can affect the economy at the margins, but cannot exert the kind of extraordinary influence commonly attributed to them.

I think there is a better theory, and that theory is demographics. It is a better theory because it is a better story. It’s a story of the American people—a story of generations. It is, in short, a story of life, and a theory of life in aggregate. It illustrates how the micro-economies of individual households affect the macro-economies of America and the world.

America’s economy of the 1970s, popularly associated with the word malaise, was the result not of presidents but of demographics. The Silent Generation produced comparatively few children, and hundreds of thousands of the Greatest Generation were lost to the European and Pacific theaters of war. The boom of the 1950s and 1960s, largely the product of rebuilding Europe and Japan, had concluded. A population to replace that economic engine did not yet exist.

It did not exist until the Baby Boomers arrived. Born between 1946 and 1966, the Boomers were a 76 million-strong influx of labor, creativity, supply, and demand. Their productive maturity at age 40 coincided with the start of the 20-year economic expansion the US experienced between 1986-2006.

During this period, government policy affected the economy only at the margins. It fueled the housing bubble and sparked the subprime meltdown, but softened the landing through TARP and targeted stimulus. Government policy cannot, however, cure our present economic malaise. It’s systemic. The Boomers are exiting the workforce, and there is nobody to replace them.

There is a small silver lining to be found in the Boomer’s present and near-term impact on the housing market. As Millennials enter the housing market, they’re finding supply is seriously constrained. Construction of new homes has not fully recovered from the 2008 housing collapse, and Boomers are not downsizing their homes as expected. Boomers are, instead, using reverse mortgages to cash out the equity of their homes and provide a supplementary source of retirement income.

These two factors are largely responsible for the 8-10% annual increase in house values over the last year. The silver lining is this: As house values increase, more individuals can utilize their home’s equity to strengthen their financial positions by either refinancing to a lower rate or cashing out equity to consolidate debt. Great news, eh?

Unfortunately, this is about the brightest economic news we’ll see for a while. Lately, the news media have focused either on the Fed’s bond purchasing program, the stock market’s recent record highs, or the record profitability of America’s largest corporations. But these stories have not translated into meaningful economic growth or job creation.

This is why experts have been predicting a “Recovery Summer” every summer since 2009. They believe that manipulating the right economic levers in just the right way can create prosperity. As we’ve seen, though, it can’t.

This is also why I believe a meaningful, sustained economic recovery won’t occur until 2020. This is when the Millennials—the single largest generation since the Boomers—will start reaching their productive Golden Years. This is when demand for homes will skyrocket, economic activity will accelerate, and we’ll experience an even greater and longer-lasting economic expansion than the 1986-2006 boom.

GARVENS GROUP OF CHURCHILL MORTGAGE PROVIDING COLORADO SPRINGS WITH HOME MORTGAGES, VA LOANS, CONVENTIONAL LOANS, AND FHA LOANS
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