Category Archives: US Economy

USA: Proposal for Social Security Reform and Medicare Modernization

January 17, 2013 – 3:37 pm

The BUSINESS ROUNDTABLE, an association of CEO’s of leading US companies released proposals to reform Social Security and Medicare.  Among its recommendations  are an increase of the Social Security retirement age from 67 to 70 and means-testing of Social Security and Medicare benefits.  FULL REPORT.

By populyst | Also posted in Economy, Family Planning, Pension Funds, Retirement, United States, US Congress, US Federal Budget | Comments (0)

Bill Gross: Four Structural Issues Weighing on the US Economy

December 6, 2012 – 10:57 am

BILL GROSS, co-CIO of PIMCO, writes in the firm’s latest INVESTMENT OUTLOOK:

Strawberry Fields – Forever?

You didn’t build that ….. 332

I built that ………………… 206

Well, I guess that settles it: you didn’t build that after all. Or maybe you did, but not all of it. Or maybe like the convoluted John Lennon above “you think you know a yes, but it’s all wrong. That is you think you disagree.” Whatever. Rather than an economic mandate, November’s election was more of social commentary on the Republicans’ habit of living with eyes closed. Their positions on what Conan O’Brien labeled “female body parts” – immigration, gay rights and student loans – proved to be big losers, and they will have to amend rather than defend those views if they expect to compete in 2016. I suspect they will. Political parties are living social organisms that mutate in order to survive. We will see straight talking Chris Christie or Hispanic flavored Marco Rubio leading the Republican charge four years from now versus a reenergized Hillary Clinton. It should be quite a show with a “No Country for Old (White) Men” caste to it. READ MORE.

By populyst | Also posted in Demographics, Emerging Markets, Technology, United States, US Federal Budget, Wall Street | Comments (0)

NYT: Slower Growth Seen in a Graying World

November 9, 2012 – 2:19 pm

FLOYD NORRIS writes in the NEW YORK TIMES:

AS the world grows older in the coming decades, economic growth will slow.

That forecast was issued Friday by the Organization for Economic Cooperation and Development, a group of 34 countries that includes all of the major industrialized nations.

“Aging will be a drag on growth in many countries,” said the report, titled “Looking to 2060: Long-Term Global Growth Prospects.” It also projected that while the aging of the population would be offset to some extent by better education in many countries, global growth in gross domestic product, which averaged 3.5 percent a year from 1995 through 2011, would rise to 3.7 percent through 2030, but then fall to just 2.3 percent over the next three decades. READ MORE.

By populyst | Also posted in Demographics, Dependency Ratio, Immigration, Retirement, United States | Comments (0)

USA: Long-Term Implications of an Older Population

September 26, 2012 – 10:24 am

The NATIONAL RESEARCH COUNCIL released a new report Aging and the Macroeconomy: Long-term Implications of an Older Population. Excerpts of the press release:

Population Aging Will Have Long-Term Implications for Economy; Major Policy Changes Needed

WASHINGTON — The aging of the U.S. population will have broad economic consequences for the country, particularly for federal programs that support the elderly, and its long-term effects on all generations will be mediated by how — and how quickly — the nation responds, says a new congressionally mandated report from the National Research Council.  The unprecedented demographic shift in which people over age 65 make up an increasingly large percentage of the population is not a temporary phenomenon associated with the aging of the baby boom generation, but a pervasive trend that is here to stay.

“The bottom line is that the nation has many good options for responding to population aging,” said Roger Ferguson, CEO of TIAA-CREF and co-chair of the committee that wrote the report.  “Nonetheless, there is little doubt that there will need to be major changes in the structure of federal programs, particularly those for health.  The transition to sustainable policies will be smoother and less costly if steps are taken sooner rather than later.”

Social Security, Medicare, and Medicaid are on unsustainable paths, and the failure to remedy the situation raises a number of economic risks, the report says.  Together, the cost of the three programs currently amounts to roughly 40 percent of all federal spending and 10 percent of the nation’s gross domestic product.  Because of overall longer life expectancy and lower birth rates, these programs will have more beneficiaries with relatively fewer workers contributing to support them in the coming decades.  Combined with soaring health care costs, population aging will drive up public health care expenditures and demand an ever-larger fraction of national resources.  READ MORE.

 

 

By populyst | Also posted in Demographics, Dependency Ratio, Health Care, Retirement, United States, US Federal Budget | Comments (0)

‘Siri, How Can Aging Populations Drive Economic Success?’

September 25, 2012 – 10:07 am

MICHAEL HODIN, Executive Director of the Global Coalition for Aging, writes in the HUFFINGTON POST:

It’s an uninspiring truism to say that technology has changed our lives in ways that we never imagined. But as the iPhone 5 is cheered as one of humanity’s greatest developments since the first slice of bread, it’s time to take a step back and evaluate how. Is technology creating new opportunities for healthy, active and engaged aging? This question may be less fun than asking Siri the meaning of life, but the answer to it may well shape the social and economic success of the twenty-first century and how happy we can be in this new era of older societies.

Our tech-savvy, app-obsessed, 24-hour-plugged-in culture doesn’t seem to care much about how technological innovation can transform population aging from an economic sinkhole into a foundation for growth and shared prosperity. For all the “progressive” and “visionary” mythos that lionize Silicon Valley entrepreneurship, the kids in California are pretty far behind the curve on this one.

Yet, while the iPhone 5 hysteria reached its tipping point, a horde of policy wonks, academics and business leaders got together in Tokyo to ask the right questions about how technological innovation can write a better future for an aging society.

At Waseda University in Tokyo, the Organization for Economic Cooperation and Development (OECD) and the Asia-Pacific Economic Cooperation (APEC) held a joint conference entitled, “Anticipating the Special Needs of the 21st Century Silver Economy: From Smart Technologies to Services Innovation.” The conference may sound less sexy than Apple’s unveiling of the iPhone – and, make no mistake, it was — but its significance might just be even greater.  READ MORE.

 

By populyst | Also posted in Demographics, Dependency Ratio, Economy, Technology, Telecom | Comments (0)

USA: Will Property Prices Need a Crutch as the Population Ages?

September 13, 2012 – 1:31 pm

MARK HESCHMEYER at the COSTAR GROUP writes:

There has been much speculation that single-family housing prices could take a hit as increasing numbers of baby boomers downsize and leave larger homes behind as they move into retirement age. That assumption is too general to be entirely accurate, according a pair of major economic papers on the topic of aging and property prices.

What is clear is that this ongoing population shift holds important ramifications for the multifamily property sector, including senior and assisted living facilities. And it is also becoming an issue of increasing importance for commercial real estate investment researchers.

“As Baby Boomers enter retirement age, many ‘empty nesters’ may downsize, leaving their current homes in favor of smaller condos or age-restricted communities. Therefore, prices for large single-family homes located in high property tax areas could be under pressure over the next decade,” Tim Wang, senior vice president and head of investment research for Clarion Partners in New York, told CoStar News. “However, seniors today are often healthier and live longer; because of this we believe it is still premature to invest in assisted living or nursing homes.” READ MORE.

By populyst | Also posted in Demographics, Health Care, Housing, United States, Urbanization | Comments (0)

The Economy’s New Boss: Demographics

September 4, 2012 – 3:09 pm

by SAMI KARAM

(also published at Seeking Alpha)

The next President will have to contend with unfavorable demographics.

An enormous amount of money will be spent in the last few weeks of the Presidential campaign. Each side will promote its candidate and his platform with much passion and conviction. In the end, one side will treat victory as the road to salvation and the other will see defeat as an unprecedented and largely irreversible calamity. But in reality, this time around, the identity of the winner will probably matter less to future growth prospects than in previous contests. This is because the demographic input in the economy for the next four years is already programmed on an immovable trajectory and it is less positive than in the past.

Because of the overhanging debt and a poor demographic picture, the next four years will continue to be challenging (though not necessarily recessionary), regardless of whether Barack Obama is re-elected or Mitt Romney replaces him. Like it or not, the boss of the economy, and therefore to some degree of all of us, will be demographics. One could argue that this boss has been with us since at least 2005 when the dependency ratio started to rise again in the United States.

Among all the important factors which drive economic growth, the demographic factor is now weaker than it has been in decades and as a result, domestic demand for most goods and services will be weaker than it has been in a long time. The most telling numbers are as follows:

- The US population grew by over 1% a year until 2007 and is now growing by less than 1% per year. Its rate of growth will continue to decline as the number of baby boomer deaths rises relative to the number of new births.  Since 2008, the US total fertility ratio (TFR) has fallen below the replacement level of 2.1 and is now approaching 1.9 children per woman. See the data here and here. (Note that the TFR is an imperfect measure and a decline may only mean that more women are delaying, not altogether foregoing, having children.)

- The total number of Americans aged 30 to 60 years, the most economically active bracket, grew by over 1% per year for 30 years, from the mid 1970s to around 2005.  It has levelled off and will essentially remain flat at around 120-125 million until the end of this decade. Stagnation in the size of the most economically active bracket combined with growth in the young and elderly brackets will result in lower economic growth. I made a case here that the resulting effect on housing will not be positive.

- The US dependency ratio, which is the sum of people under 14 and over 65, divided by the number of people aged 15-64, has declined for several decades from 0.67 in 1960 to 0.49 in 2005 but, according to UN estimates (see pages 478 and 479 of this UN report), it is now expected to climb back to 0.53 by 2015, 0.56 by 2020, 0.64 by 2030 and 0.67 by 2050. Discretionary spending is bound to come under pressure as more funds are diverted to take care of dependents. (Note that the dependency ratio as defined by the UN and others considers any person under 14 and over 65 to be a ‘dependent’.  This seems antiquated on both ends. In the US, a young person is still a dependent until at least 18, and in some measure as late as 25. And an older person may not become a dependent until the retirement age of 67, or more likely 70.  I ran the numbers for these brackets here and they show that raising the retirement age from 67 to 70 would buy us some time and help the economy.)

- Assuming a run rate of 1 million newcomers per year, immigration, though a clear net positive in the long run, will be insufficient to neutralize or reverse these negative effects in the short run. It would take a much greater number of immigrants to offset the slack. But as noted by some demographers, citizens of any given country become less welcoming of immigrants when that country’s fertility ratio declines or when the economy is weak.

Although much frustration is expressed on the stagnation of the economy, in particular the unemployment rate and the rising deficit, pinning the blame on one or the other of the two political parties ignores a stronger underlying dynamic. The next POTUS will be similarly constrained as POTUS 43 (Bush) in his second term and POTUS 44 (Obama) and will have to implement some steps to mitigate the negative demographic effect. If demographics are failing us, there are other levers to stimulate  growth but we will need to work them harder.

By populyst | Also posted in Analysis and Opinion, Demographics, Dependency Ratio, Economy, Immigration, Politics, Unemployment, United States | Comments (0)

Does U.S. Population Bust Spell Fiscal Doom?

August 23, 2012 – 2:25 pm

FROM INVESTORS’ BUSINESS DAILY:

Some news that gets little attention can have a big impact down the road. Case in point: U.S. population growth this year hit its lowest rate in decades. And no, this isn’t a good thing.

Population-control extremists are no doubt dancing a jig on word that the U.S. rate of growth was 0.74% in the most recent year, slowest since World War II (see chart). From the end of the 2010 census ended April 1 to July 1 of this year, we added just 2.8 million people, for a total of 311.6 million.

The reasons for this are many. Immigration, for one, has slowed considerably. Of more importance, however, Americans are having fewer babies, just 3.96 million in 2011, a number that’s expected to decline for years.

Why is this happening? READ MORE.

By populyst | Also posted in Demographics, United States, US Federal Budget | Comments (0)

US Demographics not as Strong as Widely Believed

August 22, 2012 – 11:15 am

by SAMI KARAM

A recent op-ed in the Wall Street Journal by Mr. Ben Wattenberg, a senior fellow at the American Enterprise Institute, takes an optimistic view on US demographics and on their likely impact on the economy.  The WSJ today published my response in which I repeat the argument I made in America Heading Towards Zero Population Growth? that the growth of the US population is in a multi-decade decline.

Text of my letter:

“Regarding Ben J. Wattenberg’s (“Immigrants and ‘Comparative Advantage’,” op-ed, Aug. 9): It is true that the U.S. is in better shape than Europe or Japan, but the rate of growth of the U.S. population has fallen below 1% per year and will decline further over the next four decades. Due to the passing of baby boomers in increasing numbers, the two decades starting in 2030 will see no population growth except for immigration.

Mr. Wattenberg’s figure of 400 million Americans in 2050 is too high and would be reached only if the birth rate, life expectancy or the number of immigrants rises significantly in coming decades. My own estimate is 375 million in 2050, which is 61 million more Americans than we have today. This may appear nominally attractive, but the population grew by 60 million, or 24%, in the 22 years since 1990. A 60 million increase by 2050 would be equivalent to growth of only 19% in 38 years.

Even Mr. Wattenberg’s optimistic scenario would be growth of 27% in 38 years, a rate which is well below that of recent decades, with predictable consequences for domestic consumer demand.”

End of letter.

Mr. Wattenberg is not alone in holding an optimistic view.  In fact, robust population growth is seen by many as one of the unique assets of the US economy.  Last month, Goldman Sachs CEO Lloyd Blankfein argued that US economic prospects look promising in part due to demographics:

“The U.S. has a number of major competitive advantages that we sometimes overlook — especially given the focus of the 24-hour news cycle on sensational, and mostly deflating, events. First, the U.S. has favorable demographics — thanks to its relatively high birth rates and immigration. While the BRIC countries — Brazil, Russia, India and China — have generated extraordinary economic growth, the U.S. remains a magnet for many of the smartest, most ambitious people in the world. [...] Immigration is one of the main reasons why the U.S. has grown faster than many other developed economies. The growth in the foreign-born population contributed roughly 30 percent to 40 percent of total U.S. population growth from 1980 to the mid-2000s. New immigrant workers provide a boost to economic growth. Just think about the effect new workers have on demand for housing, let alone creating new businesses.”

Because they are only partially accurate, some of these comments end up painting an overall picture which is too optimistic. First on the birth rate, it is higher than that of Japan or Europe, but it had been until recently near replacement level, equivalent to a total fertility rate (TFR) of 2.1 children per woman.  But since the financial crisis  began in 2008, the TFR has fallen below 2.1, as recently reported by The Economist. The TFR may well recover to replacement level as the economy improves. That is better than sub-replacement but a TFR of 2.1 is not sufficient to turn demographics into a source of economic strength. In addition, discussing birth additions without mentioning death subtractions presents only half of a full picture.  As increasing numbers of baby boomers pass away in the next three decades, the population will grow at a slower rate than in recent decades.

Another factor to consider within the overall population numbers is the evolution of each age group.  The expected increase in the number of older people has been widely documented and discussed, in particular as it relates to the pressure it will place on government social programs. A subsidiary measure of this development is the rise of the dependency ratio, which is the number of dependents (children and retired people) per working adult. In the US the ratio had been declining for decades and it is now set to start rising. (See Our Growing Inactive Population).

Turning to immigration, it is true that the US could open its doors wider to more immigration and by doing so, reach any population level that it wishes. But few commentators or politicians are advocating this approach. If we continue with the current run rate of 1 million new (legal) immigrants per year, the growth rate of the US population will continue to decline. And that would be true even if we raised annual immigration to 1.5 million newcomers.

There is nothing wrong with being too optimistic on demographics except that it could prevent policymakers from considering other steps to promote economic growth. If there is a widespread belief (as seems to be the case) that population growth will be a strong driver of the economy, we may forego some other growth-boosting measures which are in fact necessary.

In my opinion, growth for the US economy in the next few decades has to come from two main engines, first the perennial innovation engine, and second the manufacturing and export engine. The US can become once again an export powerhouse, not just in agriculture and technology, but also in other manufactured products along the entire value-added chain. Whether this requires a dramatic devaluation of the US dollar remains to be seen. If such is the case, we would not be the only country racing for a depreciated currency. Europe certainly does not want to see a stronger Euro, and if the Euro breaks up, virtually all countries except for Germany, Finland (and possibly France) will end up with currencies which are relatively weaker than the Euro. Germany may end up with a new Deutsche Mark which like the Swiss Franc will be stronger than its exporters would like to see.

Repatriating as many manufacturing jobs as possible and searching for new markets overseas are likely to be two important elements of a future growth strategy. Based purely on demographic trends, India and Sub-Saharan Africa look especially promising because improving health care and declining fertility rates (the two go hand in hand) could possibly yield the same kind of very large demographic dividend which we have seen in China and other Asian countries in recent decades.

By populyst | Also posted in Analysis and Opinion, Demographics, Dependency Ratio, Economy, Euro, Immigration, India, Sami Karam, Sub-Saharan, United States, US Dollar | Comments (0)

Michigan is Losing Population Ground — Naturally

August 21, 2012 – 12:51 pm

Detroit face unique demographic challenges and Michigan was the only state to show a net population decline in the decade ending in 2010.

RON DZWONKOWSKI writes in the DETROIT FREE PRESS:

In the period from 2000 through 2010, amid the economic upheaval that shook Michigan to its foundations, people in the state were remarkably consistent at one thing: dying.

Annual deaths for that 11-year period averaged 86,746 — with a range of just several thousand year to year in a state of about 10 million people. Meantime, births were declining almost every year over that same span, from 136,048 in 2000 down to 114,717 by 2010.

The result, according to a new analysis by Data Driven Detroit, was a 47% drop in Michigan’s natural population change from 2000-10. In 2000, births exceeded deaths by 49,060; by 2010, the margin was just 26,659. READ MORE.

By populyst | Also posted in Demographics, Depopulation, Detroit, Michigan, United States | Comments (0)