Saturday, July 23, 2011

Examining the Demographic Bulge and the Dynamics of Capitalism: Why the Pundits are too Gloomy

It’s pretty depressing reading the newspapers these days.  I speak metaphorically when I say “reading the newspapers”.  Clearly online reading is replacing traditional print media at an exponential rate.  But more on that later.  According to the experts, we are heading to Hell in a Handbasket because of unfunded entitlement programs, a demographic bulge and anemic growth.   Add to that runaway inflation caused by an historic increase in money supply (see hilarious and cynical video on The Quantitative Easing).  Admittedly the Great Recession and chronic budget deficits have left us with a full plate of challenges.  But it’s not as bad as the prophets of doom have made it out to be.  Here’s why.

The Demographic Bulge
The first Baby Boomers qualified for Medicare and Social Security this year.  The Baby Boom covers those born from 1946 – 1964.  Roughly speaking, the Boom lasted from the end of WWII to the launch of The Pill.  Nothing is certain but death and taxes.  And that applies to the Baby Boomers as well.  They will pay their taxes.  And more importantly they will die.  The first batch will be mostly gone in twenty years.  The younger Boomers (present company included) will be pretty much gone in forty.  So is entitlement reform necessary?  Definitely.  That said, this crisis will eventually solve itself (Learn more, click here:  Equilibrium Theory).  Dead people don’t receive Medicare benefits or Social Security checks.

Dynamics of Capitalism
Meanwhile growth will return to this economy.  Despite the frequent predictions of our imminent demise, this nation enjoys an embarrassment of riches including a highly skilled and educated workforce, abundant natural resources, meritocracy, democracy and the rule of law. Some aging Boomers, inept politicians and greedy bankers can’t ruin all of that.   And innovation is being deployed at a breathtaking pace.   Did anyone outside of Silicon Valley even know what a Tablet was five years ago?   Or Social Media?  Or Cloud Computing?  Innovation causes major economic disruptions in the short run.  These are the structural economic challenges that the pessimistic pundits talk about gloomily.   They often fail to mention that in the long run these disruptive innovations instill economic efficiencies and capital growth that we never dreamed off.  Here’s just one example.   In the next fifty years a new energy industry will emerge to replace fossil fuels.  This will create millions of jobs, solve the trade in balance and eliminate our need to fight expensive foreign wars.  Here’s another one that’s already happening big time.  The way we read and learn is rapidly changing and reinventing the media, publishing and education industries.   We can now read a news story and view a video of the incident simultaneously.  And then check all the references and related articles from multiple media sources with the click of a mouse or a touch screen.   But this goes way beyond crushing the big city dailies, putting Borders out of business or making college degrees more affordable.  Information and the knowledge and wisdom derived from it will become universal (provided we have an Internet connection).  How’s that for a game changer?

The Way Forward
We’ve seen this movie before.  The Great Depression and WWII in the 30’s and 40’s.  Vietnam, race riots, Watergate and Stagflation in the 60’s and 70’s.  A double-dip recession, huge budget deficits and the Cold War in the 80’s.  We emerged stronger.   This current crisis will have a similar outcome.  But it won’t be easy.  The young Boomers will take the biggest hit. Traditional retirement will not be an option for most as cuts in entitlement programs will have to be offset by hard work late in life.   A sensible immigration policy that compensates for the reduction in American birthrates can bring in younger workers to expand the tax base.  Speaking of taxes, we need coherent tax reform so all workers have some skin in the game.  Something sensible will have to emerge with regard to healthcare policy.  Hats off to the Dems for doing something but HCR is not the answer.   And finally we need a national energy policy to accelerate the departure from fossil fuels.

This time is not different.  This time is like any other era in American history.   For those willing to work hard, hustle and innovate the future is quite bright.   Comment on this Story

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