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The second issue relates to the fact that the richer, ageing Boomers are now moving into the lower-spending period of their lives, as they join the New Old 55 + cohort. They already own most of what they need, and their incomes are set for a major decline as they enter retirement. As the Wall Street Journal has reported, only 60 % of those in the pre- retirement 55 – 64 age group have a retirement account and even their retirement savings are just $ 104k. The 40 % without retirement accounts have savings of only $ 14.5k.
Generating Reagan-like levels of growth against this background is clearly impossible.
It also highlights the critical comparison between the Reagan-era and today. Reagan’ s economic policy, like that of Thatcher and other Western leaders, was rightly focused on supply-side issues. Demand could indeed be assumed to be constant, given the spending power unleashed by the Boomers as they entered their Wealth Creator years between the ages of 25 – 54. But today’ s position is the opposite. Major demand-side reforms are essential in order to even stabilize growth at today’ s levels.
Demand-side reforms are now essential to restore the potential for economic growth
Trump’ s real challenge is to introduce policies that will increase incomes: One target area has to be the poorer Black / Hispanic cohort, who now constitute nearly a third of the total US population. Deporting the illegal element amongst them will not solve this problem. At best, it will only brush it under the table.
Similarly, he needs to use the‘ bully pulpit’ of the Presidency to focus attention on the need to retrain people in their 50s and 60s, in order to take advantage of increasing life expectancy.
THE PACE OF GLOBAL RECOVERIES SINCE 1975
125
120
115
110
105
100
95 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
▲ Chart 2 The current recovery is very weak compared to those of 1976, 1982 and even 2001
OECD REAL GDP, SEASONALLY ADJUSTED: REBASED TO 100 AT TROUGH OF EACH SLOWDOWN
NUMBERS OF QUARTERS AFTER TROUGH Source: OECD Quarterly National Accounts Dataset
1975
1982 2001
2009
The US cannot afford to allow 10k Boomers to continue retiring every day until 2030. This would not only represent a shocking waste of human resources, but also push Social Security and Medicare closer to bankruptcy.
The US is, of course, not alone in confronting the economic challenge posed by an ageing population, although it is unique in containing 2 such distinct cohorts. The slowdown in demand is common across most countries, as chart 2 from the OECD confirms. Today’ s ageing populations mean that the world has lost the demographic dividend of the Reagan- Thatcher years, and now suffers from a demographic deficit – manifested by the anaemic quality of the post-2008 recovery by comparison with its predecessors.
Chart 2 compares the current recovery against those from the 1975, 1982 and 2001 recessions. We are now 20 months into the recovery, and yet GDP in the OECD has only grown by 9 % from the trough- compared with 22 % after 1975, 16 % after 1982 and 13 % after 2001. This disappointing outcome has taken place despite a background of major fiscal stimulus( the $ 700bn TARP programme and similar initiatives post-2008 across the major economies), and unprecedented levels of monetary stimulus.
The wishful thinking evident in the Trump Rally also contrasts quite sharply with developments in the“ real world”, as