Demographics are likely to be a major drag on the US economy over the next few decades
A crowded sidewalk on 5th Avenue in New York, US. Picture: 123RF/WILLIAM87
The result was a huge generation that not only transformed American culture, but also created a market and labour pool for would-be entrepreneurs and growing corporations. From the 1960s through the mid-1980s, net domestic investment by private businesses averaged 5.4% of GDP each year. One dollar of every $20 spent in the US economy was directed towards expanding the size and scope of private enterprise.
Demographic shifts weren’t the only things affecting the economy over that period, of course. The rise of the internet, the growth of the Chinese economy and a regime shift in monetary policy all played their part. But it’s hard to overstate the impact of demographics, which were a steady tailwind of the US economy after World War II, then became a steady headwind in the late 1980s and have remained so ever since.
An ageing, shrinking population creates national quandaries that are more than just fiscal. One is that, as the real return on ordinary physical investment falls, so does the interest rate necessary to keep the economy humming. In the formal economic models of this phenomenon — known as secular stagnation — land prices can theoretically go to infinity. In the real world, they are prone to bubbles.
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