Boring Economics

One of the points being made in the current election is that the US Economy is not growing like it should.

The comparison made is to previous recessions and the bounce back that followed them.  However, in an interesting article in the NY Times, the impact of demographics was brought into play.

Since the second world war, the number of productive workers in the workforce has tended to increase each year for a couple of reasons.

First as the baby boomers entered it it swelled its ranks.

We have seen a great increase in women working outside the home.

Now growth is simply the change in economic activity from one year to the next.

Increasing populations tend to increase growth because they each contribute to economic activity both as consumers (demand side) and workers (supply side).

As the population bulge cause by the baby boomers moved through the prime earning years, we saw some significant years of growth.  Now we also saw some significant inflation and some analysis shows that in constant dollars growth has been somewhat lower than it appears.

In addition, we have had a series of recessions which reduce the average overall growth rate on a cumulative basis.  To point to growth right after a recession or even right before one could be problematic considering some of that growth is easily wiped away.

However, while growth may not have been as high in the past as claimed the main point is that the demographics we face over the next period are not conducive to high growth rates unless we do in fact open the borders and bring in great numbers of younger people.  This is unlikely so we are faced with some simple math.

As productive baby boomers leave the workforce, not all of them will be replaced since there are less new workers.  This will depress growth.

To achieve real growth we need to increase the productivity of each worker to compensate for the loss of workers.  Promises of growth being made ignore economic reality since we don't have enough available workers to achieve those levels.

Even now, the skilled jobs have trouble finding qualified candidates much of the time.

I warned you this would be boring.