Demographics benefit the economy long before a slowing birth rate will work against it
Dwot, whose blog I love BTW, posted a thought-provoking message about how population dynamics will impact the economy in the future. Definitely check it out if you haven't already: Population Dynamics in Investing.
Her theory that the current economic problems will cause a slowing in the number of children born makes a lot of sense, but according to what I have read the demographics of the United States will actually help to prop up the economy before any possible slowing would harm it. I wrote a post on this subject in early December: Demographics got us into this mess & will get us out of it...eventually. Here's the text from it:
"I came across a fascinating blog this afternoon by a gentleman named Kenneth W. Gronbach who is a self-described "nationally recognized expert in the field of Demography and Generational Marketing."
I find a post that he made back in October titled "The Worldwide Financial Crisis, Demography and The End of the World" particularly interesting (link). In this post, Gronbach contends that The United States' demographics are as much to blame for the current housing meltdown as anything:
"Roughly eighty million Baby Boomers were born in the United States between 1945 and 1964. The peak of the Boomers was born between 1957 and 1961 and are at the peak of their earnings and consumption right now according to the Bureau of Labor Statistics. They bought and built big houses that were typical of their earlier stage in life. The Silent Generation, born 1925 to 1944, that preceded the Boomers was a small generation of about fifty million owing to reduced fertility during the Great Depression and WWII and virtually zero immigration during that time period. The Boomers bought the Silents’ homes as the Silents retired but the demand outstripped the supply so Boomers built new homes with a vengeance. Now the Boomers are reaching retirement age at the rate of one every eight seconds and it is time for them to sell their big homes and move on. The problem is the younger generation right behind them, Generation X born 1965 to 1984, has critical mass of about seventy million owing to reduced fertility during this time period attributed in large part to Row Vs Wade. In very simple terms this means that for every eight Boomer houses for sale there are only seven Generation X buyers. With the help of relaxed federal lending/mortgage standards the market found marginally qualified buyers to make up the difference in the generations using subprime loans..."
In short, droves of Baby Boomers are retiring and selling their homes and there aren't enough younger buyers who are financially ready to buy homes to absorb the new supply that's hitting the market. This is an interesting and very plausible theory.
The good news is that the demographics of the U.S. will shift again and help to soak up the excess supply...eventually. Generation Y now has 90 million members, all of whom are 23 years-old and younger. They will enter the housing market over the next several years. Plus the Baby Boomer generation is at the very peak of its tax paying ability, meaning that the U.S. should have enough money...or at least be able to print enough...to get us out of this mess.
Of note, 2007 set a record for the highest number of births ever recorded in the U.S. The USA Today published an article on this subject back in July: Is this the next baby boom? Clearly the demographic trends will work for the economy long before they work against it. Any headwind from lower birth rates that might occur will be at least twenty to twenty-five years down the road.
I have already contributed two children to the cause, but I don't plan on having any more. My wife has a friend who was on the fence about whether to have a third child who eventually decided to go for it...only to have natural triplets. Yikes. I'm not taking any chances. I love my two sons very much but I'm not interested in having any more.