A theme is emerging in lots of recent readings – the impact of demographics on society and economy. We’ve probably ridden a wave of demographic explosion in the West over the past 50 years with the Baby Boom. And it’s interesting to look at the excesses of the bubble years, and the current bust, as the result of the savings of retiring Baby Boomers looking for high yields.
An example I recently read explained the interest rates as the demand-supply balance between the older and younger generations. The older people have savings, and in order to secure their retirement want to lend it to secure regular yield, as high as possible, ie high interest rates. The younger generation has no savings, but wants to borrow money to buy a home, start a business, and are looking for low interest rates. The proportion of both population hence drives the interest rate level – it is high if there is a large proportion of young people, low if there’s an excess of old people.
Aouda and I were born when the Baby Boomers entered the workforce, and when I read this all of a sudden the high interest rates my parents paid on their mortages started to make a lot of sense – as did the current low interest rates !
Of course, our world itself is highly bipolar in this regard – one of the biggest difference between the West and the high-growth countries is the demographic structure. Just look at an interactive map of the world as they now exist, and just browse various countries for the average age of their citizens, you will be amazed at the differences – US and Europe at 40 years (and sorry Mr Rumsfeld, there’s really no “Old Europe” and “New Europe” – it’s all pretty old all the way to Russia), versus India at 25 and Africa at 20 years of average age ! (Never forget Africa and its 1 Billion of people, even if they don’t make the news as they’ve not taken off economically yet). Very interestingly, China is already at an average age of 35 years, quite close to the US average age actually – not clear what the implications are, except it might mean China might be the Japan of yesteryears, which after explosive growth attracting everybody’s attention will rapidly stabilize and have to cope with its own issues.
This is such a fascinating topic, especially when you think beyond economics and look at the societal implications. A large young population giving us Woodstock, the Hippies and May ’68, what will these same folks drive in our culture and politics as they retire and become unsurprisingly conservative ?
Aouda is reading a book called “The 4th Turning” about supposed patterns in generations behaviors – interesting to see how that can shed some light into this issue !