Weekly Musings "A Booming Whimper"

Weekly Musings© - “A Booming Whimper”
10/4/07
J. Sweeney

I saw a lovely conversation with Charlie Rose and Alan Alda last night. They were discussing meaning in their lives and how near death experiences had served to focus their attention on the quality of their time and choices. They struck me as two thoughtful and worldly men entering the “wisdom” phase of their lives. I frequently give thought to the likely impact of the impending retirement of the “Boomers” and last night I began to hope that the impending retirement of the Boomers would translate into a golden age of volunteerism and reflection… well I got to Musing.

You’ve already read plenty about how the largest segment of our population is about to retire. Media outlets are quick to pander to the egotism of the Boomers with comments about how they have transformed every stage of life in our culture. Most of this is said with an eye on capturing a Boomer audience delighted and puffed up with self-importance. They are a large segment of the shopping population and have more dollars to spend on consumer items than their offspring or parents, so such marketing is effective.

I think the Boomer retirement will bring about some significant changes and it is possible that some of them will be positive. However, most of the impact will be felt as a shift in spending across the broad economy. You should expect a relatively flat housing market for the next ten years. There will be brief interludes of irrational exuberance. But, on the whole the number of people selling homes in order to downsize will match and at times exceed demand for single homes. Real estate will remain a local phenomenon until we have near instant transportation across large distances. So, there are some markets that will continue to appreciate in price, but for the most part price increases will be constrained to niche retirement and nursing communities.

Economic growth will be substantially slower over most of the next two decades. The productivity gains realized by the additional worker in most households (women to work) and the impact of personal computing will not be repeated in the near term. Productivity gains due to outsourcing will not be as large in the future. The low-hanging fruit has been picked and economic growth in various developing countries is slowly closing the gap in compensation that generates the bulk of savings.

The focus of spending on health and life extending technologies will eventually result in massive productivity gains due to increasing levels of intelligence in infrastructure, shipping and power generation. The enabling technologies are likely to arise from the fields of bioengineering and nanotechnology. This surge in productivity will not occur within the next fifteen years and should not be relied on for the rapid returns on investments realized in the 1990’s via Internet related technologies.

Due to inadequate planning and savings, most Boomers will constrict spending relative to recent levels in the final years prior to full-retirement. Fear, which seems to be the hallmark of the Boomers, coupled with anemic retirement investments, and low returns on savings will result in lower-than anticipated budgets for most. This constrained spending, on all but health related consumables, will have a downward pressure on revenues across the US economy.

Health failures will be substantially higher than planned for in the United States relative to other industrialized countries. Low levels of physical work, few vacations, and years of stress (often coupled with smoking) will bear a terrible fruit. Boomers who expected to live longer and healthier than their parents will require more maintenance drugs and surgeries. This spending and the fear of such spending will further erode their sense of financial security.

Now, the big one, currently Boomers are the most financially solvent and highest earning members of our economy. As stated so many times before, they are also the largest group. As Boomers begin to retire companies are looking forward to hiring cheaper replacements and realizing savings. What this means is that our economy will lose high wage earners and tax payers at the very same time that demands on benefit programs, like Social Security and Medicare, spike. The replacement workers will be fewer in number (companies looking for net attrition) and earn less on average than previous workers.

The required governmental outlays for retirees will be paid for in service reductions and tax increases. Lower government spending and higher taxes will lead to a recession in an environment with flat consumer spending.

While I would like to join the rosy picture club and paint for you an idyllic golden age of volunteerism and reflection I think it is much more likely that we will experience a sharp and prolonged recession. It will start in the next two years and it’s going to get nasty.

Buckle up.