Want is a Powerful Thing

I have three kids and I found out early on that discipline must take various forms.

Each kid is different. There are “time outs” and “alone time” and taking away extravagances like TV time, video games, etc. Each of these will work to a varying degree on different children… with one big exception, my son.

For whatever reason, his personality leads him to a simple life with few wants. That made him hard to discipline. What do you take away, or for that matter give to, a child with few wants?

Time out? Alone time? Those just meant that I quit bothering him.

No extravagances? Banished to his room? “Perfect. No noise and I get to read all I want,” was his response.

It was frustrating because it took a lot of patience to find what would get him to change his behavior when he got out of line… which leads me to the economy and a bunch of people who are currently “out of line” and seemingly not motivated by “want.”

What’s a government to do?

Baby Boomers came through life with clear goals: more indulgence in the late ’60s and ’70s (drugs, sex and rock ’n roll)… more money in the ’80s and ’90s (Yuppies, BMWs and the movie Wall Street)… and then more of, well, everything in the late ’90s and 2000s (McMansions and Hummers).

This made the Boomers easier to sway. The government could extend or take away the path to the things they wanted through regulation, fiscal policy and even monetary policy.

And it worked.

If things slowed down, the government just lowered interest rates and lending standards and the economy would turn back up on a dime as consumers took on more debt to spend on stuff.

Now, things are different. At this point the Boomers are a lot like my son. As they age and move to a new stage of life, they increasingly recognize a world where “less is more,” and it’s giving the government fits.

Because nothing the government tries is having the desired effect anymore.

With the largest number of Boomers born in 1961, all of those babies are now solidly past their peak spending age of 50 and are into their peak saving years.

No longer do 22” rims on their neighbor’s new Escalade sway Boomers. Square footage in a home is now something that is air conditioned but not used as the children move away.

The world has changed for this group. The next target on their radar is retirement, which requires a lot bigger nest egg than they have today. So the path is to spend less, save more and pay down debt. While there is nothing magical about this change, we cannot overstate the effect of it. When the largest generation in the economy chooses the path of less spending it leaves the government with a set of useless tools.

The proof of this is everywhere.

Nothing Left But Blunt Instruments

The Fed has taken extraordinary measures in the last four years, all aimed at enticing consumers to spend more than they otherwise would. This has included lower interest rates for those that borrow and even negative (after inflation) interest rates for savers.

Not to be outdone, the Federal Government gave us programs like Cash for Clunkers.

Did these programs work? Sure, to a small degree, but they did not rejuvenate the economy in a meaningful way. They did not lead consumers, particularly Baby Boomers, to rekindle the buying spirit.

The die is cast. Boomers won’t be rejoining the “spend with abandon” class again. It is a clear case where demographics – as noted by the Boomer generation passing to their next stage of life – trumps policy.

This change in particular has been one of our main forecasts for many years. Back in the early 1990s, using our Spending Wave, we estimated that Baby Boomers would march higher in their consumption until the late 2000s and then pull in their horns. This would leave the U.S. exposed to a massive downturn.

While the bad news is that this sort of large economic shift happens, the good news is that with the right tools you can see it coming decades ahead of time. And there is a bright spot…

Just as our research told us to use caution in 2008 and the years following, there are positive signs for the years after this economic season is over. Using our demographic wave and consumer spending research, we are forecasting a resurgence in the U.S. economy based on the younger generation.

Of course, it will not happen because of government policy. It will happen in spite of it.

Rodney

 

 

Ahead of the Curve with Adam O’Dell

A Growth Sector in a Stagnant Economy

“Brookdale Senior Living Inc. (NYSE: BKD) has been rumored as one potential takeover target as its health care stock is more favorably priced.

 

 

Gold Will Fall to $700/oz

Harry Dent, a Harvard-educated economist, and bestselling author reveals why and when gold prices will plummet. Find out more in Harry Dent’s new report, Gold Will Fall to $700/oz!

LEARN MORE
Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.