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Sunday, October 13, 2013

Disintegrating Demographics

These days in Washington, DC both major American political parties are at odds over short term spending and debt issues. I follow it but think that it really avoids the real issue that faces both the U.S. and most other western nations. That issue is one of disintegrating demographics.

Populations in the West are getting older as better nutrition and medical care have increased life spans. Back in 1980, the median American was approximately 30 years of age which rose to nearly 36.5 in 2009 and is projected to be 42 by 2050 (the most dramatic change is in China where there one child policy has vaulted average age from 22 in 1980 to a possible 45 by the year 2050).

Fertility rates have also declined. There is a direct link between prosperity and declining birth rates. Also, as women continue to go to college (and finish) in record numbers, later marriage tends to translate to fewer children. In Europe, the number of children per woman has declined from 2.58 some 50 years ago to 1.30 today. This is well below the 2.1 “replacement rate” or zero population growth (ZPG) that demographers are always calculating. In the U.S, we are better off with the birth rate dropping from 3.31 to 2.04. The U.S. figure benefits from a steady entry of immigrants to our shores.

So people are living longer and having few children. This demographic shift has to have strong and negative consequences for economic growth. Historically, growth came from an increase in the workforce and in improvement in worker output better known as productivity. If our workforce shrinks due to more elderly and fewer young people, then productivity has carry the ball for growth 100% of the time.

Another factor that few people talk about is that aging populations consume increasing amounts of nursing care. Good care generally translates to more time spent per patient. That can only hinder the needed productivity growth that we discussed above.

Who is going to support the elderly? Thanks to government promises on healthcare and social security (entitlements), like it or not retirees will become an ever increasing burden on the state. Back in 1970, there were 5.3 workers per retiree in the U.S. That has dropped to 4.6 in 2010 and will be down to 2.6 in 2050 according to current projections. Other nations have it far worse. In 2050, Italy will 1.5 workers per retiree, France 1.9, and amazingly, Japan will have but 1.2. When I mentioned these stats to someone recently, they responded “what are you worried about? We are in much better shaped than those other countries.” I countered that his logic was like a person 150 pounds overweight saying that he was in better shape than someone 250 pounds overweight. One may have the coronary sooner but both were walking or waddling time-bombs. Yes, we can watch western Europe and Japan and see when the cracks appear and when crisis sets in. By then, it may be too late to right our ship.

Changes in government retirement age may be slow in coming. Everyone in the U.S. government knows that the Social Security eligibility age must be raised (the current 66 to perhaps 70 years old?). It appears that they are afraid to touch it. In 2010, former French president Nicholas Sarkozy tried to raise the retirement age from 60 to 62 and protests erupted all over the country. Note that he is now the former president.

In the U.S., the Simpson-Bowles proposals were the most responsible initiatives regarding public spending that I have seen in my lifetime. They called for raising the age for entitlements, raising certain taxes on the very upscale, and means testing both Social Security and Medicare. While not firing silver bullets, the proposals went a long way toward the long term righting of the American ship. You do not hear much about them these days but they address the most serious economic issues of our time. Some analysts whom I respect say that the liability for both Social Security and Medicare combined tops $220 trillion which really dwarfs our current topic of debate which is a $17 trillion long term debt.

Is there a silver lining to these weakening demographics for marketers? I can think of one. Legacy media like broadcast TV and radio may have a longer life. Technological change will progress but an aging population may keep some properties afloat and more profitable than some futurists can envision. Yes, we all know an 85 year old who sends lively e-mails or is a Netflix addict. Yet, many older people will stick to what they know.

Creatively, most of the messaging remains aimed at the 18-49 year olds with a big emphasis on the 25-34 demographic. This will likely shift as we graying baby boomers (born 1946-1964) drop out of the workplace for good.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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