Leading Economists Predict a Grim Future…and Identify Who the Winners and Losers Will Be
By Brian and Alan Beaulieu
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| The savers / investors will be able to augment government retirement and medical program costs to maintain a reasonable standard of living. |
Economic turbulence is the new normal. And if the ups and downs have you wondering what the future holds, it’s a good news/bad news/good news story.
The good news: Economists predict that during the next three years — 2015, 2016, 2017 — we’ll see solid economic growth.
The bad news: That growth won’t last. For various reasons, chief among them the aging population and the entitlement programs tied to aging, our current system is not viable. In fact, if serious changes aren’t made, the U.S. economy could plunge into another Great Depression during the 2030s.
The other good news: You, personally, don’t have to go down with the ship. The U.S. economy is huge, and there is an amazing amount of maneuvering room on a microeconomic level. While it may be extremely difficult or impossible to alter some of the demographic and entitlement spending trends as we head toward 2030, it is very possible for us as individuals to take action to safeguard our family’s financial well-being.
The following explains who will be the winners and who will be the losers in the coming Great Depression.
The Winners
• People who save or contribute to their 401(k)s. People of every demographic who create an effective combination of saving and investing will be better prepared for the coming Great Depression than those who don’t. The savers/investors will be able to augment government retirement and medical program costs to maintain a reasonable standard of living. Saving alone won’t do the trick because inflation will eat into the value of the dollar ($1 in 2030 will buy a lot less than $1 can buy in 2014).
• Businesses that focus on countries or regions with comparatively young populations. Whether a business focuses only on the next year or the next 10 years, expending capital and energy in China may make sense. However, if a firm is looking further down the road for the better growth percentages, it will have to turn to where there is an expanding middle class, not a shrinking middle class. Those countries with inverted people pyramids are not the ones where middle-class expansion will organically occur.
• Firms that are gearing efforts toward the Latino and Hispanic segment of the population. The Hispanic community in 2005 constituted 14 percent of the U.S. population; whites constituted 67 percent. By 2030, Hispanics will account for 29 percent of the total population, and whites will be at 47 percent. There is a tremendous surge of Hispanic culture, language, and needs coming our way that successful businesses will pay attention to if they want to gain market share and enjoy relative prosperity, even during the coming Great Depression. African Americans will be relatively constant at 13 percent of the population (same as 2005), and the Asian population will grow to 9 percent of the total from 5 percent in 2005.
• Firms that develop niche products and services dealing with the elderly. (Keep in mind this slice of the pie will stop growing in the 2030-2040 decade.) Be it independent living facilities, skilled nursing homes, special dietary needs, personal care requirements, travel needs, entertainment, or whatever you can think of (the list goes on and on), catering to the needs of those 65 and older will be a growth industry between now and 2030. In the United States, the market will cease to grow as a percentage of the whole population after 2030, so expect pricing to become more competitive and the field to become more crowded beginning in the Great Depression of the 2030s. Turning to older populations outside the United States will also prove to be a winning strategy.
The Losers
• Generation Y (born 1981–2000). Our concern for generation Y regarding the 2030s depression is twofold. One, it is going to have to care for a disproportionately large elderly population. This is both costly (financially and emotionally) and time-consuming. Two, it will be entering its peak earning years around the time the United States and the rest of the globe is slipping into what looks to be a decade-long depression. Unless Generation Y is especially prepared, it will become the economically lost generation.
One remedy for the coming financial troubles is for the retirement age to be increased. We are healthy enough to work longer, and we may need to because most Americans are not financially prepared for retirement. If people are financially encouraged to work longer, they are less dependent upon the economy, and the government is in a position where it does not need to support them. The economic solution seems clear, but no doubt it will be extremely difficult to achieve politically. That’s because the elderly vote in such high numbers.
One of the ways that the younger generations can save themselves is to increase their voter participation. The elderly vote in higher numbers as a group than the 20- to 39-year-olds do. Politicians want to be reelected. The younger voters are going to need to give politicians a reason to make the logical economic choice of raising the retirement age enough to avert the financial stress that’s going to fall on their shoulders.
• People 65 and older who haven’t created a nest egg. There is a coming stress point where retirement and medical benefits will be reduced, be delayed, or cost more. Any way you look at it, people who are relying on the system to provide for them in their elder years are likely to experience a significant drop in their standard of living. That will be especially true for people who will be reaching retirement age during the 2030s. If they haven’t put away a sufficient nest egg, then they will find themselves in financial trouble. There simply won’t be a social safety net to keep them afloat.
The good news is it seems people are putting more money into their nest eggs. The median income for people aged 65 and older in 2011 was $19,939. That doesn’t seem like much but it is actually up 10.9 percent from 10 years earlier (adjusted for inflation.) So it does seem that people are getting the message about needing to take care of themselves and not relying on Social Security. And we think this trend toward higher inflation-adjusted incomes provides maneuvering room for altering benefits in the future. But for now, people in general depend on Social Security.
• Incumbent politicians. The political choices that face us between now and 2030 are going to range from painful to dangerous. In the end, doing the economically right thing is not likely to win votes for reelection. Additionally, anyone in office as we head into a Great Depression is going to have a difficult time justifying why they should be reelected. Politics as a career between the years 2025 and 2034 is something generation Y should avoid if it is going to try to earn a consistent wage during the depression.
• Taxpayers. Reduce benefits or raise taxes will be the primary choices confronting politicians. The path of least resistance will be to increase taxes on the rich. That is an interesting concept because politicians will get to decide who the rich are. Most likely they will construe the rich as those with higher incomes or with substantial assets. The rich today pay most of the taxes the government receives. Get ready to pony up even more money in the future.
There are turbulent years ahead, but if we can weather them, there will be calmer waters on the other side. Looking past the Great Depression of the 2030s, the U.S. will be in a relatively good position. Our dependency ratio will have leveled off, and our younger population will be growing. That said, it is important for individuals to take steps now to set themselves up for the coming hard times they may endure during the depression. HBM
Brian Beaulieu is an economist, principal, and CEO with ITR® Economics. At ITR, Brian has been leading the charge in applied research regarding business cycle trend analysis and the utilization of that research at a practical business level. Alan Beaulieu is a principal and the president of ITR® Economics. Alan is also the senior economic advisor to a variety of U.S. and European trade associations. Their book, Prosperity in the Age of Decline: How to Lead Your Business and Preserve Wealth Through the Coming Business Cycles (Wiley, 2014, ISBN: 978-1-118-80989-1, $30.00) is available at bookstores nationwide, from major online booksellers, and direct from the publisher by calling 800-225-5945. In Canada, call 800-567-4797. Visit the book’s page on www.wiley.com.
