The demographic roots of the recession

In the immortal words of George H.W. Bush, the American economy is "in deep
doo-doo". But why? There’s no simple answer, of course, but remarkably few
people have taken a long-term view and examined the demographic background to
the recession. That’s why "Demographics &
, by First Thing’s associate editor David P. Goldman is essential

Here’s his argument in a nutshell.

"The declining demographics of the traditional American family raise a dismal
possibility: Perhaps the world is poorer now because the present generation did
not bother to rear a new generation. All else is bookkeeping and ultimately
trivial. This unwelcome and unprecedented change underlies the present global
economic crisis. We are grayer, and less fecund, and as a result we are poorer,
and will get poorer still—no matter what economic policies we put in

Housing is one of the main pillars of the economy. In the early 70s most of
American housing was occupied by traditional families of two parents and their
children. The younger demographic profile of the US also supported a robust
economy. However, in the 80s, despite the apparent triumph of Reagan-led
conservatism, family size kept shrinking and families kept disintegrating.
Nowadays, the two-parent family with children is becoming a niche demographic.
This has had immense financial implications.

Why? Because housing has doubled since the 70s, even though the number of
traditional families stayed about the same. The new homes are occupied by single
parents or singles. So for a generation, the US has built up a huge surplus of
large-lot single family homes.

"Demand for large-lot single family homes... will slump from 56 million today
to 34 million in 2025—a reduction of 40 percent. There never will be a housing
price recovery in many parts of the country. Huge tracts will become uninhabited
except by vandals and rodents."

In any other country, this situation would have been unsustainable, but the
immense productivity of the US because of its stable and skilled workforce made
it a magnet for the world’s capital. Thus Americans were awash with cheap money
from ageing Europeans and Japanese, and lately from China.

Now, however, overseas investors may start investing elsewhere – in countries
with a younger and more dynamic workforce, like India or China. Americans should
prepare for a poorer future in which they have to work harder, for longer, for
lower wages.

"It was always morally wrong for conservatives to attempt to segregate the
emotionally charged issues of public morals from the conservative growth agenda.
We know now that it was also incompetent from a purely economic point of view.
Without life, there is no wealth; without families, there is no economic future.
The value of future income streams traded in capital markets will fall in
accordance with our impoverished demography. We cannot pursue the acquisition of
wealth and the provision of upward mobility except through the reconquest of the
American polity on behalf of the American family."

What should be the weapons of the Reconquista? Goldman offers several
financial strategies to bolster American families, on the assumption that they
are the bedrock of the US economy: cut taxes on families, Shift part of the
burden of social insurance to the childless, make child-related expenses tax
deductible and change immigration laws to welcome skilled migrants. There’s
nothing dramatically new here, but he hopes that the financial crisis will help
people to focus more clearly on the problem.

"American voters may be more disposed to consider fundamental problems than
they have been for several generations. The message that our children are our
wealth, and that families are its custodian, might resonate all the more
strongly for the manifest failure of the alternatives."

Goldman’s article is stronger on economic analysis than on healing the
culture. But it is a start. His ideas need to be spread far and wide. ~ hat tip
to Eamonn Keane


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