Productivity Trumps Demographics

Demographics are components in future economic forecasts. So naturally, baby boomers are a hot topic while discussing business, particularly economics. Economics predicted that savings will increase as baby boomers near retirement. They have also forecasted that housing demand would decline. Both of these assumptions have been wrong and chief economist Michael Mandel may have the answer to why.

Mandel states that demographics aren’t the dominate factor; instead it is growth, productivity, and income that have been taking the lead. Mandel also believes that it will stay that way unless there is a decline in productivity growth. Of course baby boomers will still have an impact on the economy, but the change will be spread out through so many years that the impact can be neutralized. The catch is that this will only happen if productivity continues to grow at current rates. Will productivity decline when the baby boomers retire? Perhaps. If there is a slowdown in productivity growth, demographic shifts may become larger. Mandel has a feasible solution to this economic dilemma: Focus on technological advancement (to increase productivity growth) and it will neutralize the demographic effects.

1 comment:

Dr. Tufte said...

Very interesting.

This seems reasonable to me. The only thing that I would add is that demographic explanations usually involve shifts from one thing to another (housing to savings), while productivity growth will tend to push both of those along. So, we should still be seeing housing being relatively weaker, even if it is going strong. I'm not sure I'd agree with that, so I'm a little bit guarded about this argument.

P.S. Is Michael Mandel chief economist of something, or does being chief economist just mean he wears a feathered headdress ;)