Demographics Explain Practically Everything

If you were a pundit who had to answer every Big Question about politics and economics with the same four-word explanation, what would it be?

Some TV regulars do quite well already with "Taxes are too high," or "I blame Ben Bernanke," or "It's all W.'s fault." It's useful for professional speakers to know more than four words, but if I were playing along, I might go with this: "First, look at demographics."

This answer would do sensationally well for diagnosing President Obama's big electoral victory, where he took women and minorities by historic margins but lost the white male vote by double-digits. Outside of politics, it's even more consistently useful. What's behind health care prices? First, look at demographics: An aging world is driving medical inflation around the globe, in health care systems of all varieties. Why have the last three recoveries been so slow? First, look at demographics: Since women maxed out their own labor-force participation rate, our overall worker-participation ratio has gone flat and started to fall, which hurt our ability to recover quickly from downturns.

We're now in the midst of a great graying of America, where companies that cater to the elderly could see faster-growing opportunities than those that cater to the young. Here's a look at the very, very, long trend: 1950-2050.

Screen Shot 2012-11-26 at 3.07.00 PM.png
With demographics at top of mind, consider this collection of "spending graphs" via Business Insider that show average spending on more than 30 categories, from underwear to women's dresses. Here are four that struck me, especially:


Why these four graphs? (1) Cars and (2) Houses -- for which I'm using "living room chairs" as a stretch/reasonable proxy -- power recoveries. Together they accounted for half of economic growth during the 1970s recoveries; one-third of economic growth during the 1981 recovery; and only one-tenth of the latest recovery. Why is this recovery different from all others? Demographics, of course. New car sales rely on a burst of activity from 20somethings. Twentysomethings were the hardest hit demographic in the country, with the highest unemployment and worst income drop on top of student debt.

The most important economic story of the next generation is health care. You can get a good feel for why costs and employment in the medical industry are rising in graphs (3) and (4), respectively. As the Boomer generation moves right along the X-Axis of Life, national spending on drugs will boom along with demand for personal health aides. As health care adds more people (as other industries, like retail, make do with fewer), costs will rise faster than inflation, putting pressure on the government's ability to pay for our seniors' care from a smaller base of taxpayers.

In short, there is no four-word explanation of the world. But you could do much worse than starting from demographics every time.