What I’m telling my two daughters about the economy

Kathi and I have two daughters.  Like all parents we are very proud of them.  Kaitlin graduated from Lewis & Clark College last year and Kristen is a senior at UCLA.  At last year’s graduation, I had the opportunity to sit down with them and talk about life after college.  I thought it would be important for them to know what they faced, why, and what the future would hold for them.  Many graduates are having a hard time finding jobs in their fields.  You probably know some of them.  Not a surprise given the slowness of the recovery from the economic melt down of 2008 – 2009.  Here is what I told them.

Hardly anyone understands what is causing the state of the economy but it is quite simple.  Actually, I believe that all economics is quite simple but economists confuse us with their special language and statistics.  The economy is not recovering well enough to create the jobs that are required.  This is because we are going through a demographic hole.  A demographic hole is created when a large generation (baby boomers) cools off their spending and the next generation (generation X they are called) is a smaller group.  You see, people follow a pretty predictable economic pattern when viewed as a large group.  When we are young and carefree, we spend money (what little we may have) on consumables like food and beer (or wine here).  As we start to form a household, around age 27 or so, we accumulate things like housing and children.  That’s when we start to impact the economy and begin to create economic growth.  Well, as baby boomers,which was a large group, we did it in a big way. Naturally, that made the economy expand.  Now it is the turn of the generation X crowd to do the same and indeed they are.  But there is a problem.

Generation X (ages 30 to 45 or so) is a smaller group than the baby boomers.  About 12 million fewer! That means there are fewer customers to buy stuff.  That is the reason the economy is not recovering very fast, if at all.  Let me repeat that.  Not as many customers!  Sounds depressing because there is nothing anyone or any policy can do to change that.  It may even get worse.  That’s the bad news.  But I told my daughters do not despair.  Just understand that we will not recover for a while so relax and work on what will become the next advancing economy.  You see, their generation (the millennial, or generation Y) is actually a bigger generation than the large baby boom generation was.  To prepare for that next large wave of economic growth, I told them to pay attention to the needs and desires of their own generation.  Sell them what they want or need and you will have 20 years of good economic times!  Patience.

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