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Factors Slowing Growth After 2000 - Demographics

 
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PostPosted: Mon Jul 14, 2014 4:33 am    Post subject: Factors Slowing Growth After 2000 - Demographics Reply with quote

PeakTrader:

There may be several major reasons why GDP growth has been weaker after 2000.

1. U.S. firms have more market power, after the quick and massive creative-destruction process, mostly from 2000-02. So, rather than prices falling, profits rose, e.g. in Information-Age and Biotech Revolution products, including internet services, iPhones, cell phone services, new drugs, etc..

2. More regulations (federal and state), which are regressive, have driven-up the cost of living. So, there’s less to spend on everything else.

3. More taxes, fees, fines, fares, tolls, etc., by state and local governments, much of which are regressive.

4. Higher gasoline prices, from the oil shock and Peak Oil, is a tax on consumption.

5. Imports became increasingly cheaper. So, there was likely some shift from domestic goods to foreign goods.

6. Slow low-income wage growth (raising the minimum wage may be a pro-growth policy).

The U.S. has bridged much of the low-income and high-consumption gap with debt.

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Moreover, demographic shifts had an effect on GDP growth. However, some “Baby-Boomers” worked longer and harder, because they saved too little or borrowed too much, which adds to economic growth, while some Baby-Boomers were able to retire early, because of the spectacular 1982-00 structural bull market, which subtracts from growth. “Prime-age” workers are between 35-54 (the second most productive group is 55-64, based on education, training, and experience). The 80 million Baby-Boomers, born between 1946-64, began to enter prime-age roughly in 1982 and began to leave prime-age roughly in 2000. I suspect, when the last of the Baby-Boomers reach 65 in 2029, there will be another economic slowdown, or depression, in part, because they’ll consume much more than produce.

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Another demographic shift was massive immigration of low-skilled workers from dirt poor countries, while much of the domestic “middle class” rose into the “upper middle class.” So, there’s more income and wealth inequality. Those immigrant workers, in general, are underpaid (paid less than their productivity), while federal, and some state, tax rates were raised on the affluent (which, along with regulations, may be a disincentive to work or start a business), or became more progressive (where low-income workers receive more tax credits).

Rising riches: 1 in 5 in U.S. reaches affluence
December 6, 2013

“New research suggests that affluent Americans are more numerous than government data depict, encompassing 21% of working-age adults for at least a year by the time they turn 60. That proportion has more than doubled since 1979.

Sometimes referred to by marketers as the “mass affluent,” the new rich make up roughly 25 million U.S. households and account for nearly 40% of total U.S. consumer spending.

In 2012, the top 20% of U.S. households took home a record 51% of the nation’s income. The median income of this group is more than $150,000.

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Growth in the
Residential Segregation
of Families by Income,
1970-2009

“The proportion of families living in affluent neighborhoods doubled from 7 percent in 1970 to 14 percent in 2007.

Likewise, the proportion of families in poor neighborhoods doubled from 8 percent to 17 percent over the same period.”

My comment:

In 1970, the proportion of Americans in the “affluent” and “upper income” classes, and also in the “low income” and “poor” classes were relatively small, while the proportion of Americans in the “high middle income” and “low middle income” classes were very large.

If you break down those six classes into three classes, the high and low classes grew and the middle class shrunk. Those three categories are almost equal in size today.

In 1970, both the high and low classes were about 18% each, while the middle class was over 60%. In 2007, both the high and low classes were about 30% each, while the middle class was over 40%.

Many middle class Americans moved into the higher classes, while many immigrants from dirt poor countries moved to the U.S. and into the lower classes.

Despite conventional wisdom, there has been tremendous upward income mobility in the U.S..

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