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The Demographic Cliff: How to Survive and Prosper During the Great Deflation Ahead Paperback – August 25, 2015
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Throughout his long career as an economic forecaster, Harry Dent has relied on a not-sosecret weapon: demographics. He can explain why our economy has risen and fallen with the peak spending of generations, and why we now face a growing demographic cliff with the accelerating retirement of the Baby Boomers around the world.
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The author forecasts for the global economy with a focus on implications for America, particularly as we scrape through the current fiscal mess with 77 million baby boomers on the verge of entering what they thought would be their golden years. Dent does not spend time opining as to the root causes as to why demographic pressures have come to bear, be they social, political, religious or other normative variations, but he makes a detailed analysis of the alarming ice berg approaching world economies. Simply put, the birth rates of the most developed economies are being outstripped by their multiplying elderly population, and this will make for a smaller work force, less productivity and catastrophic economic impact that no population is prepared to accept. Everything from anticipated amounts that young consumers spend to the age at which they expect to retire is about to get a major readjustment, like it or not. He even claims that in Japan, adult diapers are outselling infant diapers. In another, he claims research shows that 35% of young Japanese men are no longer interested in sex out of paranoia of getting their wives/girlfriends pregnant and raising a child they cannot afford. I guess condoms are super-expensive in Japan nowadays. Um, ok; we get it, Harry, but unless that statistic can be backed up somehow it's really unnecessary and reeks of hyperbole.
One of my favorite takeaways from the book: "when dyers outnumber buyers" refers to his warning that this is the first time in the developed world that a smaller generation will be following a larger generation. Not sure if this is the first time in every case, but it is generally correct. And as Dent warns throughout the book, if we expect China to save the US from certain demise, think again - they face similar constraints, monetary policy troubles and unique population constraints.
I would argue that although this is true, China and other countries with strong central control have the advantage of being able to change course dramatically much more quickly than any Western democracy. Need to get rid of a few hundred thousand government workers and re-vamp your tax code? Good luck getting that past a Congressional sub-committee in the US, but in China it's a done deal - we'll have those offices cleared out in a week. It could be argued that the Western governments will exploit any such crisis just as eagerly, but the expectations of the Western populations are far in excess of that of the average Chinese factory worker or peasant. Regardless, Dent is correct that the USA can't expect another economy to save it from itself.
He details "spending waves" taken from US census data, again interesting but not entirely surprising, especially if you are wont to read books of this genre. The pig through the python concept has long been known to marketers and social planners alike for decades, yet even with this information we're headed to the demographic cliff, economically, absent major political intervention. Alas, an elected politician won't change what the voters don't want him to change.
The one part of the book where many people will disagree is the authors characterization of inflation - he says (with apologies to Milton Friedman), that it is not about monetary policy, but it is about people. He essentially argues that inflation is defined by rising prices, and rising prices are caused by young people, who spend more than older people. I don't want to go too far down this path, but rising prices are a symptom of inflation, not inflation itself. The prices rise because the value of the currency changes, which is a direct result of monetary policy (so, in that sense, it IS about people - the people making the monetary policy. Ok, let the flame wars begin...).
While I enjoyed his research, I found him conflicting himself in some areas. For example, he details how the entitlement systems of developed nations are so out of hand that they will eventually crush the productivity and wealth potential of smaller working populations and die unfunded. Yet later in the book, he suggests that countries adopt Scandinavian-like policies of guaranteeing mothers even more ample benefits for child rearing, to include financial incentives and time off. Never mind that the Scandinavian countries already can't afford to continue to finance existing programs with their incredibly high tax rates, they are under increasing pressure from freebie-seeking third world immigrants desiring to take full, life time advantage of something never really intended to be a come one, come all give-away.
Should the US and other countries already add to their unfunded liabilities even more, it is not clear how this will improve overall economic picture, notwithstanding debates over what's fair or what ought to be. Dent does not consider the possibility that some mothers in Scandinavia would rather not have to work at all during child rearing years yet there and elsewhere many are forced to because of the onerous economic and tax situation created when governments start guaranteeing something for "free" to the population at large. Exploring this angle would drift the scope of the narrative too close to a debate on feminism and broader social policy, so Dent assiduously avoids it, leaving the contradiction in his points for the reader to resolve.
But surely, if you have gone so far as to read a review on this book, you are among those well aware of the demographic cliff in real time, and maybe you've got your own way to prepare for its imminent arrival. So why pay attention to any of this? Dent claims that with this warning and the right information, you can make a fortune. I haven't back-tested any of his prior claims, but the minute someone starts offering me predictions, I usually reach for my wallet to make sure I'm not being had. That said, I am always open for new ideas on planning for the future, even if I don't expect to be burying gold bars in my back yard.