Tuesday, August 16, 2011

Is the United States Still a Good Bet?

A recent article in the Los Angeles Times noted that U.S. companies "are beginning to give up on the American consumer as a source of future growth." Are businesses right to give up on us? Is the United States still a good bet? Let's look at the pros and cons from a demographic perspective.

NO. The United States is so yesterday.
1. Our population growth is slowing. For the next few decades, most of the increase will be among people aged 65 or older.
2. A new baby bust means there is little prospect for renewed growth in the United States for the foreseeable future.
3. Household spending peaked in 2006 and has fallen 5 percent since then, after adjusting for inflation. This decline is likely to continue as households pay down their debt and adjust to lower incomes.

It sure looks hopeless. But wait, there's more...

YES. The United States is a good bet for tomorrow.
1. There are nearly 312 million Americans, making us the third largest country in the world. Not to mention the fact that we are also the richest--still.
2. There is plenty of potential growth in the United States consumer market. To tap into it requires imagination and leadership, however. Although household spending peaked in 2006, Americans have been spending lavishly since then on a range of products and services. Average household spending on pets climbed 61 percent between 2006 and 2009, after adjusting for inflation. Spending on lighting fixtures climbed 59 percent as households replaced their incandescent bulbs with compact fluorescents. Internet service spending rose 35 percent, cell phone service spending 28 percent, telephone hardware spending 29 percent, video game spending 47 percent--all during the darkest days of the Great Recession. Household spending patterns are changing, creating opportunity for forward-looking companies.
3. This too shall pass. Our current problems are temporary, a convulsion of the economy--and politics--caused by the Internet.

So is it Yes or No? For the next few decades, there is only one obstacle that stands in the way of Yes: the older generations. This is blasphemy, I know. For years we have been told how great the older generations are. They were great in their day, but that day is over, brought to a close by the Internet revolution. Yet we remain in their grip. The U.S. population is older today than ever before, and growing older by the day. Fifty-nine percent of household wealth is controlled by householders aged 55 or older--a record high and certain to climb as the entire baby-boom generation fills the older age groups.  

Because older Americans control the money, they also control the politics. The politicians are doing their bidding by protecting the status quo--the pre-Internet world in which boomers and older generations grew up. This explains our political paralysis and why we are arguing over issues long ago settled in the minds of younger adults. Politically, we are trapped in the old economy, an economy where airline passengers are still being instructed on how to fasten their seat belts, where politicians try to keep us from switching to more efficient light bulbs, and where health insurance coverage for birth control is still controversial. We are trapped in the old economy because the generations that are in control the purse strings cannot conceive of the radical new world of opportunity created by the Internet.

Just because older generations are saying No doesn't mean you can't say Yes. The recipe for growth in the United States is threefold: hire the young, follow the Internet, and use your imagination.

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