Crash Course Chapter 15: Demographics

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One of the great challenges that much of the developed world faces is demographics – the age structure of their populations does not align very well with entitlement and pension programs, or the idea of financial asset markets climbing ever higher.

To begin, recall that the US government has not funded any of its entitlement programs. As we calculated, it has a massive shortfall in them measuring in the tens of trillions of dollars.

From as “little” as $55 trillion according to the Treasury Department, or as much as $220 trillion according to Boston University’s Laurence Kotlikoff.

The situation we find ourselves in was largely inevitable because our entitlement programs are actually wealth transfer programs, not savings accounts, and they depend on a significant surplus of current workers to retirees.

The shortfalls in these programs are being exacerbated by a troubling trend.  In  1950 there were seven workers per retiree and the system was more or less in balance.

By 2005, that ratio had dropped to only 5 to 1 and the system was already exhibiting signs of distress.

By 2030 that ratio will have plummeted to a thoroughly unworkable value of less than 3 to 1.

These predictions are not hard to make, nor are they very disputable. They’re made using simple math based on the so-called ‘Baby Boom’ that occurred after WW2.

This is a demographic chart of the United States. Each bar represents a clustering of all the people who are within a five year wide ‘age window’ as seen on the left axis, and shows how many millions of them there are along the bottom axis.

The baby boomers number around 75 million strong and roughly occupy these four bands.

While it may not seem like much, the ‘hole’ that exists in the population behind the baby boomers represents an enormous challenge – in fact, we can call it a threat — to our entitlement programs.

This hole will greatly complicate our efforts to resolve our levels of debt and address our national failure to save.

If we cast back to the year 1900, we can see a more ‘normal’ population distribution.

It resembles the kind of distribution that humans evolved with over countless millennia; and it looks like this:  A pyramid.

Again, this shows five-year wide age brackets, with men in red and women in yellow.

This distribution is capable of supporting an entitlement program such as the one in the US that is based on transferring wealth directly from current workers to retirees.

But when we cast this chart forward to 2000, the baby boomer bulge is quite apparent.

Besides the challenge that this demographic imbalance offers to our entitlement programs, an even larger challenge is presented to both the debt and savings issues I painted in previous chapters, and even to the value of our assets.

Here’s what I mean.

The boomers are the wealthiest generation ever, they hold nearly all of the assets, and they will need to dispose of those assets to fund their retirements.

Who exactly are the boomers planning on selling their assets to?  This guy?

Even if Gen-X and the millennial generations somehow had robust savings – which they don’t — there simply aren’t enough people within these generations to buy all that the boomers currently own – at least not at anywhere near today’s market prices.

So, in order to fund their retirement dreams, boomers are going to have to find buyers for their assets.  And again we might wonder “to whom” exactly?

And lastly, as we’ve discussed thorough in early chapters, the massive accumulation of debt over the past 23 years is predicated on the assumption that the future will be much larger than the present.

How exactly will that come to pass if boomers are retiring en masse and there are fewer behind them to take their place?

Man…the next generation better be prepared to work really, really hard!  Too bad they are graduating with the highest levels of college debt ever recorded.

And too bad the boomers – many of whom have not saved enough to retire — are hanging onto their jobs for dear life, competing against the very people that they hope will someday buy all of their financial and real estate assets from them.

In fact, the over 55 crowd has not only weathered the Great Recession without any job losses, it gained 4 million jobs over the past 5 years.

That means that the over 55 crowd has taken over half of all new jobs that have been created since the recovery in the job market beginning in early 2010.

After we subtract the over 55 crowd, just 3 million jobs were taken by those younger than 55 over the same time period.

The reason this really matters is that people typically hit their peak earning years between the ages of 35 and 55.

To the extent that boomers are hanging onto their jobs, and almost certainly they are doing this for very understandable economic and financial reasons if not desperate necessity, we might anticipate that younger folks who should be in their peak earning years are unable to hit their own stride,

It’s a simple story of competition. In this case, between generations.

Again, the point to be reinforced here is that financial assets go up in price when there are more buyers than sellers – a case that was true for the boomer bulge between the years 1988 and 2001.

Boomers hit their stride, took their earnings and bought stocks and bonds, and – voila! — we had bull markets in both stocks and bonds the entire time.

Of course, the math works the same in the other direction, as well.

Prices go down when there are more sellers than buyers which, given the sheer number of baby boomers entering their senior years and needing to liquidate savings for living expenses, virtually guarantees there will be a glut of sellers in the market for the next couple of decades.

This harsh math is compounded by the other additional factors locking younger generations out of the job market, such as outsourcing and automation.

Younger workers – the ones who are supposed to pony up for all the assets the boomers need to sell – are being forced to settle for a worse job market, with fewer jobs and lower real wages than their predecessors enjoyed. This is not a recipe for prosperity for either generation.

And this demographic friction will be with us for decades to come. It cannot be wished away or fixed by some new policy.

It is simply a fact of life and one that we’d do well to recognize and plan for rather than ignore.

10,000 baby boomers reach retirement age every day. And this pool of aging seniors the will accelerate rapidly over the next 15 years – in fact, its influence has already begun making the twenty-teens quite interesting.

This new reality is one of the central reasons I predict the next 20 years will be completely unlike the last.

Please join me for the next chapter: A National Failure to Save & Invest.

Thank you for listening.


  • Wed, Jan 27, 2016 - 10:14pm



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    You basically just said that

    You basically just said that people who have been working for under 5 years haven't accumulated as much wealth as people who are about to retire, and therefore they will never be trying to accumulate wealth in assets that they buy 'from' Boomers?Isn't the opposite the case?

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  • Mon, Apr 11, 2016 - 12:10pm



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    I think you are missing one thing

    When someone hangs on the to the job longer it will not make less jobs available to someone younger. The younger person will probably not be offered that job anyway. When someone gets a job there will not be one less job on the market.Rather the opposite is true. People who are working is also creating more jobs. Especially experienced workforce has a larger tendency to generate more jobs.
    That people work longer will also shift the demographic. The peek earning will span to a higher age making the calculation more positive.
    The part about automation will also make it possible for 1 people to produce what 10 people could a generation ago (or more). Making it very possible to support the fact that a larger part of the population do not produce anything. Its rather a matter of dividing the resources.

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  • Fri, Feb 07, 2020 - 6:48am



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    To whom will boomers sell to?

    The idea that boomers need to sell some of their stocks and bonds to finance their retirement makes sense, but Jeremy Siegel, a well-known academic, makes the case in his book Stocks for the Long Run (chapter 4), that as long as developing countries continue to grow their GDPs as a proportion of world GDP, most of the financial assets that western boomers sell will end up in the hands of developing world workers, who are younger and will be accumulating assets for retirement. There is a global market for US stocks, it's not restricted to US citizens.

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  • Sun, Apr 05, 2020 - 8:13am



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    So what happens to that graph in the event of a world wide disaster?

    What happens to that graph, if a natural disaster happens like a world wide respiratory disease kills 80% of everyone over the age of 60 over a period of 3 years in 5 waves.  The second wave being the deadliest which re-surges in the middle of winter...

    Then also balance that with a fierce nationalistic redistribution of jobs inside each country as laws are passed to make outsourcing illegal, as a threat to national security.

    Wouldn't reverse-globalization of jobs, actually create more jobs inside each country?  While at the same time, a deadly worldwide pandemic sadly removes a significant portion of people who would have been expecting to collect social security.

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  • Sun, Apr 05, 2020 - 10:23am



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    Re: So what happens to that graph in the event of a world wide disaster?

    Certainly an interesting question - I guess we're about to see.  At the moment, it doesn't look like the virus is quite as specific to older people as first thought.  The last few charts I've seen seem to indicate the 40-59 range is almost as badly hit.  But in any case, this will be a mixed example, because the world GDP had already slowed to close to flat, and debt had sky-rocketed, which was going to cause much of the pain indicated in Chris' description anyway.  The boomers will probably have to sit it out without the "dream retirement" they were constantly encouraged to imagine for themselves, and their following generations will inherit whatever they still had.  And maybe not assume that it's ok to keep impaired life going indefinitely at no matter what cost.

    Jobs is another huge problem where we seem to be barreling off into another unsustainable direction, "just because we can", with AI and robotics.

    Speaking as one of the inadvertently "lucky" early boomers, I had too much family history in the depression and world wars to buy into the idea that life was my oyster.  And now that we are in our 70s, not wealthy but comfortable, we pour our time into volunteer community work to keep services going that would otherwise die, because the younger people have to work for decent pay at this stage in their lives.  And try to live by the maxim of a dear, much older friend, a doctor who died in her late 80s while still serving as an unpaid locum in under-served rural areas - "What's money?  It's just like manure - no good at all unless you spread it around, helping young things to grow."

    I can only hope that some of the post-great-depression and WWII idealism that gave us social security and decent healthcare (except in the US) will arise again out of these current crises.


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  • Sun, Apr 05, 2020 - 11:02am


    Beckett Bennett

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    “What’s money?  It’s just like manure – no good at all unless you spread it around, helping young things to grow.”

    Great quote, thanks!


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  • Sat, Oct 23, 2021 - 2:43am



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    Excuse me, but I really dont understand the comment of "Even if Gen-X and the millennial generations somehow had robust savings – which they don’t — there simply aren’t enough people within these generations to buy all that the boomers currently own ---at least not at anywhere near today’s market prices."

    UM, Baby Boomers are going to die eventually, and then it would be preceding generations that would inherit that wealth.
    That is how Inheritance works. You dont buy anything

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  • Sat, Oct 23, 2021 - 5:24am



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    If the younger ones stopped pissing away their money on vacations and smart phones...

    I don't buy this "poor little youngsters" crap. The economies of nations fluctuate naturally; people still accumulate wealth. Just because it's not all rainbows and unicorns don't wimp out. Everyone didn't live in the streets from the 1930's Great Depression. Terrible while occurring, but people recovered and saved after. Does inflation hurt...absolutely, but usually it's not constant. Learn to stop spending. Delay gratification. Work while you're young and you will acquire money over time.

    "But I can't get a fulfilling job..."
    First either get training in a trade while still in HS, and then you have a guaranteed job; or go to technical/professional school that requires certification to work in a profession. Degrees in international business (having never had a job or internship) or women's studies won't pay your loans or the rent That's not a boomer's fault; it's yours.

    Take any job while you look for the "real one." If you're too proud to work at McDonalds or stock shelves, shut up. I'll pick up carrion off the highway for the county if I have to to eat.

    "Owning a home is out of reach?"Not if you get a small fixer upper in the older neighborhood. Deals are out there where the house payment is lower than rent. It won't be move in ready or beautiful, but if it's sound who cares. Sleep on the floor on a won't kill you. When my spouse and I started, we had a couch, a chair, a mattress, and a table...that's it, and that's with 2 people working. Your lack of proper prior planning yielded the inevitable piss poor performance. Not my fault or responsibility to enable you.

    Sick of getting the "oh it's an old person from the '50s...gonna go boom?" Reply
    "If I go 'boom' someone will know about it, because there will be a pause when I'm reloading."

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