Economic Factor #5: Demographics

  • March 29, 2017

    I think that the Baby Boom generation demonstrated the power of demographics to alter the path of an economy. As that population bubble worked its way through time, its effects can be measured. Schools boomed in the 50s, higher education boomed in the 60s and I believe that part of the economic boom of the 80s and 90s can be attributed to the huge increase in the demand of baby boomers for housing, automobiles and other goods.

    Economists rarely discuss this, but I believe that immigration has been a huge economic driver for the U.S. economy – most clearly in the demand for housing. Growth begets growth. Massive population increases from immigration create demand for housing and other goods. Increased demand for housing and other goods create jobs and profits that inevitably lead to more consumer demand and more growth. Gold rushes throughout U.S. history reveal the incredible surges in wealth and income that accompany a major influx of ambitious people.

    Rates of immigration into the US over the last two centuries have generally coincided with current and subsequent economic growth. In the last two to three decades, legal immigration has averaged a little over 1 million people per year. Imagine the stimulating effect of all those immigrants on the demand for housing and the goods and services offered by local businesses. It is quite noteworthy that illegal immigration peaked in March of 2007, about four months prior to the first financial market warning signs of the housing market crash that led to the huge financial crisis of 2008.

    We can observe how growth begets growth when people pour into areas of hot economic activity. But immigration can also damage an economy when the economy does not have the institutions to encourage those immigrants to join in wealth-creating endeavors.

    Importance of factor in general: B+

    Prospective influence of this factor on the U.S. economy: B

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