Tuesday, March 3, 2009

Retiring Boomers Sending Economy Into "The Big Chill"

Ah the baby boomers, it doesn't quite seem appropriate to use the adjective "baby" in describing this generation any longer. Not when they're now hitting retirement age, drawing down on their RRSPs and collecting CPP. Boomers are the elephants in the room, their reach in the marketplace has always extended far and deep. They're the reason the radio dial is still cluttered with 'oldies' stations and they've also been the impetus for such TV shows as 'The Wonder Years' and 'That 70's Show'.

It goes beyond culture however, we see their footprints all over the economy of the past 40 - 50 years. Back in the very early 70s when boomers first started driving, OPEC decided to shut off the taps, taking advantage of the increased demand for oil and gas to send prices soaring. In the United States line ups at gas stations were common, with rationing taking place in some locations. The VW "Bug" was everywhere, driven by cost conscious teenagers in need of cheap transportation. I'm talking about the original Bug of the late 60s and early 70s, not the 90s version which was hardly cheap at all...VW cashing in on boomers looking to recapture their lost youth.

As the 70s came to a close vacancy rates for apartments hit near zero levels, with the boom generation moved away from home and into their own digs. In Toronto sharpies calling themselves apartment brokers took advantage of this situation by charging "key fees" to prospective tenants. Though illegal the practice became common place. "Want an apartment? No problemo, it'll just cost you $1,000 and I' can put you into a nice little one bedroom job close to downtown".

As we headed into the 80s the "me generation" started buying houses, causing a huge bubble in the real estate market. With demand for mortgages hitting record levels interest rates reached unheard of heights, 20% and up wasn't uncommon. People stopped buying homes, instead they were shopping for mortgages. A re-sale home with a portable mortgage around 12% was a hot commodity, even if the place was a dump. If you couldn't port an attractive mortgage rate on the house you wanted to sell...you were in for a long wait.
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As we moved into the 1990's, with the front end of the boom entering their 40s and 50s, interest rates plunged...just as boomers found themselves with surplus cash they wanted to put to work. The mortgage was substantially paid down or totally eliminated...the kids were graduating from school eliminating tuition costs. Now what? The banks are paying squat! Hey...let's try the stock market!!! The technology bubble ensued with worthless companies seeing their valuations hitting the moon.

Now with the children of the post WWII baby boom heading toward their golden years our economy is going down the toilet.

Financial planners typically tell people that they'll need roughly 70% of the pre-retirement income to live comfortably when they leave the work force. Why only 70%? Retirees aren't commuting back and forth to work anymore, there's no longer a need for business attire...and as people get older they tend to feather their nests. Stephen Harper and the Conservatives just threw Canada's greediest generation a huge bone by giving them tax breaks on home renovations they likely would have undertaken in any case...but hey, boomers vote and there are more of them than any other segment of the population.

So...that's a rather long winded explanation of the boomer effect on our economy over the past 40 or so years. But how do we fix it? I'm going to suggest there's really only one way, immigration. We're in a situation where over the next 10-20 years, we're going to be seeing the number of non-productive members of our society soar. In a market economy we need consumers, something boomers were very good at...but we can't expect the purchasing of 70 and 80 year olds to be driving our prosperity, if we do there won't be any. The most active members of any economy are 20-40 year olds trying to build wealth and establish themselves and their families...and news flash, we don't have enough of 'em in this country.

A healthy population pyramid looks like a...ahhhh...well, a pyramid. The base should be the biggest part, they're the youngest. It should taper up to the top...the oldest. That's how Canada's pyramid looked....up until the 40s when the base ballooned. After that boom there hasn't been enough increase to support the increased weight at the top.

Here's a StatsCan visual that shows the shift from 1901 to 2001:


We can increase immigration levels now, or wait for the pyramid to topple over.

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