Demographics is destiny

By Rana Foroohar

There are plenty of Progressive policies that rich people don’t like. But I’m beginning to think that one Democratic 2020 proposal that may have real legs is Elizabeth Warren’s idea to retire student debt. I say this because of the growing understanding that the $1.6tn student debt bubble is changing not only consumption patterns among younger people, but potentially long term American demographics as well.

I’ve written in previous columns about the growth impact of student debt — when you are busy paying off an average of $30,000 in student loans, it’s tough to spend money on much else. But I recently came across a fascinating research note from David A. Rosenberg at Gluskin Sheff, that looked at how debt may impact long term demographics. The share of “kids” between the ages of 25 to 34 living at home has risen from 12 per cent to 17 per cent since the financial crisis. For males in that cohort, more than one in five now live with parents (it’s as if we’ve suddenly become Italy!). That’s the highest number since the Great Depression. The median age for a first marriage is now 30 years for men, and 28 for women, which, again, is unprecedented.

Result — the US birth rate (meaning births per 1000 people) has, for the first time in recorded history, dropped below 12 per cent. As Rosenberg puts it, we didn’t need a Chinese style one child policy to curb birth rates in America. We did it all by ourselves, by creating a system in which the only inflation around exists in areas like education, healthcare, and housing — and in those areas, particularly the first two, we’ve got way too much of it. Ed, what do you think? Will student debt win out over “Medicare for All”, or no?

I think we are headed towards a period of huge wealth redistribution, and also intergenerational political conflict, as millennial voters (the largest block) demand relief from their crushing debt burdens.

This is going to have massive investment implications, which I don’t think the markets realise at all yet. For the last four decades, wealth has moved from poor to rich, and young to old.

Now, it’s going the other way. Massive portfolio shifts will be called for (hint: blue-chips could become the new subprime).

The economics and politics of that are something I’ll cover in a future column or Swamp Note.

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