On Episode 37, where we talk about Krugman talking about the Clinton boom.
I enjoyed your podcast but wish to make a comment about the “Clinton Boom Years”. In the early 1990’s; I was in Chicago for an exposition and was invited to a free breakfast. The keynote speaker was a guy by the name of Harry Dent and he explained that the business cycle was a result of population demographics. His theory was that people’s demand was nothing at birth and nothing at age 72 (death) and a max in their mid 40’s. (He said at that time, age 46, but it changes with time and circumstances). Looks like a Laffer Curve. Every year the number of 46-year-olds increase, the economy increases. At the time, I was employed by the major International Manufacturer who was experiencing customer “demographic” problems, I embraced his theory like a starving man attacks filet mignon. My company had an extensive library with copies of the census and atlas’s galore. I spent many a pleasant hour getting paid putting in and analyzing data with Lotus then later Excel. Dent’s theory predicted a boom (based upon the baby boom of 1946 to 1953) for the period of time between 1992 till 1999. (If you remember the early 90’s it was the time gloom and doom and impending catastrophe. Remember the midget, Ross Perot? A guy by the name of Figgie (I worked for him in the early 70’s) later to become famous for being the lead actor in the book Dangerous Company wrote a book about the end of the world. Like the ozone hole and climate disaster it didn’t happen.) The bust, of course, didn’t happen till 2001 (I think due to the Y2K and tech stock bubble). After the Korean War the baby boom continued till 1964. The next bust, by my calculation based upon 1964 plus 46 years would be in 2010. It would last for 8 years (till birthrate again began to increase in 1972) corresponding in some respects to the Great Depression. The 30’s had a drought of 40-year-olds because of the all the 20 – 30 year olds that had died in WWI and the flu pandemic. Be that as it may, the next population shift is predicted for 2018 when I believe we will have a period of time with population growth of 40 year olds similar to the 90’s. Since the Fed has been printing money like it was paper, I would predict that we would either have double digit interest rates (like in the early Reagan years) or else double digit inflation. These population shifts are like the tides in that even at low tide you can get a storm surge. Even without the housing bubble and the financial crisis, 2010 to 2018 would have been a period of slow or stagnant growth and under any president, 1992 till 1999 would have been a time of above average growth. Clinton, the story of his life, got lucky. Maybe Mrs. Clinton will also get lucky.
“His theory was that people’s demand was nothing at birth and nothing at age 72 (death) and a max in their mid 40’s. …”
“… Every year the number of 46-year-olds increase, the economy increases. …”
“… The 30’s had a drought of 40-year-olds because of the all the 20 – 30 year olds that had died in WWI and the flu pandemic. …”
“… These population shifts are like the tides in that even at low tide you can get a storm surge. Even without the housing bubble and the financial crisis, 2010 to 2018 would have been a period of slow or stagnant growth and under any president, 1992 till 1999 would have been a time of above average growth. Clinton, the story of his life, got lucky. …”
You’re seeing a correlation between business activity and growth, but activity, per se, does not grow the economy.
The correlations you’re seeing are better explained by: at birth, the lack of capacity to pursue ends-satisfaction; at 46, the increased means to satisfy more preferences due to wealth accumulation; and at 76, again a lack of capacity to pursue ends-satisfaction.
It’s not that at age 46 “demand is maxed” – demand isn’t a quantity or a proportion of “possible demand”.
If everyone were satisfied with his store of wealth for the future and no business activity took place, the economy would be doing great. Business activity is a means to an end – when the end is satisfied, business activity is no longer necessary.
We’ll never get to that place, but the point is that demand is a cornerstone, not something to attempt to change to fit what producers would like to make.
When producers (or the government) attempts to make something that consumers don’t want or can’t afford, that’s when that production process becomes unsustainable – consumers aren’t going to buy what they don’t want or can’t afford.
And when the government mistakes a general drop in spending for a problem with consumer demand, and then print money to increase spending, they’re ignoring the reality that consumer demand is the cornerstone:
Consumer demand, whatever it is, or however abruptly it changes, is always right, as far as how you know what needs to be produced. So there’s nothing for the government to stiimulate – just stop producing what consumers aren’t buying.
When the government stimulates spending that consumers wouldn’t otherwise engage in, all they’re doing is introducing artificial competition for actual goods that are being used profitably elsewhere, thereby creating bidding wars and causing people to pay higher prices (cost of living goes up).
That’s why stimulus always results in a crash. Prices for goods that are also needed in the artificially stimulated parts of the economy go up, resulting in people having to save increasingly more to afford what *they* want.
And then “aggregate demand” goes down again because the individuals which comprise the so-called aggregate are, individually, having to save more.
Hello Guest, I have read your comment numerous times and while the words all seem to be in English, I cannot figure out what you are saying. I will try to reiterate the point I was trying to make.
1. Krugman writes column that if Ms. Clinton is elected she will appoint her husband to oversee the economy and we will have 4% to 5% growth again.
2. Dr. Murphy and his guest laugh at him because President Clinton didn’t do anything to make the economy grow and Krugman in his column admits it.
3. I point out Dent’s explanation on cause of high growth in the 90’s called population demographics.
4. I give two examples where it helps explain the 2000 recession and slow growth after the financial crisis.
5. I point out that the population demographics will be the same in 2018 as they were in 1992.
6. I point out that the Clinton’s have always been lucky and they and Krugman may yet get the last laugh, remember Dr. Murphy’s inflation bet.
I probably should have left it at that but my concern is the trillions of dollars that the Fed has printed to stimulate the economy in the last eight years and when the economy starts growing where that money will go. I lived through the inflation of the 70’s and in the early 90’s I worked on building a factory in Brazil, at the time it had an inflation rate of 1% per day. (about 400% per year) There are strategies to deal with high inflation. None are easy. My question is what can I do now to prepare?
Mail (will not be published)
This site uses valid HTML and CSS. All content Copyright © 2010 Consulting by RPM