Demographic trends to look for in the next decade:

1. With Baby Boomers retiring and leaving the workforce, there will be a major shift of power and pay to the younger workers.  This is the market force that is needed to help correct the imbalance of pay in the US.  It is unlikely that any regulations will be imposed to limit salaries of executives of public companies, so the market itself must correct this inefficiency.  Many argue that these exorbitant salaries are determined by the market, but what this argument does not consider is the level of efficiency in this market.  A market is only efficient when there is significant visibility and liquidity.  The market for executive talent has neither of these qualities.  Unless executive recruiting and salary determination somehow incorporate these qualities, some outside force will need to intervene to avoid a continuation of this inefficiency and to avoid other detrimental side effects.  Some are looking to the government or other regulatory body will be this outside force.  I see that as unlikely, and believe that a demographic shift is more likely to drive the change.

2. We will open our doors to the rest of the world.  A heated debate continues regarding immigration and who we allow to enter this country to work, but there will be a severe shortage of workers if we continue to filter immigrants at the current level.  This will come to light with the baby boomers’ exodus from the workforce.  Real GDP growth has been tapering off since 2000, and I expect the trend to continue.  The current scapegoats of the slowing economy are the War in Iraq and oil prices.  What is escaping attention is the continued decline in the growth of the labor force.  GDP is a measure of our country’s income.  Real GDP can grow only when the country produces more goods and services than the prior period.  This can happen only when the current workers become more productive, or when there are more workers that can produce.  I’m sure that many people will agree that the current workforce is stretched close to its capacity in terms of productivity.  We had significant economic gains when women entered the workplace in large numbers, but we have been at about 59% participation of women in the workplace since its peak in 2001.  Male participation has fallen to 73% (it was at 87% in 1948 and 78% in 1975).  Unless we put our children to work, or figure out how to become more productive, we have to open our doors to outside workers if we want to grow our economy.
   
   
   
   

3. The housing market will be stagnant for many years.  The housing market is another force that can grow with either more people or the same people buying more.  The housing boom of the early and mid 2000’s was primarily driven by people buying more houses.  There were not more people entering the country buying houses, but more people already here buying houses.  It inflated to a point where not only a larger percentage of the population became homeowners, but existing homeowners were buying second and third houses as investments.  Prices inflated to the point of becoming unaffordable, and we are now seeing the results.  Very few areas of the country have median incomes that support median home prices.  With income growth very slow for low to middle class Americans, it will take years before incomes catch up with housing prices.  Once we start to see median income levels increase steadily (see bullet 1), we will not see significant housing price increases.

For most of us, our first economics lesson began when we were young children, playing the game of Monopoly.  As the shoe, the hat, the cannon, or the car, we learned some of the most valuable lessons about economics and capitalism.  Today, we’re going to review those lessons, and look into what we’ve forgotten and what we in the US never learned as a country.

1. When one person has all of the properties, all others in the game go broke and the game ends.  Our economy is moving towards that point.  We have very few people making all of the money, moving closer to the end of the game.  Owning a house on Baltic will not help when you have to pay $1500 every time you land on a Park Place Hotel.  Eventually you will have to foreclose and sell Baltic to the winning player.




2. The players that get ahead quickly in the game usually do so by Chance (or Community Chest), or by luckily landing on Free Parking.  Success in the beginning is not normally determined by skill.  The lucky players catch a break and collect sums of money.  The good players separate themselves from the bad by how they invest the money they collect.  Bill Gates took a Chance when he purchased an unknown computer operating system.  He won the Monopoly game because of how he took advantage of that Chance, since everybody reading this article landed on his property and paid rent.




3. You need to invest to survive.  Everybody in the game passes Go and collects their $200, but you will lose quickly if you just collect your $200 and continue to pay rent on every turn you take.  Even if you get lucky a few times and land on Free Parking, you will give your money back to the players who own properties.  In the real world, if you do not own a money-making investment, you will eventually go broke.  Simply earning a paycheck and spending it will never allow you to get ahead.  The people that get ahead are the ones that own assets that return money, and the ones that get the farthest ahead own more assets and better returning assets (like the yellow, green and dark blue properties).




4. Once all of the money is gone from the bank, the only way to get more is to win it from another player. 




5. The game is not fair and doesn’t work if the bankers’ friends let the banker collect all of the money, even if the banker is bad at Monopoly (see Charles Prince, Stanley O'Neal, fill in the blank with your favorite overpaid executive who made poor decisions).




6. The game would not be fair if the rules stated that if the player who is winning the game makes a bad decision and loses most of his money, he is bailed out by the bank.  This rule would not apply to a player who is not winning.