Changing Demography and Your Future

Below is an excerpt from an email I received from my colleague Michael Williams. Mike is a principal at Genesis Asset Management in New York City and a partner in my new company, Age Curve Research (www.agecurveresearch.com ). We both agree about the power, importance and impact the successful crash and rescue will have on the collective psyche of our great nation. I could not resist including it in the blog.

The more one pays attention to what happened in that plane and the landing in the Hudson river, the more one begins to recognize it was too many things to all be coincidence. The story is an incredible one…..and as much as all hate NY right now and the wall street badge of distrust (including me), I gotta tell you, I choose to think we saw the true colors of America again in those 40 minutes.

In 40 minutes, a plane with 155 people on board, took off, hit a flock of birds, went dead in the air and started hurtling back toward earth. The time between no power and hitting the water was approximately 2 minutes….120 seconds. One person had the wits about him to glide an A320 from 3,500 feet up, with little momentum as flight had just started, back down—all in one piece and saving every person under his guidance. He had to check all calculations to the three airports, all of which he could see out his windshield as he banked back toward the city after hitting the birds, he decided to glide over the river, clears the GW bridge by less than 850 feet, puts the plane in the water tail first to break speed, the wings hit the water, perfectly evenly (or they would have sheared off), the engines rip from the wings instantly as they grab water, without causing a fire or flipping the plane, he glides the plane into the water, covering 50 city blocks on the slide. The plane stops and settles within eyesight of the first NY / NJ ferry which has just turned to move back toward NJ, that boat captain edges his bow up to the wing of the plane in 3 minutes, within 7 minutes of hitting the water the first 58 people are on the boat. Over the next 23 minutes, all 155 people are pulled from the water. The video shows that over 14 rescue craft and a helicopter with divers in the water were on scene in less than 15 minutes, all moving down the river in a brisk current…..ending with the pilot, walking the aisle of his broken plane twice to make sure all passengers were off safely before exiting the door…..

News reports state that his co-pilot helped him into a waiting life raft—with three other passengers already there….the co-pilot stated, “Sully, there has never been a successful ditching of a commercial aircraft….you just did it…”

Yes, gentlemen…..I choose to think we saw America’s true colors, far outshining the fraud, deceit and difficulties of the current financial issues at hand. I hold a place in my heart that hopes we can look back on those 40 minutes—and the inauguration on Tuesday—say, 18 months from now, and tip a glass to that pilot and those rescuers for bringing back hope, lighting that match to confidence again, showing us all we have a can-do spirit. We will then once again see that sometimes, the most out of left field event can break your thinking long enough for many to realize they had become lost in a negative, twisting path of limited, self-fulfilling outcomes….only in their heads…..there were too many lucky breaks….too many circumstances that had to happen exactly right to ignore the idea there was a much bigger meaning in this Miracle……somebody was watchin’…and there was a much bigger reason it all happened.

Generation X, Latinos and the Greatest Educational Challenge

Of Modern Time

Generation X was born in the United States between 1965 and 1984. The number of live births recorded by the United States Census Bureau during that period was sixty-nine and a half million. It was a time period fraught with cultural change and conflicting ideologies. One of the prevailing beliefs that took hold during this time frame was Zero Population Growth. It was predicated on thebelief that there were simply too many humans on the earth and that over population was the root cause to many social, political and ecological ills. Whether coincidental or complimentary, a Supreme Court decision, Roe versus Wade, opened the door to legalized abortion in 1973. The net was a reduction in the Nation’s fertility resulting in a significant drop in the number of children born. Generation X has nine million fewer people than the Baby Boomer Generation that precedes it and twenty-one million fewer people than Generation Y that follows it. On the surface this difference in the size of generations does not appear to be much of an issue. Below the surface it is monumental.

As Generation X passed through the time continuum it was over served by the infrastructure established to meet the needs the Baby Boomer generation that preceded it. It first showed up in empty maternity wards in the mid-sixties. Schools began to close in the mid-seventies and motorcycle sales crashed in the mid-eighties. Automobile sales declined in the late nineties and housing sales nose dived a few years after the turn of the century. Nowthe precipitous drop in US home sales has spawned a world wide financial crisis. Ironically world leaders are still scratching their heads and wondering what happened. The answer is: generation size is market size.

Now whether or not you believe that the United States and the world are currently suffering because we tampered with our own demography, the fact is Generation X is significantly smaller than the two generations on either side of it. It simply does not have the critical mass necessary to consume, occupy, earn and be taxed at the rate of the Baby Boomers. We will get over our current financial crisis, in large part because our own federal government has the money to bail out the banks because the huge Baby Boomer Generation, aged forty-three to sixty-four, is at the peak of its ability to pay federal income tax. All the heavy lifting tax wise in the United States is done between forty-five and fifty-five years old according to the Bureau of Labor Statistics because this is when the US population is typically at the peak of its earning ability. What’s going to happen when Generation X occupies this age group? We will not have enough tax to run the country at any level including the funding of Social Security.

When Generation X began to populate the entry level labor force in the mid-eighties the less desirably jobs went begging because for every eight or nine jobs exited by The Baby Boomers there were only seven Generation Xers to fill the positions. This opened the door of opportunity to immigrants. Latinos began to stream across our southern borders to seek and find work. This flow of immigrants into the United States continued for the next twenty years until it predictably reversed when jobs dried up and the mammoth Generation Y began to enter the labor force. At last count (2008) the US Census put the number of Latino immigrants in our country at forty plus million. It could be considerably less as millions are returning to Mexico, Central and South America by climbing back over the billion dollar wall we built to keep them out. This immigrant population is key to the future of the United States. It would follow that this group is similar in age to our own Generation X and that under the right circumstances could make up the anticipated tax deficit resulting from Generation X’s inability to pay. This will not be possibly if they remain in entry level unskilled jobs. A large scale concerted effort must be undertaken to attract, assess and train these Latino immigrants matching them with high paying opportunities. Ironically many opportunities exist in skilled trade careers being exited by retiring Baby Boomers who have dominated this labor category. Also as manufacturing and industry returns to the United States because of labor, economic, quality and social issues in Asia more opportunity will open up.

The operative word here is opportunity. The United States has a window of opportunity to fix a serious problem and threat.We must act.

Necessity is the mother of invention. Correcting the issue outlined above is not optional. It must be corrected now or in ten to twenty years our country could fall into economic chaos. It will make the current financial crisis look like child’s play. That’s the bad news. The good news is this problem can be solved and the United States can be stronger than ever.

1292

My wife reminded me a couple of years ago that the US Dollar Bill was just an idea, a very good idea to be sure but never-the-less, an idea. It is a piece of paper. You can't eat it, drive it and it is too small to start a fire in a stove. So what is this idea and why does it have value? It has value because we all agree it does and because we all have faith. Faith is the glue that holds our financial system together and our government for that matter. True, our faith does waver from time to time but the object of our faith, our great country, the United States of America and our unique way of life based on freedom remains sure, solid and fixed.

We just changed history with the election of Barack Obama. Much of the credit for this can go to our youngest voters who turned out in unprecedented volume; Generation Y. Generation Y is currently under twenty-three years old and is over ninety million strong. Right now Generation Y is an enormous and exclusive US asset who will take the United States to new heights of world leadership in the decades to come. This generation is going to teach older generations a thing or two about change and change is good. So, keep the faith.

October 19, 2008

In July this year Ken Gronbach, author of The Age Curve and founder of KGC Direct, LLC spoke to our company, Pearson, about the impact of demographics to the market. This topic is particularly salient to our business as the largest provider of educational information in the world marketplace, including textbook companies, newspapers and magazines, assessment companies, and other forms of content and media. In fact, demography more than any other factor will directly impact our revenue and growth expectations by changing the face of our user-base (e.g. schools and students worldwide).

So what did we learn from reading Ken’s best selling book and listening to his riveting speech? That the US is in good shape to dominate the world stage again if the right investments are made. In particular, this investment is education of immigrants, and more specifically Hispanics. This is an important beacon for our business and our country and must be given increased attention in future generations. As Pearson embarks on worldwide initiatives to educate the industrializing nations, there is still a significant undertaking to focus on at home.

I can summarize Ken’s book in a common two-word expression: Size Matters. And size matters for all businesses. That is why hearing his speech, reading his book, and understanding the trends in demography can help your business capitalize on an upswing in the market or insulate itself from a downturn. In today’s troubled economies, people will naturally assume I am referring to economic markets; but as you will learn from demography, it is the consumer markets that drive the economy and more people of certain ages means buying more certain things.

I strongly recommend Ken’s book, speaking series, and expertise in helping your organization understand the age curve and which end of it you will be on. In a world where information is king, KDC Direct can provide you a competitive advantage and an interesting perspective in life, politics, and society that will leave you wanting more.

Nathan B Green

General Manager, Talent Assessment

19500 Bulverde Road

San Antonio, Texas 78259-3701

Nathan.B.Green@Pearson.com

Our current worldwide financial crisis was precipitated by the housing crisis in the United States. No one questions this. The housing crisis in the United States has its roots in very predictable shifting demography. The root causes of this calamity are so simple it is mysterious to me how we did not see this coming. What is equally mystifying to me is why no one including politicians, presidential candidates and evening news anchors has even mentioned our Nation’s uneven demography and its role in this epic disaster.

Roughly eighty million Baby Boomers were born in the United States between 1945 and 1964. The peak of the Boomers was born between 1957 and 1961 and are at the peak of their earnings and consumption right now according to the Bureau of Labor Statistics. They bought and built big houses that were typical of their earlier stage in life. The Silent Generation, born 1925 to 1944, that preceded the Boomers was a small generation of about fifty million owing to reduced fertility during the Great Depression and WWII and virtually zero immigration during that time period. The Boomers bought the Silents’ homes as the Silents retired but the demand outstripped the supply so Boomers built new homes with a vengeance. Now the Boomers are reaching retirement age at the rate of one every eight seconds and it is time for them to sell their big homes and move on. The problem is the younger generation right behind them, Generation X born 1965 to 1984, has critical mass of about seventy million owing to reduced fertility during this time period attributed in large part to Row Vs Wade. In very simple terms this means that for every eight Boomer houses for sale there are only seven Generation X buyers. With the help of relaxed federal lending/mortgage standards the market found marginally qualified buyers to make up the difference in the generations using subprime loans. Subprime loans are loans made to under qualified borrowers at high rates of interest because they are risky. Because a large part of this subprime market demand was not qualified it simply fell apart when the people who shouldn’t have gotten the loans very predictably didn’t pay them. There are some additional ironies here. The high interest subprime loans became the darling of Wall Street who sold, repackaged and resold these high interest high risk loans over and over to investors worldwide who only cared that they were high interest. What happened here? Greed overcame us and we stopped thinking. It is not good to stop thinking.

Is there a silver lining in this black cloud? Yes. The world is not going to end, not yet anyway. The Baby Boomers are at the very apex of their tax paying ability so it appears that the United States will have enough money and credit to correct this fiasco. Also, Generation, Y now ninety million strong and under twenty three years, old appears to be posed to enter the housing market early because of a series of societal, economic and demographic factors. One more thing- all those Latino immigrants that flooded into the United States to take the jobs that Generation X did not have the critical mass to fill are advancing in their careers and need to buy houses, but not with subprime loans.

We are a resilient nation. Relax. It is going to be OK.