Baby Boomers and the Stock Market, T+3

It’s been over three years since I mused about a rare flat decade in U.S. stocks.


Since then, millions of Baby Boomers have retired, and…. stocks are up 50%…

Dow Jones Industrial Average 2001-2015

Apparently, demographic realignments are no still match for the dynamism of the modern American corporate machine and its ability to turn invested dollars into innovative dividends. My pessimistic musings based on ten years of evidence are looking increasingly naive compared to the roaring hundred-year-based optimisms of Mr. Money Moustache and jlcollinsnh. Maybe this time, it’s… not different?

The unemployment rate has been dropping. Pundits like to point to the labor-participation rate or the employment-participation rate and argue about how much can be blamed on retiring Baby Boomers and how much it matters. There seems to be a significant chunk of people quietly hiding under the rug of Social Security disability (if you haven’t seen the excellent This American Life podcast). The less well-known fund is set to run dry at the end of 2016, leading to all sorts of interesting political game theory.

Labor Participation Rate 1948 to 2014Some people seem to assume that falling employment rates are a problem. The labor participation rate is the lowest SINCE 1977!! With every drop, the year goes back and sounds more ominous. Yet every time, I think, well how did the country survive 1977 anyway? We went through several decades with a lower proportion of people employed than today.

What changed between then and now? Participation rates went up as lots of women started working and now goes down as Baby Boomers retire while living longer. So we’ve essentially traded a world where men worked to support their wives for a world where men and women both work to support their grandparents. The biggest difference, of course, is that the support is channeled through the government at mismatched levels, essentially relying on foreign investors to give those grandparents better support.

Some seem to see the downfall of America and its self-sufficient legacy in the growing numbers of non-workers. If we include children under 16, surely the number of productively employed people supporting the rest of the country is less than 50%. Yet there does not seem to be any fundamental problem with that proportion. We used to do it all the time, and we were far less productive then.