A New Baby Boom: America's Next Economic Miracle?

Few periods in American history were as prosperous as the two decades after World War II. But the roaring 1950s and 1960s are only obvious in hindsight. When the war ended in 1945, the common view among economists was that, stripped of war-time stimulus and brimming with debt, the economy would slip back into the Great Depression. In 1947, the Council of Economic Advisors warned President Truman of "a full-scale depression some time in next one to four years."

One never arrived, thank goodness. Why? Many reasons, but the post-war baby boom was a big -- and unforeseen -- boost to the economy. Americans went from having 2.6 million babies in 1940 to 4.3 million by 1957.

A baby boom does wonders for an economy. A bigger family requires a bigger house. A bigger car. A second car. More food, more clothes, more insurance, harder work to pay for it all, and so on. Decades later, those children enter the workforce and start businesses, creating a new boom. America enjoyed this in the 1990s.

It's different today. Now we face record-low birth rates and aging baby boomers lining up to bleed America's pensions dry. As hedge fund manager Stan Druckenmiller points out, by 2030 the average American will be older than the average Floridian is today. This is an economic disaster in the making, the experts tell us. "There is no precedent in human history for economic growth on declining human capital," writes Mark Steyn. 

But what if it's all wrong?

What if we're about to have a new baby boom? 

That's what The Economist asked recently. Citing a report from BCA Research, it discussed the prospects of a new baby boom. And I'll tell you, it's persuasive. 

"Developed economies are about to experience a baby boom that will be bigger and longer-lasting than even the one that followed the Second World War," BCA wrote.

How can this be? And why is it so different from the common doom-and-gloom view of our demographics?

It's simple.

Later, not never
There are a few ways to measure births. One is completed fertility, or the number of babies already born to women of child-bearing age. America's completed fertility rate is 1.93, or below what is needed to keep the population from shrinking (ignoring immigration). Another is total fertility, or the number of babies a woman is likely to have over the course of her lifetime. America's is about 2.1. A third is cohort fertility, which looks at differences in fertility rates among women of different ages. This is what BCA is interested in. 

The Economist explains why cohort fertility is important:

The difference ... relates to the long-term trend for women to have children later in life; in their thirties rather than their twenties. Two effects ensue. First, the fertility rate declines in the short term because today's twentysomethings are having fewer children in their twenties. That has a short-term effect on the total fertility rate. Secondly, females in previous generations who waited until their thirties tended to have one child, or none at all. Population forecasts tend to assume that future thirtysomethings will have the same problem. But medical improvements mean that women can have two or three children later in life. And the evidence suggests women want more children; BCA points to research that shows the average woman in the OECD has around half a child less than she would ideally desire.

Old norms we've extrapolated into the future should be questioned, too. In the past, the wealthier you became, the fewer kids you had. This has changed, writes The Economist. "The fertility rate of wives whose husbands are in the top decile of income is back to where it was a century ago." 

The recession also pushed America's birth rate down, but this, BCA points out, is probably temporary. Just as World War II postponed childbearing into the 1950s, the Great Recession may push childbearing into the coming decade. According to a poll by Pew, 22% of American women age 18 to 34 delayed having a child in recent years because of the weak economy. This creates the pent-up demand. (Awkward, I'm sorry). 

America may have also experienced low and falling births in recent decades because women of peak childbearing age declined by more than a million during the 1990s. But that dip bottomed in 2005, with the group now rising fast: 

Source: Census Bureau.

The road ahead
Nothing is guaranteed. If the current population forecast is wrong, we also have to consider that BCA's outlook could be wrong, too. 

But what if BCA is right, and the scary projections of America's aging population are wrong? What if we're on the cusp of a baby boom?

Two things happen to the economy.

One, pension funds become far less burdened than they now look. More babies mean more future workers paying into pension systems like Social Security and Medicare. The ratio of workers per beneficiary in Social Security was five in 1960, is currently about three, and is projected to fall to two by 2050. A new baby boom could push that ratio far higher than projected, drastically lowering what currently look like unfunded liabilities.

Two, our economy's growth potential brightens. There are two ways to grow an economy: increase productivity, and increase the number of people. America already has the first one down pat. A new baby boom would round out the equation .

This all may seem far-fetched. But it would have seemed far-fetched in the 1930s and 1940s, too. Big shifts aren't announced in advance. They happen slowly and will be denied by most until they're clearly under way. Keep an eye on this.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics. 


Read/Post Comments (35) | Recommend This Article (38)

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  • Report this Comment On September 23, 2013, at 10:25 PM, SwampBull wrote:

    I am doing my part. Expecting the first "Swamp-Calf" due in January. ;-)

    And thanks to advice from the Fool, I will probably be starting a college fund for the little one shortly thereafter.

  • Report this Comment On September 24, 2013, at 10:38 AM, deckdawg wrote:

    " BCA points to research that shows the average woman in the OECD has around half a child less than she would ideally desire."

    I know we wanted 2 1/2, but ended up with three.

  • Report this Comment On September 24, 2013, at 10:42 AM, TMFHousel wrote:

    ^ Don't tell that to your third child.

  • Report this Comment On September 24, 2013, at 6:30 PM, cmalek wrote:

    "aging baby boomers lining up to bleed America's pensions dry"

    Congress ought to pass a law making it illegal to live past 65.

    I'm sure that when you get the chance to retire you will not pass up your turn to "bleed America's pensions dry."

  • Report this Comment On September 24, 2013, at 6:58 PM, JadedFoolalex wrote:

    cmalek

    Except when you are turning 65, you'll be saying "let's do away with that silly "65" rule"! I'll be retiring on my own dime, thank you very much because I saved and invested like everyone should! Are you listening or lecturing?

  • Report this Comment On September 24, 2013, at 8:04 PM, neelvk wrote:

    There is a whole another angle to consider. Many people are fitter today than similar aged people a generation ago. Also, many jobs that required back-breaking labor have been replaced with less strenuous jobs. Combined with better medical and surgical technologies, I expect more people to work into their 70s and even 80s. Sure, it may not be full-time work but do not discount the economic input from people who we are assuming would be fully retired.

  • Report this Comment On September 24, 2013, at 8:32 PM, wjcoffman wrote:

    "Congress ought to pass a law making it illegal to live past 65." - Affordable Care Act? Wow, didn't see that coming. Just kidding, just kidding.

  • Report this Comment On September 24, 2013, at 10:53 PM, Sunny7039 wrote:

    This could happen, but it's not likely. It's simply untrue that we are coming upon a period similar to the late 1940s and 1950s. We had an industrial boom then, in which nearly all segments of society shared. Wages increased for everyone, not just for the wealthiest. We did NOT have extreme differences between the top quintile and the bottom as we do today. The pattern we have today is more strongly correlated with wars than with peace, shared prosperity, and a desire to have children.

    The article also seems to forget that in the 1940s and 1950s, far more people were married, they married younger, and they did not have reliable birth control. The culture welcomed children, and educating them and insuring their health care was easy compared with today. Those are very big factors, and they show that we were a more pro-family society.

    neelvk, most people today are not fitter than their parents were. Obesity and substance abuse are more common. Both lead to early disability, especially when it comes to working past 65 or 70. Most people should be able to work past 70, at least part-time, and would probably prefer it. But look at how the Social Security Disability rolls have grown during the past five years. The toll this bad economy has taken is not yet apparent. The reason is that it has been bad for most people far longer than the upper-middle class is aware.

    Wages for most people have lagged inflation or barely advanced ahead of inflation for several decades now, not just since 2008. The 2008 crash finally affected the top 10 to 20% as well as everyone below them. And they were affected by the dot-com bubble as well, though not as severely.

    "Past performance does not guarantee future results." In this case, the past is far too different from the present to be a useful guide as to what will happen.

    So . . . yes, this could happen. But it's not likely. Best not to plan for it!

  • Report this Comment On September 24, 2013, at 10:58 PM, Sunny7039 wrote:

    Oops, forgot another factor: debt. Sixty years ago, how many young families started out life with a lot of debt?

    Few? Practically none?

    You think this makes no difference, either? Hmm.

  • Report this Comment On September 24, 2013, at 11:34 PM, astuber9 wrote:

    I agree with sunny but I hope morgan ends up being closer to the truth.

  • Report this Comment On September 25, 2013, at 12:03 AM, Saintmark01 wrote:

    Yes, this time it's different........

  • Report this Comment On September 25, 2013, at 12:21 AM, SkepikI wrote:

    <Big shifts aren't announced in advance. They happen slowly and will be denied by most until they're clearly under way. Keep an eye on this.>

    Well, an interesting article as far as it goes. The focus on quantity alone is a bit shortsighted in my book. Having been part of the quantity movement born in 51, I have to say Morgan you miss the biggest part of the picture. The quality of the generation that created the boom, most of them vets who considered themselves just glad to see their 22nd birthday, you under appreciate the impact of the quality of those people, yes, my combat infantry dad included.

    And, I have to say, having met many returning vets who volunteered shortly after 9/11/13 and returned alive and mostly whole from Iraq, Ashcanistan (combat vet's term for the other war) and many other risky points about the globe we have heard little of, I think you underestimate the quality of the generation producing the next boom. That is what builds economies, and makes the difference between oh, vacuum tubes and transistors on a chip.

    As one who observed it first hand, I certainly allow for the possibility its easy to miss in academic analysis, Morgan.

  • Report this Comment On September 25, 2013, at 12:28 AM, SkepikI wrote:

    <Sixty years ago, how many young families started out life with a lot of debt?

    Few? Practically none?>

    Most, mine included operated on a totally different philosophy that my guess is you would not recognize. They had no debt because they lived frugally and nobody would lend to them. They saved down payments and more. They dressed their children (yes me included) with handmedowns, instead of shopping till they dropped. They lived with their parents and in one room apartments till they could afford better.... THEY LIVED ON BUDGETS very rigidly and saved like maniacs. No movies, no TV, cooked cheaply at home and saved every nickle they could. I could bore you with more......

  • Report this Comment On September 25, 2013, at 1:48 AM, kyleleeh wrote:

    <<Most, mine included operated on a totally different philosophy that my guess is you would not recognize.>>

    I hear this same things from so many boomers, who talk about how they did things in their time. But every shred of historical evidence shows that consumer borrowing increased steadily throughout the 50s and 60s. In fact the last 5 years are the only time since ww2 that there has been a net reduction in consumer debt. So I just don't buy the whole "my generation lived by a different philosophy" thing. I think more likely your generation is pouring reality through a filter when recalling the past. Most people remember the "good old days" as being a lot more "good" then they really were.

    I'm not saying that you personally didn't do this, just that on the whole people seem to remember things a lot different then the record shows...which is actually pretty normal for human behavior.

  • Report this Comment On September 25, 2013, at 3:11 AM, enginear wrote:

    You are sort of right Kyleleeh, debt and credit increased at quite a rate in the postwar days, but it really did start from almost zero. There were no Visa or Mastercards in the early 50's... they just didn't exist (Dept. stores did issue cards). Loans were from banks, usually for a car or a house. Keep in mind, prior to the war it was depression... not 8% unemployment, but 25% (not all of it) - it made this dip we just had look like a party. Really horrible stuff. And people were very wary of credit... they saved their money under their mattress, much like the Chinese still do today (ever wonder why they hold so much of our debt? its because the people save like no American today would).

    One thing I wanted to mention is the education increase the GI bill provided. We went from a very small percentage of college educated people at the end of the war to a much higher level at the summer of love (1967) and beyond. We are now having a difficult time improving the education penetration.

    This fact counts for a lot I think.

  • Report this Comment On September 25, 2013, at 5:55 AM, PRHSydney wrote:

    Relying on increasing birthrates to prop up the economy is really "Ponzi Scheme" demographics. It's simply not sustainable.

  • Report this Comment On September 25, 2013, at 7:56 AM, TMFHousel wrote:

    Thanks for the comments, all. One comment regarding debt: Household debt payments as a percent of income are currently at the lowest level in more than 30 years.

    http://research.stlouisfed.org/fred2/series/TDSP

    Also, the idea that households had virtually no debt in the 1950s and 1960s is false. From my ebook "50 Years in the Making":

    "Household debt, which stood at $61 billion in 1949, galloped to $130 billion by 1955, $200 billion by 1960, and $400 billion by 1968. Those growth rates outstripped growth in household debt seen during the 2000s. Americans' appetite for debt was insatiable."

  • Report this Comment On September 25, 2013, at 7:58 AM, TMFHousel wrote:

    <<Relying on increasing birthrates to prop up the economy is really "Ponzi Scheme" demographics. It's simply not sustainable.>>

    People have been making people since the beginning in people. It's quite sustainable.

  • Report this Comment On September 25, 2013, at 9:01 AM, TMFHousel wrote:

    Beginning *of* people, that is.

  • Report this Comment On September 25, 2013, at 10:18 AM, DS31 wrote:

    ^No Morgan...we'll eventually run out of people in the future. It's not sustainable. Then, where will the people come from?

    Also, I think the concept of "time" may be a ponzi scheme too.

  • Report this Comment On September 25, 2013, at 11:25 AM, SkepikI wrote:

    <"Household debt, which stood at $61 billion in 1949, galloped to $130 billion by 1955, $200 billion by 1960, and $400 billion by 1968. Those growth rates outstripped growth in household debt seen during the 2000s. Americans' appetite for debt was insatiable.">

    Again I think you miss the point in the forest of facts. When debt loads start at near zero, and pretty much a whole generation (returning vets) is renting and home ownership is much less common than today, The ready availability of mortgages to build housing between 1948 and 1960 resulted in a really steep rise (from almost nothing) in household debt. BUT they all had 20% down or more that they had saved and it was pretty standard for it to be a smaller fraction of the total family income that it is today.

    enginear has it right. There just was virtually no credit on large scales, it was almost all small scale- store credit from merchants on "accounts". AND THEN sometime in the 50's, there was a boom in credit When merchants realized they could increase their business with liberal credit.

    Curmudgeonly fossil to the end, I maintain the stable quality of the people who ran up their debts, then paid it off and for the most part now live in those same 1200 sqft homes they bought in 1959 or 1962 was what mattered. The "quantity" explanation caught up with us in 2007.

    Of course, there are those who wish to believe early dementia has caught up with me and life experience is trumped by suspect statistics and even more suspect analysis. Cogito ergo sum.

  • Report this Comment On September 25, 2013, at 12:18 PM, maiday2000 wrote:

    Just waiting now for the Alyce Lomax article telling us how the new baby boom is going to lead to more pollution, more CO2, and a much worse world to live in.

  • Report this Comment On September 25, 2013, at 12:27 PM, TMFHousel wrote:

    <<When debt loads start at near zero>>

    Again, it didn't start near zero. Adjusted for inflation and the number of households, American households had more than $4 trillion of debt in 1950. Adjusted for real median income growth the figure is closer to $8 trillion.

  • Report this Comment On September 25, 2013, at 1:08 PM, pondee619 wrote:

    "...babies a women"? How many women make up "a women"...?

    does ANYONE proof read your stuff?

  • Report this Comment On September 25, 2013, at 1:44 PM, kyleleeh wrote:

    <<Again I think you miss the point in the forest of facts. When debt loads start at near zero,>>

    Everyone's debt load starts at zero.

  • Report this Comment On September 25, 2013, at 1:44 PM, atkinskd wrote:

    Now that we are abundantly sure it's not the Stork's fault, and child rearing is an expensive past time, and the Divorce rate is >45%, and birth control is cheap, and a guy who does not want kids can ge tthe bullets taken out of his gun for a few $100 bucks.

    People liked having kids when it was relatively easy to pay for them, the environment was simpler, the laws complimented parents, teachers, etc, instead of binding them. Nay, regardless of what she wants it's easier to get dvorced without kids than with. All current 30-somethings know this!!

  • Report this Comment On September 25, 2013, at 3:56 PM, pehenia wrote:

    So... our future prosperity is based on a larger number of new-comers?? So basically your saying it's a pyramid scheme.

    Not sure if that's the best model for our economy.

  • Report this Comment On September 25, 2013, at 6:59 PM, SkepikI wrote:

    <Again, it didn't start near zero. Adjusted for inflation and the number of households, American households had more than $4 trillion of debt in 1950. Adjusted for real median income growth the figure is closer to $8 trillion. >

    Well, you got me there Morgan, HOWEVER... I think a healthy skepticism about statistical "facts" pre 1955 or so would be prudent. One of the typical errors I see all the time in the use of these type of statistics is the failure to drill down into the details of how they were collected and just what specifics made it into the category.. For instance, I doubt the government or any other type of institution in 1950 collected ALL of the data on "debt" and a great deal of debt in the early 50's was "non-institutional" store credit and the like. Comparisons across decades in some categories need a fair amount of suspicion about the methodology and content of the "fact gathering"

  • Report this Comment On September 25, 2013, at 10:37 PM, ScottmFool wrote:

    I live on the peninsula in the SF Bay Area.

    The nearby school districts of Menlo Park City School District, Las Lomitas SD, and Sequoia Union High School District are all planning on asking for bonds in future elections to refurnish and/or build up schools to handle an influx of children coming through the systems.

    Oh, and I just had a kid. My wife is in her late 30s. Admittedly, now that I know what a newborn is like, this may be our only kid :)

    I'm a very small sample size, but this article IMHO is spot on. And don't forget that the population in China will be getting older as this new generation takes its place.

    America will be fine.

  • Report this Comment On September 26, 2013, at 2:57 AM, kyleleeh wrote:

    << I doubt the government or any other type of institution in 1950 collected ALL of the data on "debt" and a great deal of debt in the early 50's was "non-institutional" store credit and the like.>>

    That would mean consumer debt was even higher then stated, and the generation that "operated on a totally different philosophy that my guess is you would not recognize" was actually even more debt happy then records show.

  • Report this Comment On September 26, 2013, at 3:32 PM, drwtr wrote:

    Based on personal observations, I think there is some truth to the article. There seems to be a mini baby-boom in our area mostly by women in their late 20s and early 30s. Ironically, couples with lower incomes are accelerating having babies because Medicaid is paying for everything. They want to get the free medical before their incomes go up and they don't qualify any more. Overall, I think this will be a small baby boom compared to the one that produced the Boomer generation. It's too bad BoB Strollers is not publicly traded - they are selling the heck out of those.

  • Report this Comment On September 27, 2013, at 12:34 PM, stokboy74 wrote:

    I was born in 1951. My children are 27 and 28. They are not yet looking for serious relationships. I ride a train commuting every day. I am seeing a huge trend of pregnant women near

    Chicago. We need to keep watching this. I believe it is underway!

  • Report this Comment On September 27, 2013, at 1:05 PM, boogerface02211 wrote:

    I find economic production per capita more interesting than total economic production. But, as mentioned, more people would ease the Social Security and Medicare problems.

  • Report this Comment On September 28, 2013, at 10:01 AM, fl19 wrote:

    That's why the government doesn't really want to stop the immigrants. They ARE having babies. And the hope is that one day they will all ADD to society's total GDP in wealth, spending, taxes, etc.

  • Report this Comment On November 21, 2013, at 12:54 PM, amn3h wrote:

    this is all bogus! yes we are in the midst of a baby boom but you know why? it's because little girls who are barely in their teens can't learn to have protected sex and then after a year or 2 they have another one maybe even one after one and then the working class ends up paying for those children because the girls are too lazy to work and want to live off the state! Check out your local high school and figure out how many of those girls are pregnant! It's ridiculous! that is the reason we are in another boom!!

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