We are like a nation waiting for Godot as we await the return of the
American consumer, who has been the traditional force that brings the
country out of economic slowdowns or recessions.
Only this time we might be awaiting a consumer revival that will not occur.
A fundamental demographic shift has occurred in our nation. The post-World War II Baby Boom generation, the largest in American history, is hitting its retirement age. This generation is made up of the people who drove massive change in this country in every decade for the last 60 years.
Within five years they will, for the most part, have all reached retirement age — and that will cause the number of retired people in America to double. Obviously, when you take such a large number of people out of the productive side of the workforce and put them into the marginally productive (or, for many, nonproductive) side of the workforce, you most likely slow economic activity.
Also, and equally obviously, older Americans do not consume as younger Americans do. They have no families to raise, they do not need new homes and they are not generally in the business of buying things. In fact, most of them are trying to get rid of most of the things they have accumulated over the years.
All of this puts a significant chill on re-energizing a consumer society. But there is something even more important about this generation’s effect on America’s recovery that does not seem to have been noticed or factored into projections by our economic gurus and government leaders.
This generation is scared.
A disproportionate number of the members of this huge generation have reached retirement age not with defined benefit plans but with defined contribution plans. Their savings in these plans was supposed to be enough to carry them through retirement, and it certainly looked as if it would, up until the fall of 2008.
But one of the unnoticed effects of the financial meltdown — the ensuing loss of value of the equities and the continuing lack of a sense that stocks will regain their overall values — is that this entire generation now finds itself with significantly less money with which to support its retirement.
Equally important is the fact that this loss of wealth is difficult to replace, because for most of these Baby Boomers there is little likelihood that they can stay or return to the workforce in a way that allows them to rebuild their personal equity.
The effect of this very legitimate angst is that for most members of this generation returning to a lifestyle that reflects their historic high levels of consumerism and debt is not an alternative. They are in full retreat mode, trying to rebuild or at least preserve what they have, knowing that they have few alternatives and lots of time.
The result of this Baby Boomer retrenchment is that one of the primary engines of economic growth— consumption — has left the playing field and will not return in the foreseeable future. It is as if you took New England Patriots quarterback Tom Brady and receiver Wes Welker off the field. The team loses its punch, as does the chances of a consumer-led recovery.
When you combine this with the massive debt of our nation, it becomes obvious that the traditional factors of consumerism and government stimulus that have turned our economy around in the past are not going to be robust this time.
We are going to have to get out of this economic sluggishness the old-fashioned way. We will need to increase productivity and expand the economic pie by encouraging the entrepreneurs of this nation, who are still many, to find the next opportunities for economic growth.
We will need to reduce the uncertainty that surrounds our tax policy, reduce the regulatory excess and show that we can manage our national debt. It is not an easy recipe for a nation that has always enjoyed spending its way to prosperity.
Judd Gregg is a former governor and six-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee and as ranking member of the Senate Appropriations subcommittee on Foreign Operations.