March 6, 2014

THE U.S. ECONOMY’S Big Baby Problem.

The thing about an increasingly childless economy is that it has major implications for consumption. Just look at this new data from a Gallup survey released today on the average daily spending of families. Even after you control for income, age, education, and marital status, families with young kids spend more every day. These are the sort of spenders you want in a weak economy following a great deleveraging.

The upshot is that when we think about economic growth, some of the most discussed variables on editorial pages and cable news include policy choices like Obamacare and tapering and tax rates, or international events like China’s shadow banking system and the Crimean invasion. And that’s fine: policies and global events do shape lending and spending behavior.

But buried underneath these headlines is the glacier of demographics, the steady and unyielding force of human numbers to shape the economy. The drop in U.S. fertility rates in recent years has almost certainly had a negative effect on consumer spending (and, in turn, lower birthrates are probably an outcome of the recession). In particular, childless couples don’t need space for more kids so they’re less likely to buy homes in the suburbs, depressing demand for housing in an economy that could [use] more bought homes.

One reason people are having fewer kids is that the costs have been artificially inflated even as the benefits have been reduced. I had some related thoughts in this piece.

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