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The demographic and peace dividends created by the Boomer SuperCycle are disappearing

Economic growth
By Paul Hodges on 18-Feb-2024

20 years ago, policymakers didn’t want to worry about demographic changes. After all, they take a long time to develop. And so, somebody else would be responsible when the problems arrived. Consequently, for two decades, no significant actions were taken to tackle the challenges posed by aging populations

In 2011, John Richardson and I tried to break this apathy in our ICIS book (Boom, Gloom and the New Normal, how the Western BabyBoomers are Changing Demand Patterns Again).

But this was the period of stimulus policies, when central banks were effectively trying to “print babies”. They thought they could always generate demand.18 months ago, however, European Central Bank president, Christine Lagarde, suddenly highlighted an important change in their thinking:

“We have to pay attention to traditional indicators while also monitoring empirical data and what we expect to happen in terms of geopolitics, energy price developments and demographics.”

Better late than never, you might say.  After 20+ years, the “long-term impact” was now becoming very obvious.


The story is all about the impact of the Western Baby Boomers. Born between 1946 – 1970, they are the largest and wealthiest generation that has ever lived, as the chart shows:

  • An average of 10.1m babies were born each year in the rich G7 countries
  • This was 15% more than the average 8.8m born each year in the previous 24 years
  • Since then, births have been even lower than before the Boom, averaging 8.4m


In the 1960-80 period, all these babies were growing up. But they were too young to produce anything. And as the G7 economies were still recovering from the War, they began to create massive inflation. Nobody at the time had this data to explain what was really happening. And so people struggled to understand what was happening.

Milton Friedman thought it must be somehow due to monetary policy. And he coined his famous phrase:

“Inflation is always and everywhere a monetary phenomenon”.

Unfortunately, he was confusing correlation with causation. As the chart shows, US money supply doubled from $8.2tn to $15.3tn in the 2010s. But US CPI inflation never went above 3.9% and averaged only 1.8%.

So it probably wasn’t money supply that caused inflation. More likely, it was vast Baby Boomer demand outstripping available supply.


The key issue, which policymakers are now starting to accept, is that spending is age-related:

  • If you are under 25, you don’t have much money and rely on your parents.
  • But when you reach 25, you join the Wealth Creator 25-54 age group. You are in the workforce and earning money.
  • And you start to spend it on things that you need. You may even settle down and buy a home and a car and so on.
  • And, of course, you will also pay taxes on your earnings and when you buy something in the shops.

This pattern generated the Baby Boomer SuperCycle. The average Boomer joined the Wealth Creators in 1983. And they had all joined it by 1995.  They were earning good money. And they were spending it and paying taxes.Recessions had previously taken place every 4 or 5 years. But in the 18 years from 1983 – 2000, there was only 8 months of recession (during the Gulf War in 1990).

This prosperity naturally impacted the global economy. The Cold War ended in 1989 with the fall of the Berlin Wall. And so the “demographic dividend” created by the Boomers was turbocharged by the “peace dividend” into a SuperCycle.

Astonishingly, the USA even began to have a Federal budget surplus in 1998 as the chart shows.

But nothing lasts forever. In 2001, the oldest Boomer joined the Perennials 55+ age group. And, of course, they are a “replacement economy”. They already own most of what they need. And their incomes go down as they retire. Importantly, they also have the longest life expectancy of any generation in history.

Next year, the youngest Boomer, born in 1970, will join the Perennials. This creates confusion:

  • The global population is still expanding, but the growth is not due to lots of babies being born
  • Instead, the Perennials are now the main source of population growth in the world, as the chart shows

So demand patterns are now changing rapidly, just as John and I forecast back in 2011.

The world now has a demographic deficit, rather than a dividend. And the peace dividend has also disappeared. Unfortunately, policymakers’ stimulus policies, and their 0% interest rate policies, created vast amounts of surplus capacity. They also created vast amounts of debt. And this debt can’t ever be repaid, as the Perennials don’t need the new supply. This means that demand-led strategies, based on “doing more with less” are now key to future revenue and profit growth, as we will discuss next week.