Are demographics going to save the US economy?

Sometimes the simplest things can have wide-ranging effects.

Business Insider's Joe Weisenthal touched upon a very interesting aspect of contemporary economics in a recent interview with Bill McBride, the economics blogger who, at his site Calculated Risk gained fame for his remarkable prescience about the global financial crisis, particularly the US housing bubble.

McBride hasn't stayed with the "doom and gloom" message, though, and has been arguing that there will be a hefty rebound in US GDP for since shortly after the economy bottomed out in 2009. His reasons for thinking that way are an interesting mixture of anecdote – normally verboten for serious economic analysts – carefully chosen statistics, and a few broader macroeconomic indicators.

For example, he argued in January 2009 that the car market (sales were plummeting at the time, and a large part of the collapse in employment and GDP) was bottoming out, and would shortly start to grow again:

So I wrote this article that says look, auto sales are near the bottom – we were at a 9 million annual rate then – I said there’s just no way – we have to be selling 12, 13, 14 million, because people need new cars every 5-7,8 years.

Similarly, the housing market couldn't stay as weak as it had been for very long, because:

After a while, there’s all this excess supply that was built, then people pulled back and lived with their parents – but people don’t want to live with their parents very long. That supply gets absorbed. When I go out into The Inland Empire I can tell you… If it’s not mostly growing, it’s getting there. Where I live, as soon as foreclosures come on the market there’s people lined up.

In other words, houses and (in most of the US) cars are necessities of life. Demand for them can fall, as people put off purchases or attempt to economise on what they do buy, but eventually, those purchases will be made. A car only lasts so long, and a growing population can only shack up in spare bedrooms for a short while.

Obviously, there is still a fair amount of analysis to perform. McBride's call on the auto industry was on the money, not just because he realised it couldn't fall forever, but also because he checked the statistics for average length of car ownership, and pre-crisis sales, and realised that the vehicle lifespan was being pushed to historically long durations.

But the methodology is reminiscent of the (apocryphal) story that some foresight of the 1929 Wall Street Crash was provided by the realisation that the bubble of the "roaring twenties" was driven by the growing adoption of a number of consumer technologies which were nearing saturation point. If economic growth over the last decade has occurred because car ownership rose from 10 to 90 per cent, it is clear that economic growth over the next decade cannot come from the same source.

The problem with these arguments is that there are a lot of specific indicators to choose from, and only some of them will have macroeconomic consequences. McBride was correct about the auto industry, but that doesn't mean that the method will work every time.

Weisenthal, following the interview, tried his hand at a similar form of analysis: proving the US naysayers wrong by looking at the nation's demographics. He writes:

When you've collapsed SO much, then really simple observations like that are germane because the demographic lift on its own to counteract the hard cyclical downturn.

And that's where the Americans should be thankful: Because there is in fact a demographic lift.

Japan is probably the economy whose struggles most resemble ours, and that force is much weaker there.

Here's a comparison of year-over-year population growth rates for Japan and the US going back to 1960. Growth in Japan (red line) has been much slower for decades.

…Japan's demographic tail wind has been non existent.

With some knowledge about demographics and the need to replace cars, you could look at a chart like this one (which divides motor vehicle sales by population) and ascertain that the lows seen in 2008/2009 were WAY out of whack with anything vaguely historical.

…The overall point is simple: A demographic lift combined with the same innovation and investment that's gone on for a long time is why the dreams of the doomsayers, who were riding so high just a few years ago, haven't come to pass.

Japan's demographic squeeze has been predicted and feared for a long time, but Weisenthal goes further by pinning a lot of hopes on America's demographic health. Is he right? Time will tell, but one thing which is worth noting is that this demographic lift isn't something which comes out of nowhere. In fact, it is something which, with the popular consensus around the need to limit immigration, is being actively fought by most US policymakers. We've written here about the unintended consequences of that limitation, but hopefully pushing the idea that demographic lift is the nation's biggest economic hope might do a little to build the coalition on the other side.

A worker builds a car in Michigan. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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What is the New Hampshire primary, and why does it matter?

Although the contest has proved less influential in recent years, the New Hampshire primary is still a crucial event.

While the Iowa caucuses are the first electoral event in the US’s presidential process, the New Hampshire primary is the candidates' most important early test before the action explodes across the rest of the country.

The stakes are high. If the nominations aren’t decided soon, the campaigns will be damned to a marathon of costly state primaries and caucuses; New Hampshire is their first best chance to avoid that fate. But it didn’t always work this way.

Primaries only became the key element of the nomination process relatively recently. Until the postwar era, presidential candidates were chosen at the national conventions in the summer: in the run-up to the 1960 election, future president John F Kennedy famously entered only one primary (West Virginia’s) to prove that a Roman Catholic could win a Protestant state.

It was only after the turmoil of the 1968 nomination, widely perceived as an establishment fix, that the McGovern-Fraser Commission changed the Democratic party’s rules to end the power of the “smoke-filled room” over the nominating process, prompting many states to adopt meaningful primaries for both parties' nominations.

First in the nation

Unlike caucuses, which generally are used in smaller states that would rather not pay for full-scale ballots, primaries are secret-ballot elections that allow voters to choose who will be their preferred nominee. But not all primaries are the same.

The parties sometimes hold their votes on the same day, as they do in New Hampshire, or on different ones. A primary may be open (allowing any voter to register a preference) or closed (allowing only pre-registered party supporters to vote). New Hampshire has a mixed system which allows voters to register in a primary on the day before voting without declaring a party affiliation.

That means that while all voters registered with a party must vote in that party’s ballot, the New Hampshire result often hinges on these unaffiliated voters. Because they can vote in whichever ballot they like and can register so close to primary day, the state is notoriously difficult to poll.

New Hampshire has cemented its first-in-the-nation status by passing a law that requires its lawmakers to move the state’s primary to pre-empt any other state’s, no matter how early. That means it’s traditionally been not just an important indicator of how candidates are faring, but a way of winnowing the field and generating or killing funding. Candidates who perform poorly generally find their access to money suddenly dries up.

The arguments against New Hampshire’s outsize role are many. Like Iowa, it’s hardly representative of the US as a whole, being a small state with an overwhelmingly white population. And while (unlike Iowa) it has no powerful evangelical Christian element, it retains a very distinctive tradition of small-town New England politics that demand a particular kind of face-to-face, low-to-the-ground campaigning.

But this time around, other factors have cut into New Hampshire’s significance.

On the Republican side, the primary’s winnowing role was in large part pre-empted when the TV networks holding debates allowed only the higher-polling candidates on stage, effectively creating a two-tier system that tarred lower-polling candidates as also-rans long before voting began. Meanwhile, the financial calculations have been transformed by campaign finance reforms that allow for almost unlimited outside fundraising – allowing candidates to build up the reserves they need to withstand a humiliating defeat.

Nonetheless, a truly surprising New Hampshire result could still change everything.

Shuffling the deck

New Hampshire hasn’t always chosen the winner in either the nomination contests or the general election. But it has provided more than its share of political upsets and key turning points, from persuading Lyndon Johnson not to stand again in 1968 to resurrecting the candidacies of Hillary Clinton and John McCain in 2008.

The incremental campaigns for the nominations are all about the perception of momentum, and a notional front-runner can be dislodged or destabilised by a poor performance early on. That’s especially true in this year’s cycle, in which both major parties are grappling with huge surges of support for outsider, anti-establishment candidates.

Mainstream Republicans have spent months trying to end Donald Trump’s noisy domination of their crowded field. Trump was indeed defeated in Iowa, but not by a moderating force: instead, it was radical conservative Ted Cruz who overturned him.

Cruz is loathed by the party establishment, and he stands little chance of appealing to mainstream voters. Marco Rubio’s strong showing in Iowa briefly made him something of a standard-bearer for the party’s moderates, but a disastrous turn at the last debate before New Hampshire has thrown the future of his candidacy into doubt.

The primary will also reveal who, if any, of the more moderate Republican candidates – among them Jeb Bush, John Kasich and Chris Christie – will survive. While Bush has a massive funding advantage (albeit with precious little to show for it), Kasich and Christie both need a strong showing in New Hampshire to reinvigorate their financial reserves.

On the Democratic side, the key question is whether Bernie Sanders can make good on the surprising energy of his populist, grassroots challenge to Hillary Clinton. He is currently the heavy favourite in New Hampshire: even if Clinton somehow pulls off a miracle win there as she did in 2008, the closeness of the race is already stimulating both campaigns' national organisation and spending. And with what could be a long race between them heating up, the two’s growing mutual acrimony may yet start to undermine the Democrats' national appeal.

Gillian Peele Associate Professor in Politics and Tutorial Fellow at the University of Oxford.

This article was originally published on The Conversation. Read the original article.