America / Economy

Causes & Economic Consequences of the Baby Boom

“The facts as I see them are clear and damning: Baby boomers took the economic equivalent of a king salmon from their parents and, before they passed it on, gobbled up everything but the bones.”— Jim Tankersley, correspondent for The National Journal

Is the baby boom generation reaping more than they sowed? After the end of World War II, the population grew rapidly as birth rates all over the world increased. The sudden surge of infants that set the stage for population to grow at a rapid clip for years to come became known as the “Baby Boom.” Anyone born between 1946 and 1964 is considered to be part of the baby boom generation and is hence referred to as a “baby boomer.” The baby boom generation comprises nearly 20% of the American public. Consequently, this generation has had and will continue to have a substantial impact on the economy. Between 1946 and 1964, an estimated 77 million babies were born in the United States alone and the economy saw a large increase in demand for consumer goods, which boosted the post-war economy. Presently, baby boomers have begun to retire and many more will retire in the near future. Many citizens fear a looming economic threat associated with the retirement of this large generation. But is this fear justified?

Causes of the Baby Boom

There are many theories that purport to explain the causes of the baby boom. Among those theories is the belief that the increase in population growth was in direct correlation with the end of the Great Depression and World War II. This theory is explained by considering the decrease in fertility due to the economic hardship during these dreadful events. This theory is supported by the fact that many men were off fighting World War II, making it difficult to build families. Then, after World War II, fertility skyrocketed as the men returned home from war, the economy improved, and the country overall was finally feeling hopeful again. Fertility increased to above average levels to make up for the decreased fertility during the time span of the Great Depression and World War II. However, while this theory is popular belief, it may be inaccurate.

As Jeremy Greenwood details in his paper, “The Baby Boom and Baby Bust,” there are three main arguments to the theory that the baby boom occurred due to the increased fertility resulting from the end of the Great Depression and World War II. First, “a pure catch-up effect should have no influence on lifetime fertility, since one less child today would just be made up for by having one more child tomorrow. Yet lifetime fertility rose.” Next, the mothers who were contributing most to population during the baby boom’s peak were too young to be significantly affected by the Great Depression and World War II. The average childbearing woman during the baby boom’s peak in 1960 was between the ages of 20 and 24. These women would have yet to have been born during the Great Depression and between the ages of 5 and 9 at the conclusion of World War II. Finally, there is evidence to show that the baby boom actually started during the 1930s in parts of the world suggesting World War II did not impact fertility after all.

If the Great Depression and World War II didn’t cause the baby boom, then what did? Another theory of Greenwood’s hypothesizes that technological progress caused the baby boom. Between 1946 and 1964 “real wages rose at least tenfold due to technological advance. Since raising children requires time, this represents a tremendous increase in the cost of kids.” The introduction of electricity and the improvement of other household products such as kitchen gadgets and frozen foods drastically lessened the need for hard work in the raising of a child. This cut the expense of having children and should have triggered a rise in fertility, other things held constant. The theory of technological advance is an alternate theory to the widely accepted view that the Great Depression and World War II increased fertility.

Conversely, I believe there is no reason to suggest that the theory of the Great Depression and World War II ending and the theory of technological advance must be mutually exclusive. The argument could be made that the baby boom might have started earlier if The Great Depression didn’t transpire, as people would have had more financial stability in expanding their family size. There is additional evidence that exists in affirmation of the technological advance theory as large technological improvements can be seen in the household sector starting in the 1930s and 1940s.

It is more challenging to statistically show that the Great Depression and World War II alone were causation for the baby boom, as emotional reactions to these terrible events cannot be quantified. The major attempt at quantifying the effects of the end of the Great Depression and World War II only use fertility rates as a measure, which is not convincing that these events caused the baby boom. However, when considering the advent of technological advance in correlation to the culmination of these depressing events, a more reasonable theory is fashioned.

Asset Demand and the Retirement of the Baby Boomers

There are several pieces of literature surrounding the concern that the demand for assets will fall when the baby boomers retire. The expected decline in stock prices when baby boomers retire is known as the “asset market meltdown hypothesis.” The argument surrounding the asset market meltdown hypothesis suggests that during their high-savings years (the 1990s), the baby boom generation caused a rise in stock prices and the reverse will occur when the generation retires and begins selling off financial assets to help with retirement consumption.

James Poterba rejects this hypothesis in his paper titled, “The Impact of Population Aging on Financial Markets.” Poterba points out that recent theoretical models of a market meltdown assume that baby boomers will sell all of their assets during their retirement years, and he argues that this assumption is inconsistent with the data on asset holdings in the Survey of Consumer Finances. Poterba’s approach implies that in order to hypothesize about the decline in asset value, it is essential to first study age-specific patterns of asset holding. After examining data in the Survey of Consumer Finances, Poterba concludes “asset holdings rise sharply when households are in their 30s and 40s,” but however, “financial assets decline only gradually after retirement.” Based on Poterba’s findings, we can conclude that the fear of declining stock prices with the retirement of the baby boom generation is not completely justified.

In another paper, “Asset-Market Effects of the Baby Boom and Social-Security Reform,” Robin Brooks acknowledges Poterba’s research on the relationship between demographic change and real returns on financial assets and takes the examination one step further by questioning the shift to privatized Social Security. Brooks studies the measurable effect of the baby boom on stock and bond returns. She does this by enhancing a real-business-cycle model with coinciding generations and a portfolio assessment over uncertain capital and secure bonds. The model has two external causes of ambiguity (technology and population growth) and is used to motivate the asset-market effects of modern changes in the U.S. population organization.

Brooks’ findings show that even if baby boomers earn returns on their retirement savings as great as 100 basis points under their present returns, they will still be better off than both of the generations preceding and following their time. This assumption that baby boomers will be better off is based on a comparison of total lifetime consumption. Since asset returns move to baby boomers’ advantage during their working lives, and since they have fewer children in comparison to their parents and children, their consumption and ability to save early on is heightened. These effects combined compensate for the possible consequences of poor asset returns in retirement.

Social Security and Medicare Concerns

While some are concerned over the demand for assets, the more common apprehension is that the baby boomers will bankrupt Social Security and Medicare. Boomers will be the first group of retirees to fully receive the Medicare prescription-drug benefit. Since Social Security payouts rise faster than price inflation, they will draw more substantial retirement benefits than their parents did, in real terms. What is worse is that many suggest that this large payout is at their children’s expense. “The Urban Institute estimated last year that a couple retiring in 2011, having both earned average wages, will accrue about $200,000 more in Medicare and Social Security benefits over their lifetimes than they paid in taxes to support those programs” (Tankersly, “The Case Against the Baby Boomers”).

Young Americans are unemployed at historically elevated levels. Global competition is stronger than ever, but American establishments have not adjusted to prepare new workers for its challenges. Boomers have accumulated incomes for the very wealthiest Americans, withered the middle class, and, through unconcerned borrowing and irresponsible financial engineering, driven the economy into the worst recession in 80 years (Tankersly, “The Case Against the Baby Boomers”). The Pew Research Center reports that middle-class families today are 5 percent less wealthy than their parents were at the same point in their lives, after correcting for inflation, even though families today are far more likely to include two wage recipients.

It is predicted that the price of Social Security will increase faster than tax income since the population over age 65 will develop more quickly than the working-age population. However, the baby boom is not alone in its contribution to an aging population, as an increase in life expectancy has also added to the change of population dynamic. When Social Security commenced in 1935, life expectancy at age 65 was 12.5 years. In 2012, life expectancy was 20.4 years for women and 17.9 years for men. By 2030, life expectancy is projected to be 21.7 for women and 19.5 years for men.

Nonetheless, these gains in life expectancy are not distributed equally throughout the population, with less-advantaged groups commonly seeing smaller increases in life expectancy. While the number of Social Security recipients will grow, tax rates will stay untouched in current law. By 2031, the earliest boomers will have turned 67, Americans over age 65 are anticipated to total 75 million, practically doubled from 39 million in 2008. The beneficiary-to-worker ratio, which relates the quantity of people receiving benefits to the quantity of workers paying into Social Security, will increase from 35 per 100 in 2012 to 46 per 100 in 2030.

The demand increase for Medicare not only becomes a problem due to the increase in life expectancy, but also due to the growing rates of chronic diseases. A 2013 report from the United Health Foundation found that approximately 8 in 10 seniors are now living with at least one serious health condition. Furthermore, many of those health problems are due to the nation’s continuing battle with obesity. About 25 percent of seniors are obese, 20 percent have diabetes, and more than 70 percent have heart disease. Meanwhile obesity rates amid those ages 50 to 64 increased 8 percent between 1995 and 2010, the subsequent generation of seniors will likely experience greater rates than the present seniors do. This abnormal increase in chronic disease coupled with an increase in life expectancy, presents an unanticipated problem when it comes to the baby boom generation receiving their Medicare benefits. This amplified demand due to population growth and disease growth will need to be met, causing further economic strain.


Are future generations being discounted as a result of the baby boom generation? Even the boomers seem to recognize that the future may not be as bright for future generations. In a 2011 Gallup Poll, forty-four percent of Americans believe it is likely that today’s youth will have a better life than their parents, even fewer than said so amid the 2008-2009 recession, and the lowest on record for a trend dating to 1983. Ironically, optimism for the future was lowest among baby boomers (ages 50-64).

Ultimately, while the baby boom generation may acknowledge that future generations may not be better off, this doesn’t imply that the economic consequences were intentional. At this point in time, placing blame on the baby boom generation is not the correct or rational response. There are plenty of evils (i.e. owning large SUVs, neglecting to recycle) that the current generation is contributing to that are also likely to negatively impact future generations. Likewise, the generation preceding the baby boomers made their fair share of mistakes. The most the current generation can do as a result of the baby boom’s economic consequences is learn that if nothing is done to protect future generations, consequences will eventually be felt. The time is now to raise optimism for generations to come.

Birthday Cake by Will Clayton is licensed under CC By 2.0