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Demographics is destiny

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Demographics is destiny

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US politics & policy

Demographics is destiny

The $16tn student debt bubble is changing US society in more ways than simply spending patterns

There are plenty of Progressive policies that rich people don’t like. But I’m beginning to think that one Democratic 2020 proposal that may have real legs is Elizabeth Warren’s idea to retire student debt. I say this because of the growing understanding that the $1.6tn student debt bubble is changing not only consumption patterns among younger people, but potentially long term American demographics as well.

I’ve written in previous columns about the growth impact of student debt — when you are busy paying off an average of $30,000 in student loans, it’s tough to spend money on much else. But I recently came across a fascinating research note from David A. Rosenberg at Gluskin Sheff, that looked at how debt may impact long term demographics. The share of “kids” between the ages of 25 to 34 living at home has risen from 12 per cent to 17 per cent since the financial crisis. For males in that cohort, more than one in five now live with parents (it’s as if we’ve suddenly become Italy!). That’s the highest number since the Great Depression. The median age for a first marriage is now 30 years for men, and 28 for women, which, again, is unprecedented.

Result — the US birth rate (meaning births per 1000 people) has, for the first time in recorded history, dropped below 12 per cent. As Rosenberg puts it, we didn’t need a Chinese style one child policy to curb birth rates in America. We did it all by ourselves, by creating a system in which the only inflation around exists in areas like education, healthcare, and housing — and in those areas, particularly the first two, we’ve got way too much of it. Ed, what do you think? Will student debt win out over “Medicare for All”, or no?

I think we are headed towards a period of huge wealth redistribution, and also intergenerational political conflict, as millennial voters (the largest block) demand relief from their crushing debt burdens. 

This is going to have massive investment implications, which I don’t think the markets realise at all yet. For the last four decades, wealth has moved from poor to rich, and young to old. Now, it’s going the other way. Massive portfolio shifts will be called for (hint: blue-chips could become the new subprime). The economics and politics of that are something I’ll cover in a future column or Swamp Note.

Recommended Reading

My colleagues Demetri Sevastopulo and James Politi have done a sharp and entertaining Big Read, with on the ground reporting from Iowa, that looks at how the Democrats really don’t have a coherent trade message yet:

I totally agree, although I think that they are smart to try to shift the story in the Midwest and South to monopoly power, as I lay out in my column this week.

When Facebook co-founder Chris Hughes is calling for the company to be broken up, you know we’re at the top of the market for the FAANGs.

And did you ever wonder what happen to the Winklevoss twins, who lost out to Mark Zuckerberg in the creation of Facebook? As Vanity Fair tells in salacious detail, they’ve become bitcoin billionaires.

Edward Luce responds

Elizabeth Warren and others are right to identify the prohibitive costs of healthcare and education as two of the key obstacles to equality of opportunity. In political terms, student debt forgiveness is considerably better bang for any candidate's buck than “Medicare for All”. The former, as you point out, would cost $1.6tn altogether. The latter would cost more than $3tn a year. 

Whatever the merits for universal single payer healthcare, the politics are highly complicated at best. It will generate almost as much opposing passion as support during a general election. Student debt forgiveness on the other hand is relatively simple to administer, is affordable and, regardless of whether you think it's the most efficient way of helping students, would be very popular with the ever-elusive Millennial vote. So I'd agree with you Rana. It will get Warren more traction than “Medicare for All”. That said, we really must start to disagree more often. Have you watched Game of Thrones? I'm told it's awful. 

Your feedback

We'd love to hear from you. You can email the team on swampnotes@ft.com, contact Ed on edward.luce@ft.com and Rana on rana.foroohar@ft.com, and follow them on Twitter at @RanaForoohar and @EdwardGLuce

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