It seems a bit counter-intuitive to discuss reasons to be
optimistic about the US economy. Every day we hear reasons to fear the worst –
high unemployment figures, two costly wars and of course, that mind-boggling
amount of debt.
Yet, despite all those issues, someone who is much more
knowledgeable about the economy than I will ever be is indeed confident about
the US economy’s future. That someone is
BlackRock Chief Equity Strategist Bob Doll, whose job is to allocate over $30
billion among shares of large US corporations and advise clients on equity
investment at the world’s largest money managing company. So what does he see that is positive in the US economy that
largely escapes the world’s headlines?
“Credit markets are
sound. Money growth is good,” says Mr. Doll, whose optimism has been the
right market call since March 9, 2009, when stocks hit their post-crisis lows.
The Dow has since risen more than 85%, and Mr. Doll expects the slow economic
expansion to continue…. “You could say we’re the best house in a bad
neighborhood,” says the man who has spent 28 years managing money.
“We have fewer problems and more solutions than Europe or Japan.”
And what are those solutions? Well one of them is Demography.
“Over the next 20
years, the U.S. work force is going to grow by 11%, Europe’s going to fall by
five, and Japan’s going to fall by 17. This alone tells me the U.S. has a huge
advantage over Europe and a bigger one over Japan for growth,” he says.
“And the reason for this is pretty simple. We have higher immigration than
both of these, and we make more babies. We have a higher fertility rate. And
they are the long-term determinants of population growth and therefore work
(To underline his point, Japan’s population shrunk in 2010
by 125,700, the largest amount since records began in 1899. For the past four years there have been more
deaths than births in Japan, but in 2010 the difference surpassed 100,000 for
the first time.)
According to Doll, despite all the doom and gloom, despite a
dotcom bubble bursting, despite 9/11, despite a property bust, despite a global
recession, the US share of global GDP has remained constant at 25% between 1995
and 2010. The rise of the developing
world’s share of global output has come mainly at the expense of Japan and
Europe, those countries with bleak demographic trends.
Although of course there are major economic issues that
confront the US, at least its demographic outlook is stronger than many of its
On a side note, if Doll is right about this link between
demography and economic growth, will it be self-fulfilling? If it is true that one of the reasons that
people in Europe and Japan are having fewer children is that the economic
outlook is grim and people feel they cannot support more than one or two
children, and if ageing, shrinking populations contribute to the economic
malaise in these countries, then it seems an ever-reinforcing spiral of
economic and demographic decline will ensue.
Perhaps one way out of this dilemma is to start looking at children as a
gift and not simply as a burden and drain on disposable income.