Review: The Great Bust Ahead

Title: The Great Bust Ahead
Author: Daniel A. Arnold
Publisher: Virago-US
Pages: 57
ISBN: 1-59196-153-X

Be afraid. Be very afraid. Indeed if the author of this small treatise is to be believed, then be terrified of your economic future. This is a slim book that makes a hefty claim. The author is predicting an economic tsunami that will make the Great Depression look like a party. Not just that, the author makes what to most people will sound like an audacious claim: he claims that there is nothing that governments can do to prevent this economic calamity from descending upon us. We are faced with a 25 year recession and there is nothing anyone can do about it.

These are strong claims that will leave most people skeptical. Yet the logic behind the argument is actually quite compelling. The economic drama that is about to unfold was set in motion several decades ago. It all boils down to demographics. This is an area that leaves most people yawning. However, demographic changes are inexorable and predictable. The surprising thing is that most businesses ignore the effects of demographic change in their calculation. Consider the well documented baby boom that occurred in the US after the Second World War. A larger than previous number of babies were born from the late 40s to the mid 60s. A bulge that was to have serious effect over the coming years. Knowing that a certain demographic event has occurred means that one should be able to predict the broad effects that this will have. So for example, there was bound to be an increase in demand for baby products as a result of the baby boom. As the boomers passed into childhood, demand for baby products would decline and instead demand for children's products would increase. So as the bulge in population works its way through over the years, there is bound to be a concomitant increase in demand for products and services of the corresponding age group and as the bulge passes through that age group, there is also bound to be a decline in the demand for the relevant products and services.

Mr. Arnold's thesis is based on a similar demographic argument. The book explicitly states that the main point presented in it is with respect to the advanced developed economies. These economies are faced with declining populations. Even the US is faced with this prospect; its population has been maintained primarily throught immigration. The mainstay for developed economies is consumer spending. The age group which has the greatest effect on consumer spending is generally the mid 40s to mid 50s group. These are people who generally are at the peak of their earning power and who also have the greatest costs. It is the relative size of this age group which plays a critical role in economic growth and according to the author, the number of these people is declining and as this number declines, the spending power of this group will also decline and the result will be a decrease in economic growth. The author's contention is that this group is so large that its passing will have a correspondingly severe effect; the whole drama will take almost a generation to play itself out.

Some readers of this book may well raise the objection that the argument presented here is relevant only to developed economies. This is a valid point. However, the demographic drama is playing itself out in every nation. Worldwide the rate of population growth is slowing. Furthermore, as an economy grows, consumer spending comes to play an increasing important and dominant role. The other thing that should be kept in mind is that lesser developed economies generally depend on exports to the developed economies for their own growth. So what happens in the developed economies also effects (sometimes almost immediately) the lesser developed economies.

This book raises an important point and is well worth reading. Recommended.