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The Great Divide
Alan Nevin

This month my new book “The Great Divide” will be published. It’s an interesting book because it ties demographic trends to the future of the economies of the industrialized nations in the world and, of course, focuses on the United States.

The title “The Great Divide” refers to the fact that a handful of countries in the world and a handful of states in this nation will account for the lion’s share of population and employment gains over the next quarter century (and beyond).

From a worldwide perspective, there are numerous countries that will fail to make economic gains, primarily because their demographics are working against them. Generally speaking, most of Europe, Japan, Korea and Russia have populations that are approaching a median age of 50.

The reality is that these countries stopped producing children during World War II and have never quite returned to the economically mandated two children per mom and dad. It is that simple formula that if not maintained eventually results in a nation that fails to have sufficient household formations to generate the types of spending necessary to propel a country’s economy.

Countries like Russia and Italy and many others of that ilk typically have had only 1.4-1.5 children per mom and dad for the past 60+ years. The result is a lackluster economic landscape because there are just not enough children and therefore not enough productive workers to make their economies hum.

The operative word there is “productive.” Countries whose population has swelled because of immigration of persons who are not educated and do not assimilate and become part of their work force and adopted society don’t count in the two child economic equation.

Another most vivid example of the shortage of millenials is China. Due to its now abandoned one-child policy (put into effect 30 years ago) the millennial population consists of 1.4 males to 1.0 females.  Long story short: where our economy consists of 2/3rd consumer spending and 1/3 basic jobs (jobs that drive the economy), in China, consumer spending is barely 40% of the GNP. All the kiddies who are now supposed to be buying homes, furniture, cars and clothing and fueling the consumer economy are just not there.

Now, turning to the United States, The Great Divide has special meaning. Here, 14 states over the next century will account for 75% of all the population and employment growth in the nation.

The 14 states ring the west coast from the state of Washington, down through the sunbelt and up to the Washington, D.C. area (a Wash to Wash scenario).

And the great states of California, Texas and Florida will account for almost 40% of the total population gains in the Nation between 2015 and 2040. A quarter century of unbridled growth for the three mega-states. In that quarter century, those three states will add no less than 22 million persons.

The big “C” will add almost 7.0 million persons by 2040 based on its present growth patterns and hit 50 million by 2050.

93% of the California population gains will be Hispanic and Asian. That’s an important fact because when you look at the growth of the 14 states that are the economic winners, the preponderance of their growth consists of Hispanics and Asians. Unlike certain politicians, I have come to the well-founded conclusion that immigration is an integral part of our economic growth.

The key to the growth of those 14 states is the growth of, and often the invention of, new or nascent industries. In many cases, a nascent or basic industry has been created in one of the stagnant states and has seen exceptional growth once it has moved to one of the 14 states.

Certainly the automotive industry is a perfect example. Born and bred in the cold climates, it has blossomed in the southeast and Texas and, to some degree, in Mexico.

The stagnation of much of the Midwest and northeast relates to its abandonment by a multitude of brainy youngers who opt to go to school in one of the 14 states and then remain there for a productive work life and to raise a family.

The book acknowledges that there are some foul weather metropolitan areas that will survive because of their strong basic industries and keystone universities and lively lifestyle. Among them, of course, are New York, Boston and Chicago.

Unfortunately, most of the Midwest and northeastern states are stagnating because they have lost their basic industries. The cold climates are rife with failing metropolitan areas like Flint, Detroit, Dayton and Buffalo. They are shells of their former selves..

Several chapters of the book look at real estate and its potential for growth, focusing on the dramatic changes in the demand for retail and office space, the gains and losses in single family values around the Nation and investor parameters for apartment owners. And it all relates to demographics.

On balance, the conclusion of the book is that inevitably in the United States, the winning states are those that have strong and growing basic industries – but then again, that’s the way it has always been.

 

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The Great Divide is available on Amazon and Kindle or at anevin@xperagroup.com. Alan Nevin is Director of Economic Research at Xpera Group, a leading construction consulting firm headquartered in San Diego. Mr. Nevin is available for presentations. 

 

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