The Great Recession was primarily caused by the collapse in economic demand as 80 million “baby-boomers” born between 1946 and 1964 moved out of their peak spending years in their mid-30s to mid-50s and into retirement in their late 50s and early 60s. The U.S. government over the last five years squandered $7.6 trillion on Keynesian demand-side stimulus trying to resuscitate this demographically shrinking demand.
The Revolutionary War was sparked by Great Britain’s demand that the American Colonies pay increasingly higher taxes to support England’s expanding national debt. Once independent, Congress adopted the Tenth Amendment to the Constitution that created a “free-trade-zone” between the states and passed the Sinking Fund Act of 1795 to require a significant amount of tax revenue be set aside each year to quickly pay-off any outstanding national debt. These policies created an economic boom that allowed the United States to be debt-free by the 1830s.
President Ronald Reagan revived supply-side economics in the 1980s with Reaganomics. The policy ended the oil windfall profits tax to stimulate oil production, passed the Tax Reform Act of 1986 to cut taxes and eliminate deductions, and instituted a payroll tax to begin a “sinking fund” to reduce the accumulated liability of Social Security and Medicare. Although Reagan was never able to reduce total spending, he did start a huge economic boom that lasted until 2001 and led to huge United States treasury surpluses in the late 1990s.
Most Americans do not realize that Reagan’s biggest ally for his supply-side encouragement of economic growth was the demographics of the baby-boomers. Studies demonstrate that 50% of all durable (cars and houses) and non-durable (food and clothing) expenditures are directly related to household demographics. Spending tends to peak as families grow and people reach their mid-30s to mid-50s. Then spending declines rapidly after the mid-50s.
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