This recession — our generation’s Great Depression — will profoundly transform the way we live, think, and work.
I’d like to encapsulate four of the effects of this recession I think we’ll see over our lifetimes. Whether you agree or disagree, please write your own blog post (and link back to this one) or comment here with your own thoughts on how our world will change.
- America’s birth rate will continue dropping, and will eventually get below the replacement rate. A common statistic is that it takes 2 births per woman to sustain a population. America, so far, has barely managed to stay above this rate. However, with the cost of having children increasing, many parents will opt to have fewer kids. Thus, in the next 40-50 years, we may well face an odd situation: whole towns disappearing, since there won’t be enough people to keep them going.
Whatever your personal opinion is on this situation, it will certainly make for some interesting political drama.
- The number of houses needed for the general population will nosedive. This will puzzle and catch off-guard the real estate industry and many pundits.
Right now, there are many huge houses on the market: 4000sq.ft.+. Their prices are coming down, but they’re still not selling. Why? Maintenance costs! Heating and cooling gigantic houses is extremely expensive. Rather than disappearing, however, I believe multiple families, or multiple generations of a single family, will buy these houses as they become dirt-cheap.
Multiple generations in the same house is already common in many Asian, Hispanic, and Indian families. This will become a defining trend in the U.S., as minorities are having more children than whites, and whites will eventually figure it out and embrace this trend.
Since day care may be prohibitively expensive for many lower-income families, this trend will become even more pronounced. I expect to even see homebuilders responding to this trend by creating new types of McMansions to help these multi-generational families with their needs — in 10 years or so, when they recover from the current bust.
There is a corollary trend that goes along with this. Since it will become commonplace for families to live together, fewer houses will be needed for the general population. This may start out as a small trend — virtually unnoticeable due to birth rates. The good news is that it means that rent prices as well as home prices will drop.
The trend of rent prices dropping may be most noticeable over the next 2-3 years as foreclosures hit the market, since by some estimates up to 50% of people being foreclosed on are not renting or buying another property, but instead moving in to an existing homestead. It may then get lost for several years as people shrug it off when the economy gets better. However, I think the resiliency of this trend (and its huge cost benefits) will be underestimated by the media, and the trend will continue to gather steam for the next few decades.
- A backlash against expensive colleges, as well as lack of funding for state schools, may open up new entrepreneurial opportunities in higher education. Throughout the past 20-30 years, student loans were easy to get, so more people went to colleges, so colleges raised their prices, so the government and banks made student loans easier to get…repeat ad infinitum.
The costs of college have far outpaced inflation for the past century. In the book Going Broke by Degree, economist Richard Vedder writes:
“In 1958, it took a bit less than 57 days for a typical family to earn enough money to pay for [annual] tuition at Northwestern. As of fall 2003…instead of 57 days, the typical family would have to spend almost 195 days.” This explains the persistent rise in student loans and scholarships.
You will, of course, see a government push to make loans easier to get, as the banks pull back. This doesn’t help anyone over the long term, however, as it simply inflates real college prices. (The economic details of this scenario are worth a blog entry of their own — one I may do later this month.) The easier government makes it to get college loans, the slower prices will drop. New parents and those planning to have a baby should consider a 529 savings plan for their kids. Saving just $100/month in a 529 (and putting it into the stock market) will turn into $40,000 or more for your cild once he or she is 18!
If you’re in college now, simply be as frugal as possible and bear it out. Avoid taking on student loans as much as possible.
Is college worth delaying until later simply because it will be cheaper then? I’d say no. However, if you are considering going to college in the next year or two, get as much education as you can done at a community college. Not only will that save you a lot of money up front, but you may also benefit from enrolling 2-3 years later at a more expensive college, instead of enrolling now.
There is a prevailing mindset in our society that college is necessary. I’d expect some backlash against that in the next few years, although it will mostly take the form of “Ivy League schools aren’t necessary” and my above recommendation of attending a community college for the first few years.
Over a longer time frame, I expect to see many college alternatives popping up. In Going Broke by Degree, Vedder cites the for-profit University of Phoenix, as well as tech certification programs, as two valid alternatives to traditional colleges. If state funding disappears and college costs continue to go up, savvy entrepreneurs will fund alternatives, and traditional college enrollment may drop for the first time in our lives.
- Commercial office space and retail shopping centers may never recover to the square footage used in 2007. This is another one that will catch the pundits off guard. I realize this is an extreme viewpoint, but here’s my reasoning.
I was here in San Jose in 1999, when companies like Webvan euphorically declared that the need for grocery stores was over. I agree that those companies were overly optimistic, but I also think the continued immersive experience and growth of the Web will kill many retail companies in the long term.
Stores don’t exactly go out of their way to make the customer experience friendly. Safeway (a local grocery store chain) thought they were geniuses by firing 50% of their staff and forcing everyone to wait 15 minutes in line to check out their groceries. (They didn’t even install self-checkout machines…just closed most of their registers!) They later realized their mistake, but expect to see more asinine decisions like these by retail stores intent on cutting costs instead of building better customer relations.
Compare this to the experience I believe we’ll see on the Web in the next 5-10 years — a virtual “personal assistant” on the store’s Web site, 24×7, to help you choose something that fits, free shipping both ways (thank Zappos for that!), and easy tools to measure yourself and ensure you are getting the right size and quantity. With people in India or Vietnam who speak excellent English and are willing to work for a few dollars a day, this sort of service will become commonplace.
If Web 2.0 was about community, Web 3.0 will most certainly be about personalization, simplification, and ease of use. Retail will learn that, to survive, they must personalize and deliver excellent customer service. The Web, where you can hire people for a few dollars a day instead of $10/hour, will be the place to do that.
Once the Web retailers figure out personalization, and do it right, old-school retail will never recover. It is very likely that my kids will find going to a store antiquated for anything that doesn’t need to arrive right now. And far less needs to arrive right now than you or I believe — the main reason people go to stores is customer service; the human touch. The Web will figure this out, and do it far better than the nose-picking, bored-looking 19-year-olds at Best Buy.
There you have it: four effects that will change our world as a result of the recession. What effects do you think the recession will have on our society? I welcome your comments!
Recommended Reading:
- Making Kids Worthless: Social Security’s Contribution to the Fertility Crisis. Postulates that Social Security programs are the cause of the declining birth rate in many developed countries. Interesting theory — very Malcolm Gladwell-esque.
- Going Broke by Degree. The author recommends specific policy decisions that should be made to decrease the cost of college for everyone. Worth reading if you would like to know more about the economics behind the expense of college.
- Forget Presents; We Want 529 Contributions at Frugal Dad. Giving a young family member the gift of education savings is far more important in the long term than the latest video game or another new pair of jeans.
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6. January 2009 at 2:43 pm
I suspect the best education parents can give children
is to spend whatever time it takes to impart wisdom
sufficient for survival in the upcoming century.
Because they won’t be getting it in their formal
education, at any price.
7. January 2009 at 8:32 am
I like this post and think your predictions are certainly within the realm of possibility. More discussion like this will, as it should, start people thinking about the future of their familes in a quickly and drastically changing world.
Personally, I hope we, Americans, that is, don’t fall below the replacement line. I’m still of the firm opinion that our culture (the fascination with celebrity aside) and the American experiment is the best the world has to offer.
Thanks for a great post and a great blog.
Alan
twitter: @alanlhammond
7. January 2009 at 10:04 am
One big change that is arriving now is the sharp decline in travel – by car, plane etc. People will not be so readily roaming the world with energy costs climbing faster than income.
So people will stay at home, have virtual vacations, skip Disney Places, and time shares will become vastly cheaper and available only to the few. Hawaii and the Caribbean will become far off exotic places again, but beset by local violence and upheaval with failing economies.
The changes are happening NOW. We don’t have to speculate when.
Toadx
7. January 2009 at 10:42 am
Hello Erica,
I would be glad to offer my thoughts on your comments.
US population and fertility rate:
I’m not sure where you found your statistics? According to my research, the replacement fertility rate is typically set at 2.1 births per woman (to account for infant mortality). Regarding this number, the US actually dropped below this value way back in 1971-72. We have remained well below this number since. The fertility rate increased to 2.1 somewhere between 2005 and 2006. So the fertility rate has been increasing the last few years and since 1971 it is the first time we have been at the replacement value.
Population is a complicated statistic. Of course births are important, as are deaths and immigration numbers. Another complicating issue is the age distribution of the population.
Having said all this, I agree that the demographics of the US population are changing dramatically. I do not think we will “whole towns disappearing,” however, I do believe the demographics of these towns will change considerable.
Housing industry:
I too think we will see dramatic changes in the housing situation. I grew up in a Chicago suburb where huge homes were/are the norm. 4000, 5000, 6000 square foot homes with 3 and 4 car garages, all setting empty while both spouses commute into the city to work and the kids attend school. It always seemed wasteful and foolish to me. My family is a farm-based multi-generational family. Again, there are many reasons – mostly financial, families are not going to be able to maintain separate homes. Example, aging parents and long term care. Therefore, I 100% agree that we will see a return to multi-generational homes. My opinion, our society will be better off because of this.
College expense:
Let me qualify my remark by stating, “I went all the way with my college education.” In fact, I actually spent 4+ years at Northwestern University. I 100% agree with the cause and effect of rising college costs. Easy access to school loans, schools raising costs, more student loans…. I think families must get more creative with reducing the costs of a college education. One must assess, with a dose of reality, the return benefit of the cost of education. For example, if you want to become a teacher or social worker don’t attend a $50,000 per year private institution. One of my all time favorite TV shows was Northern Exposure. The TV show where the State of Alaska funded a doctor’s education. I think this is a wonderful idea.
Commercial office space:
I will pass on this prediction. I have no experience in this arena.
I hope everyone finds my comment interesting.
Rob
7. January 2009 at 11:10 am
Thanks for this great post on a variety of issues.
1. Population stability – Even if US birth rate is lower than its death rate, the global population is increasing rapidly. As borders become less significant (assuming globalization continues), it will not matter so much whether individual countries have population stability. We need population stability for the world.
2. Real estate – I agree there are more houses than we need, and this will keep rents low and cause house prices to decline. There is a chance that lower prices will discourage new construction, and in a few years or so we’ll find ourselves back in balance.
3. College costs – I agree wholeheartedly that prices will come under control. So many college planning websites say that education costs rise faster than inflation. If that continues indefinitely, education will be all we produce/consume. Obviously this won’t happen. New suppliers will come in an provide affordable education in some form or another. This exact same thing is true for healthcare.
4. Shift away from bricks-and-mortar retail – I agree the pendulum is shifting away from bricks-and-mortar. It seems like there was a shift around the turn of the last century from stores to catalogs, starting with Sears. Then it shifted to big box stores. Now it’s going back to the “catalog” model. I agree we’re heading that direction, but eventually (maybe in decades) the pendulum will swing back to stores.
7. January 2009 at 11:27 am
Great post – I am most intrigued by the change in levels of Customer Service. Though I agree that the human touch is missing overall, one of the services I provide as a virtual personal assistance is brokering customer service issues that come up and my experience with this cheap Indian labour is that they are practically reading a script and tend not to be strong out of the box thinkers, or are given such a tight set of instructions as to how to conduct what they do, they are ultimately useless for solving any problem or issue I couldn’t find myself. If their training and utilization is expanded to make them a supplemental resource to the website or retail portal then the human experience is enhanced, speaking to someone reading the same text on the website over the phone or in chat is even more impersonal than the young Best Buy Brat, who at least can’t hang up on you and does want to get you out of line so they can get back to breaking up with their boyfriend on their iPhone before their Orange Julius gets all slushy.
8. January 2009 at 5:08 pm
>> Saving just $100/month in a 529 (and putting it into the
>> stock market) will turn into $40,000 or more for your
>> child once he or she is 18!
I’m a fan of 529 plans the problem with your statement is that a responsible parent would not leave his child’s college money 100% invested in the market until the day the child starts college.
There is a risk that the market could experience a temporary dip (have you been watching the news lately?) immediately before the college tuition bill arrives. To guard against this parents should gradually move the child’s college savings to safer investments many years before the child starts college.
But, this means that parents must save more than they would if they could leave the money invested for 18 years straight. I see this problem with 529 calculations all the time.
Because I’m a passive investor I plan to put my child’s college savings in a 529 fund that automatically shifts its investments to safer assets over time.
13. January 2009 at 12:14 pm
What struck me is when you said, “It is very likely that my kids will find going to a store antiquated for anything that doesn’t need to arrive right now.”
I find myself doing that now — and some places suggest it. Upromise offers more money towards my loans loans if I shop online rather than in stores, so I try to get things I don’t need right away online.
Anyway, nice predictions. I’m excited to for the backlash against 4000+ square footers.
18. January 2009 at 11:42 am
I love the idea of multi-generational homes -
This would be such a positive influence on society in general!
19. January 2009 at 2:59 pm
What Dawn said. I’ve been anxiously awaiting this trend.
27. January 2009 at 1:35 pm
Your 4 effects are interesting, but not too surprising. Here are my 4 predictions of things that will be triggered by this world ‘recession’:
1. The continual printing of the needed US bail-out money, coupled with our increasing need to hike imports will tremendously devalue the dollar at some point and cause almost hyper-inflation. I remember home mortgages in 1980 costing 18% interest–for a home mortgage! That will seem like a very reasonable rate in our future. Inflation will drive up all prices.
2. The scandal of student loans will at some time be impossible to ignore and our college-age students will cease to borrow. There is NO guarantee that a college degree will produce a good job. In 2004 student loans totalled $40 billion; in 2007-08 they totalled $80 billion. Since at least 50% of students don’t graduate anyway (60% for African-Americans), why are we continually pushing “get-a-loan, go-to-college”? We’re simply burying our youth in debt! Professioinal degree like MD, JD (lawyer), etc are even worse. These grads can get good jobs, but thanks to massive loans at variable interest rates, they still can’t prosper. And the 2006 law says Bankruptcy cannot include Student Loans. Things have to change. This ‘recession’ will be the triggering event.
3. As world economies falter, we’ll see even more conflict world-wide. Several developed, Western countries are collapsing–Iceland, the PIIGS in Europe, and several of the smaller Asian countries; others are in varying degrees of conflict–Russia and Ukraine, for example. (PIIGS in the Euro zone are Portugal, Italy, Ireland, Greece, and Spain. These are the weaker countries whose currency is the Euro.) We’ve seen rioting in some of these areas already. As world conditions deteriorate, WAR may grow imminent and is certainly a very real possibility. And that’s not even considering the usual hot spots across the globe, like the Middle East, Congo, Zimbabwe, Balkans, Columbia, Indonesia, Burundi, Angola, Pakistan, Venezuela and the Phillippines!
4. There will be an increasing need for self-employment. Not only will a great number of people capitalize on the unfoldling opportunities to prosper, but they will come in unusual ways, ways that are outside the “40-hour week, good job” mindset.
Just a comment on your ‘American birth rate’ prediction. I think that decline is probable; not because of this recession, but just because that’s whats been happening for the past 40+ years in all developed countries around the world. For example, most all European countries have a birthrate that produces a level or negative population growth figure. That’s why there’s so much immigration; which has caused so many ethnic conflict problems, as in France and Germany. Also, Japan has such a low birthrate the country’s population has been below the replacement rate for 20+ years.
Again, who’s going to staff the low-level entry jobs in the economy? Immigrants from less-developed countries with high birth rates.
As the world populatioin study by the famous PhD-lady (can’t remember her name) done last year says, immigration is a major problem in Europe now, but will become an increasing concern in the US. Also, in countries whose governments act to control population growth, like India and China, more boy babies survive than girl babies. (Yes, parents abort or kill many girl babies.) So what does this mean for the future? It means that 2 of the biggest countries in the world will have a male-heavy population in the future. That suggests an aggressive attitude will predominate. Will that bring more wars? Wait and see.
Thanks for the opportunity to share my thoughts. –Ron
4. March 2009 at 10:13 am
Thanks for the interesting article.
As for the population piece – even with the low birth rate in the US, the population will continue to grow for a while before it levels off and starts to decline. It’s like a train – even though brakes are applied, it takes a while before it actually stops. There are a few other factors to consider:
- Birth rates vary by groups in the US. For example, Hispanics tend to have a higher number of children than other groups and account for 50% of the US’ population growth.
- The population distribution has changed and people move where there are opportunities (usually for a job). This is evident in places such as Washington, DC, Las Vegas, Phoenix and other cities that have seen exponential growth in the last few decades. So it is more about people moving from one place to another rather than towns facing a decline because people are not having enough kids. It’s that their kids are *leaving* the town for opportunities elsewhere.
(I used to work in demographic research with a focus on population statistics in the US)
Related to the last point above, if people could create their own opporunities (e.g. self-employment, which is not usually an option taught to children in school), there may be less of a need for people to move. And those who create their own job opportunities may find less of a need for higher education beyond undergraduate school, which would lower some of the notorious student debt.
Just my two cents.
10. March 2009 at 10:10 am
I disagree that Indians, Vietnamese, etc. will continue to work for a couple of bucks a day. As they get a taste of a better life, consumerism, materialism, they will demand higher wages increasingly. Outsourcing to overseas areas is a bad idea and this has been proven. Also, people RUN away from customer service on the phone when they realize it is someone overseas on the phone. I personally understand the accent but many people, especially the elderly, do not and they get frustrated. Also, they are reading scripts and are not properly trained. A smart, “virtual” assistant (computer, robot, what have you), will be the future for e-retail, phone support, etc. It will be a lot better than they “press 1 for this, press 2 for that”.
18. March 2009 at 9:55 am
I certainly hope that the future holds an increased interest in education in this ‘changed world’. As it stands, budget cuts are a reality in our nations schools which is certain to effect our children’s education. A
A strength of the US has been generating ideas and this has been a result of education and the idea that we can create anything we can imagine. I believe that by focusing on education, we will continue to forge ahead. My 2 cents – thanks!