Chapter 4
Cultural Changes Make Economics Change
Despite the math that people throw at economics, it is still a social science. That means that how people decide to act influences results. Cultural changes can disrupt the value of historical economic data just like technological changes can. Many times, investors focus too much on the financial and business data and then get blindsided by cultural change.
Cultural changes can come from shifts in demographic, events that can impact social consciousness, evolution in thought, or changes in education and the evolution of institutions. Events like the opium wars in China during the nineteenth century, the World Wars, the legalization of birth control, and the terrorist attacks in the United States on September 11, 2001, have all caused social change that ended up impacting economic behavior and relationships. For example, Mr. Lazarus, the Toys ‘R’ Us founder, rightfully predicted an increase in household formation and the baby boom after World War II. This was a social change that impacted the economy, skewed real estate values and purchasing data for decades.
In the United States and many developed countries there has been a population bubble referred to as millennials15 made up of people born after 1980, and this age group is influencing and changing the economy. In the United States estimates put this generation at about 72–73 million people. They have had different experiences than other generations, which will impact their economic activity. They have more likely been raised in a divorced family and grew up in an all-digital era. They spend more on dining out and more on mobile phone service than other generations. Many surveys show they prefer to spend money on experiences rather than things (e.g. thus the increased level of spending on dining out). A significant number of millennials were also just starting to invest and get there working life underway as the great recession hit, which may influence how they invest in stocks and bonds or think about real estate. They also tend to have different political views than other age groups, which may influence policy over time. They appear to have views about work that differ from earlier generations, some expect more structure and nurturing as many have grown up in an era of coaches, tutors, and extra help (for people who could afford it); some are happy to switch jobs so they can learn more. They have also seen the incredible success and growth of companies like Google, Apple, and Amazon that did not exist a few decades ago that may inspire more entrepreneurship.
The millennial population bubble is already changing economic data and will likely lead to changes in how various economic factors interact. Overtime we may see that the high level of job changing limits wage growth or spending on out of home dining becomes a meaningfully larger portion of household expenditures; this may be accelerating a trend of restaurants replacing stores in America’s shopping malls.
New trends are often most prevalent in younger people; this can often be seen in changes in music, or fashion, the switch from board games to video games or even trends in which sports are popular. Sometimes the shift permeates society and moves beyond just younger people, such as the demise of newspaper wantads and the move from printed to online news. However, young people are, well, young. Sometimes what may look like a long-term trend among younger people disappears as a generation gets older and takes on more responsibility and outgrows the latest fad. There are a fair number of octogenarians that text, but not many using hula-hoops.
Immigration and immigration policies can have many obvious impacts on an economy and society as well. Countries that are attractive to immigrants and have a successful history of immigration have a unique opportunity to shift and reverse demographic trends in their country. If a population within a country is aging rapidly and the percentage of working age is too low, immigration can change that much more quickly than the amount of time it takes to make a baby and have it grow into adulthood.
Immigration also adds to the diversity of a country, which can lead to more creative thought and impacts the country culturally and economically. For example, a few years back in the United States salsa sales surpassed ketchup sales as Americans’ tastes expanded thanks to immigration.16
The cultural changes from immigration can impact and skew economic data. According to one study from 2010 to 2015 immigration from Asia, including the Indian subcontinent increased into the United States by 72% and these ethnic groups accounted for approximately 20 million people by 2015.17 For many people from these cultures the most important holidays do not necessarily fall into the fiscal fourth quarter around Christmas but are focused around Lunar New Year (Chinese New Year) and Diwali (Hindu festival of lights). Spending for gifts and family gatherings increase around these holidays for people that celebrate them. As this population has grown they are likely influencing seasonal spending patterns. Seasonal adjustments in economic data may lag and be less accurate over time, and the subtle distortions in the data may increase, thus making the data further from being an accurate depiction of the real world.
Major events effect how a culture acts and can impact data. The terrorist attacks on the United States in 2001 caused dramatic changes in U.S. government spending habits; it impacted the travel industry and shifted resources to security measures from other projects in the public and private sector. The great recession also appears to have left some economic scarring. Some studies have shown there were declines in the fertility rate and household formation, whether these are long-term behavioral changes or simply short-term deferrals due to economic setbacks will take time to see.
Cultural changes can redirect trends and make extrapolation from old data meaningless. However, not all cultural trends necessarily have wide-reaching economic impact. For example, it used to be commonplace if a person met a celebrity to ask them for an autograph, and many people had autograph collections. Nowadays the request is more likely to be for a selfie photo. This is a technological driven cultural change and may be long lasting. However, it probably does not have far reaching economic impact outside of the autograph collecting market. On the other end of the spectrum, the internet has changed the world in obvious and subtle ways. It has given people immediate access to information on items like celebrity gossip from places like the National Enquirer website, to information on health and education that can help individuals better themselves and allow an economy’s human resources to improve and transform more fluidly.
Cultural shifts in the economy can be an invaluable lead to investment ideas, if you can catch the distortion caused by cultural changes early. They can come from population changes, life changing events, technology, or the arts. However, there are many false starts in this arena. The key is to get a sense that they appeal to a broad diverse range of the population and that these trends are sustainable.