VIEW FROM WASHINGTON / ROBERT A. ROSENBLATT : Demographics, More Than Deficit or Interest Rates, Drives Economy

What if Federal Reserve Board Chairman Alan Greenspan’s manipulation of interest rates is irrelevant?

Suppose the federal deficit isn’t such a big deal?

Sounds like heresy in Washington. But perhaps the destiny of the economy for the next generation is going to be driven more by demographics than through the gyrations of central bankers and politicians.

Consumer spending accounts for two-thirds of the nation’s economic activity. And the baby boomers have been the most determined and profligate consumers of all.

Business could move at a slower pace than we would like as the “pig moves through the python,” the ugly metaphor to describe the aging of the baby boom generation.

Some 76 million strong, the baby boomers, born in the years 1946 through 1964, are the biggest generation in history.

As children, they drove the demand for clothing and games, schools and Saturday morning cartoon shows. As adolescents and young adults, they created the rock music market and filled the colleges.

The first-wave members, ages 40 to 49, are moving into the years when they should be saving money with an eye toward sending their kids to college, and maybe putting a few bucks by for retirement.

Critics of economic policy have warned for years that Americans were not saving enough, that the country needed billions and billions of dollars worth of savings to invest in equipment to increase productivity. However, corporate investment has been growing rapidly in the last few years, and banks are flush with funds to lend to entrepreneurs.

If the leading-edge baby boomers turn to savings in a big way, they could well starve the producers of goods and services so accustomed to a generation of big spenders.

“During the 1980s, baby boomers kept on spending and going into debt to do it, although interest rates were incredibly high,” said Gordon Richards, chief economist for the National Assn. of Manufacturers.

The older boomers have always enjoyed comparative good times.

“Those of us who went into the labor market in late ‘60s and early ‘70s went into an expanding market, an economy that was growing,” said Eric Kingson, 49, a professor of social policy in the graduate school of social work at Boston College. “Manufacturing jobs paid good wages and it was still possible to be (a) high school graduate and end up in a reasonably good, middle-class job.”

But the second wave of boomers, who are 30 to 39, have been entering the work force in an era of stagnant wages. Fewer of the younger wave have college educations, and more of them live in poverty.

Disturbingly, “the ultimate educational attainment of the second-wave boomers will be lower than for the first-wave boomers,” according to a report prepared for the American Assn. of Retired Persons by Lewin-VHI, a consulting firm. For the first time, “younger generations in the United States may be less educated than prior generations.”

“The older boomers got the first shot at jobs and left their younger counterparts scrambling for opportunities,” wrote Daniel Moreau in the Kiplinger book, “Facing 40: How to Deal Successfully With the Changes in Your Life.”

The younger ones don’t have the good jobs and incomes to take up the banner of spending and keep the economy going.

One early casualty could be real estate. The young boomers won’t be able to afford to buy those homes the older boomers bought years ago, when people bragged at parties about their 15% annual increases in equity.

Then who will do the spending to fuel the engine of the enormous American economy? We can’t depend on the generation behind the boomers, called the “baby bust” because there weren’t that many of them. Their ranks are too thin to depend on. In fact, the number of households in the 25 to 34 category, the years of madly enthusiastic consumption, will shrink dramatically during the next 10 years.

Marketing consultant David Wolfe calls this phenomenon the “de-youthing” of America, where “for the first time, the younger generations are smaller than the generations that gave them birth.”

Pessimists fear these numbers could doom us to a sluggish economy. Perhaps, if the older boomers become suddenly conservative and start saving, as their parents did at the same age. That generation, scarred by the Depression and the scarcities of World War II, had a different outlook on life and an inclination to save.

Boomers are very different. They “have shown an incredible propensity to spend all their income and then some,” said Richards of the NAM. “They are the most consumption-oriented generation in history in any country.”

He sees them as spendthrifts without end, people realizing they have to keep working to sustain the lifestyle they demand.

Why should the aging cohort of boomers settle for less? After all, they were the only generation given the singular honor of a Time Magazine “Man of the Year” cover. Maybe it is simply the patriotic destiny of the gray-haired hordes to keep brandishing their credit cards so business will keep booming. After all, there’s no one else to do the job.