A Boomer who’s OK with #OKBoomer

I just returned from a European vacation -- blissfully unaware of current events – in time to head to the polls.  Of course, one can easily follow current events from Europe.  All one needs is an Internet connection.  I simply chose not to read the news or follow the latest social media nonsense. 

My first clue of the latest potboiler was a tongue-in-cheek Tweet by WXXI’s Evan Dawson lamenting that a Rochester radio host had gained national attention and it wasn’t him.  He faux-whined “Am I doing this wrong?”  Later, I learned about Bob Lonsberry’s comparison of the hashtag #OKBoomer to the N-word.  To say Lonsberry’s analogy was overreach is stating the obvious; but I understand the emotion from which it springs.  Just as I wrote a few months ago that being a white male is considered an original sin, Boomers are now being dismissed as an irrelevant generation.  As an older Boomer, I should be insulted. 

However, I have to say I agree with many of the complaints of Millennials who will inherit from us a mass of structural impediments to our progress as a society.  We once lectured our elders about environmental pollution and bought Volkswagens and Toyotas instead of huge sedans.  Now, we buy SUV’s.  We protested the war in Vietnam and take credit for bringing it to a close.  Now, we have led the nation into the longest wars in our history.  We advocated political reform to rid society of “smoke-filled rooms.”  The reformed process has yielded Donald J. Trump.  The failure of four Boomer presidents is monumental, leaving us with unresolvable deficits, unviable social safety net programs, and government that is captive to industry.  

Historian and demographer Neil Howe has researched generational transitions back to the War of the Roses. He posits that every fourth generation – those who come of age during crisis – brings forth a heroic new paradigm for governance.  The last generation to do so, was the WWII generation.  Their post-war world order has given us 70 years of unprecedented prosperity  and is now, like Boomers,  getting a little long in the tooth.  So, dramatic change is perhaps due.

Like many of my contemporaries, I shake my head at Millennial ideas that seem crazy, from Green New Deal to free tuition to socialism (Socialism? Really??).  But Millennials are unlikely to tolerate an unsustainable model that has its roots in the experience of their great grandparents.  A generation of Americans that grew up with the Internet isn’t going to tolerate public institutions that operate on a 19th Century bureaucratic model. Nor will they tolerate a healthcare system that absorbs more and more of our national income without improving outcomes, a social safety net that will collapse of its own weight or an education system that doesn’t match graduates with jobs and careers.

Going forward, the national debate won’t be about spendthrift compassion vs. cold-hearted austerity.  It will be about developing a healthcare system that can care for our poor and elderly without bankrupting the country, restructuring education to deliver globally competitive graduates and ordered liberty that provides equal opportunity to all.

Just don’t mess with my Medicare, okay?

WHO WILL LEAD? 

The Fourth Turning: how Millennials will save capitalism

In my last post (Let’s understand just whatsocialism means to us (redux)), I decried the misguided belief that socialism should displace the capitalist system in the industrialized West.  Old, white guys like me won’t be around to turn the tide against this trend.  It will be the Millennial generation that saves capitalism.

In Neil Howe’s book “The Fourth Turning: AnAmerican Prophecy – What the Cycles of History Tell Us About America’s Next Rendezvous with Destiny,” he outlines how four repeating generational cycles (or Turnings) determine social attitudes and ultimately govern the social contract. You can find a one page summary on his website.

Howe’s hypothesis will ring true to any student of American History as he traces the impact of events on rising generations and how each generation changes the social order. The WWII generation was in the driver’s seat for the most recent First Turning, the “American High” following WWII when the crisis of the Great Depression gave way to a period of prosperity characterized by high levels of trust in institutions. 

The Fourth Turning in this model is crisis. The Stock Market Crash of 1929 began the crisis that preceded the American High. Four generations later, Howe tells us, “Today’s Hero archetype youth, the Millennial Generation … show many traits similar to those of the G.I. youth, including rising civic engagement, improving behavior, and collective confidence.”  It is they who will develop a new social order in the wake of the financial crisis of 2008.

My contemporaries doubt this.  Like all generations of elders, we collectively take a dim view of youth that that we see as addicted to their smartphones and cowering in their safe zones.  But, I take a different view.  Studies by Big 4 accounting firm Deloitte show Millennials tend to develop values consistent with their elders once they form families.  And, they are also becoming entrepreneurs.  Their future success will be enabled by technologies their elders are, to some extent, ignoring like broadband, social media and 3-D printing.

Still not convinced? 

How about this? Businesses change their approach to the market when it’s in their best interests to do so.  Corporate values will shift as Millennials become their core customers.

In the post-industrial 21^th Century, it’s getting harder to succeed purely on the basis of what you produce.  Your innovation can easily be copied, produced in a low cost factory overseas and exported to any market.  In a world where nearly every consumer can compare prices and features instantaneously, the spoils will go to the lowest cost producer not the innovator. 

To succeed in the 21^st Century, corporations will have to “outbehave the competition…” according to Dov Seidman.  His book, “HOW: Why How We DoAnything Means Everything,” outlines how companies must engage all of the talents of their employees to extend enduring value to customers.  Those that succeed will be those whose behavior is aligned with its customers’ values.  They will accrue enterprise value by becoming internetworked with the communities they serve. To do so they must engage their employees by treating them fairly and giving them good reasons to be proud of what they do and where they work. 

Granted, my argument is highly speculative (or full of holes if you prefer).  The future is hard to predict.  I truly have no idea how Millennials will ensure our continued prosperity.  I simply know that every generation does so.

To buy into my argument one must have faith.  My personal faith is best captured in a quote from the late John McCain:  “Our shared values define us more than our differences.  And acknowledging those shared values can see us through our challenges today if we have the wisdom to trust them again.”

Leaders of the Fourth Turning will be those who can merge our values with our aspirations.  It is they WHO WILL LEAD!

The next bubble to burst will be…

Recessions occur when demand gets ahead of our ability to pay for stuff.  Of late (the last 20 years or so), the triggering event for a recession has been the bursting of an asset bubble.  First, it was the Dot Com bubble (or is it .com?).  Then it was the real estate bubble.  The paper gains of assets like stocks and real estate create in us a “wealth effect.”  We feel wealthier than we are and comfortable taking on debt to pay for all that stuff.  When we wake up (or when the bubble bursts), we stop spending so much and the economy contracts.

Cruising channels the other night, I stopped on Bloomberg long enough to hear a Swedish economist who specializes in Asia report that global debt now totals 320% of global GDP, ¾ of it corporate.  (Ya gotta love it: A Swedish Asia expert on American media!  Ain’t globalization grand?)  In other words, corporations and governments have been taking advantage of low rates and central banks’ Quantitative Easing to expand spending and investment that drives GDP growth.  Of course, sooner or later, someone has to start paying back all that debt. It seems that big corporations and banks can keep kicking the can down the road.  However, there are other concerns.  

Long term, the challenge of living up to the obligations that governments have made to citizens will be untenable.  Absent reform of Medicare and Social Security, we may be unable to pay those benefits without taking on debt too heavy for the US economy to support.  The alternatives are to expand the money supply (which QE did to little effect because there was little M2 acceleration) leading to extraordinary inflation, to raise taxes to a degree that will reverse economic growth, or to fail to live up to our obligations.  This extends to states and municipalities (and, indeed, corporations) that can’t pay pensions to which they have committed.  (It should be noted that the unpaid obligations of public pension funds, Social Security, Medicare et al. are not on the books.  In other words, the sum of those obligations is not included in the $320T of global debt.)

So, what does it look like when the bubble bursts?

Some think that the triggering event will be a collapse in the High-Yield Bond market.  (We used to call them Junk Bonds, a more appropriate title.)

To me, it seems more likely that developing countries may suffer a collapse. When countries without a reserve currency enter into international contracts (or development loans), they are generally required to make repayments in a reserve currency, typically US dollars.  As the US dollar strengthens (due to rising interest rates or international strife), it becomes more expensive and, eventually, impossible for those nations and their corporate citizens to repay their debts.  This process could be accelerated by a new tariff regime.  Such an event in one country could trigger a series leading to massive defaults.  This happened in isolated instances in the 90’s. When the Mexican currency collapsed, for example, President Clinton structured a debt package that enabled them to work their way out of trouble.  

Now, of course, the problem exists on a massive scale.  Governments, including the US, are carrying the weight of debt over 100% of GDP (and adding $1+ Trillion per year to it).  Corporations, globally, are carrying more than twice that burden in percentage terms and we don’t account pensions as liabilities.  They are typically described as “unfunded liabilities.”

For several years, the gurus at ITR Economics have been forecasting another Great Depression beginning around 2030.  (They’ve even gone so far as to outline how Millennialsshould prepare for it.) Its causes will be different than its 20^th Century counterpart.  It will be caused, in ITR’s view, by the failure of the US government to reform its largest entitlement programs – Social Security and Medicare. 

This scenario is becoming more believable as time goes on.  We have recently been treated to the spectacle of a hypocritical Republican Congress -- which quite correctly criticized President Obama’s huge deficits – pass a tax bill and a budget that creates $1 Trillion annual deficits for the foreseeable future. 

Maybe it’s time to start hoarding gold. 

WHO WILL LEAD?