Economics | Lifecourse Blog

I’m always amazed at all of the interesting ways the moral rectitude of Boomer (born 1943-1960) comes back to bite them.

A couple of random examples:

We once wanted to protect the freedom and privacy of college-age youth (and inspired FERPA and other legislation to ensure this). Now, guess what, we’re angry that we—as parents—have been stripped of our God-given right to see our kids’ grades and health records.
We once believed that society would function better if everyone were a bit less inhibited about sex—and more transparent about what they do as leaders. Then came Bill Clinton and Monica Lewinski, which nearly persuaded Boomer-dominated Congress to impeach a President for being a bit less inhibited… and a bit more transparent.

All of this brings to—enough silly preamble—my latest example: The “scandal” at Goldman Sachs.

I would wager to say that, back in the 1960s and 1970s, nothing infuriated Boomers more about how the American economy was run than the idea that powerful greasy old men, dressed in oversize pin-striped suits and hidden away in smoke-filled rooms, essentially made all the strategic decisions about where capital would flow and (therefore) what would be produced and consumed. These anonymous titans, from their “commanding heights,” claimed they exercised prudent and responsible judgment, but their very paternalism just infuriated us more. We wanted to blow it all up.

And guess, what? We succeeded. The ascendancy of Boomers as voters and leaders since the late 1970s has coincided with a radical deregulation of our economy, especially in those areas, like investment and finance, where trusted “fiduciaries” were supposed to take care of others. In the new Boomer world, the market was the great leveler and everyone was liberated to take care of themselves. Today, you buy and sell on ebay as you wish, you invest your 401(k) money as you wish, you purchase and liquidate hotels or firms as you wish, and you can even invent new financial instruments (this brings us to derivatives) to gamble or hedge or arbitrage against any event you wish. Goldman Sachs, run by G.I.s back when Boomers were young, was your typical “investment bank.” It was supposed to watch out for the rest of us and steer capital accordingly. Now Goldman Sachs, run by Boomers, is no longer really an investment bank at all. It’s just a hedge fund and its purpose is to make money, just like everybody else. And let’s face it, because everything is deregulated and competitive, there’s no real money to be made in investment banking anymore any way.

And now we’re shocked that GS set up a derivative that it sold to clients on both the long and short side? That it didn’t warn these billionaire speculators that they might lose money? And that they, GS, might be taking the other side of that transaction? (We’re not talking about widows and orphans here.) This is crazy. Boomers set up this new world. Many Boomers have made billions off it. And, so be it, other Boomers should be allowed to *lose* billions off it. Yes, a deregulated hands-off financial system may make it easier for the next Steve Jobs and Bill Gates to get start up funding (something that wasn’t easy for them back in the “bad old days”). But it also makes it easier to lose vast amounts of money on bad bets.

You can’t have it both ways. Nothing infuriates Americans more than the idea that, for these very rich 50- and 60-somethings, we’ve privatized risk on the up side but socialized risk on the down side.

Boomers should stifle their shock. It’s like being bothered by the sight of Bill Clinton caught with his fly open. Boomers have taken America all the way here on that whole long crazy trip of theirs. And now they have to accept the consequences.

In the longer run, Samuelson’s final question looms large: “But if Wall Street can’t control itself, someone else will.” Prediction: Come the next First Turning (the High), some new institution (maybe a new government agency, maybe some new business cartel) will be in charge. Which means that, come the next Second Turning (Awakening), the young [Prophets] of that era will have something to rage about.

With super-Boomer (and now Nobel laureate) Paul Krugman advocating slapping a 25% tariff on Chinese imports and with Obama’s new “National Export Initiative” targeting a doubling of U.S. exports in five year come hell or high water, one senses a seismic shift in the geopolitical firmament. It’s not just the prospect of protectionism and trade wars I’m talking about. Yes, this is a huge danger—and could force the global economy back to the ER in a heartbeat. But there’s something bigger here: The disintegration of the Bretton Woods consensus, built by the G.I. (born 1901-1924), that formed the basis for global trade and power for 66 years, 1945 to 2011–that is, for three turnings.

The Boomer (born 1943-1960) parents created a global system (Bretton Woods, fixed exchange rates, IMF, World Bank, NATO, and regular rounds of tariff reductions were all part of it) in which America’s national purpose was global prosperity, not just our own prosperity. We set up all these global rules and then we promised not to game them. Even more, we promised not to care very much if other nations, who really were just focused on their own prosperity, tried to game them. (At one time or another, this included nearly every OECD country, esp Japan.) America was “above all that.” Throughout the postwar era, every single U.S. Commerce Secretary used to complain that while the German or Italian governments made swinging huge export deals for their own companies a national priority, we always subordinated the interests of our workers and companies to broader global political goals. Again, we were America. We were above such parochial concerns. We needed to keep the rest of the liberal democratic world healthy and prosperous in our “long twilight struggle” against Communism. Somewhat surprisingly, this Bretton Woods consensus outlived the fall of the Soviet Union by 21 years, 1990 to 2011—that is, one turning—though there have been growing strains. One might attribute this to generational inertia. Enough Silent (born 1925-1942) were still in power, the Boomers were still finding their voice, and the Generation X (born 1961-1981) were still on the sidelines.

Now that may all be changing. The Silent, who are the last generation to recall, from their childhood, *why* we created Bretton Woods, is passing from power. The Boomers will not rest until they see the last edifices of their parents’ institutions reborn in their own image. And now the Xer influence is rising. To many Xers, the idea that America is “above all that” is a joke. Every since they were kids in the OPEC-stagflation ‘70s, they’ve been hearing that America is in crisis, has reached its last days, and is sliding into no-growth irrelevance and decadence (of which their generation btw is a prime example). For Xers, the hubris and complacency of the G.I. worldview has been replaced by survivalism and revanchism. Yes, we got the message: America’s empire is over. America is just one more desperate player in a dog-eat-dog world. So why not go after our share? I hurt. I need a job. I do not want my life to sacrificed on some insane alter of global stability and progress.

The G.I.s believed in Bretton Woods because it was *their* system. They built it and trusted it. For decades thereafter, younger generations deferred to their institutional confidence. I think that may now be coming to an end. From this perspective, how America emerges from the decline of Bretton Woods will depend hugely on the rising Millennial (born 1982-200?). What new global system will they erect? Will it work? Will it be built in time?

These idle generational reflections were prompted by the following essay (from Stratfor) on the outlook for the Chinese economy. According to Zeihan, the single biggest consequence of the dismantling of Bretton Woods will be the meltdown of the Chinese economy. No more “Chimerica” (to use Niall Furgeson’s phrase). And that meltdown, in turn, will have huge global repercussions.

Is this Millennial’s views really representative of his generation? Here’s why I ask. The mandatory (or “entitlement”) spending he talks about has been growing as a share of GDP more or less continuously over the last 45 years. And it is projected to continue to grow over the next thirty. I know many Millennial (born 1982-200?) who are very concerned about this trend—and when you talk to them, they do find it troublesome. But to the extent of really motivating them to elect or defeat a political candidate? If the Democrats’ new health-care legislation remains in place, that path has just been tilted further upward, i.e., accelerated. Yet I can’t say I’ve heard many Millennials speak out about this law’s obvious fiscal impact. This year, Social Security is going into a primary-balance deficit some eight years earlier than projected a few years ago. Not much comment here either.

So again I ask: Do most Millennials share this writers view? Maybe after the next great economic scare, but not quite yet, I think. One can imagine a larger version of what happened after the 2008 meltdown, when everyone “woke up” to say omg we knew about those subprime mortgage and CDS’s all along… why didn’t we *do* anything about them? Only this time they’ll be talking about the entire government sector balance sheet.

Pay as you go accounting has allowed a gap the size of the Grand Canyon to open up between what most Americans expect to pay to government over their lifetimes and what they expect to receive. Absent blistering productivity growth or surging demographic growth (we’re not going to see either anytime soon), nearly all of that gap must be filled. Get out your shovels. There will be a day of reckoning.

Interesting article in The Atlantic about the effect of joblessness on generational attitudes (courtesy of Pete Markiewicz) http://www.theatlantic.com/doc/201003/jobless-america-future

In tone, this is a very Fourth Turning (Crisis) kind of piece. I especially like his figure of the “L-shaped” recession. Yet he really doesn’t present any coherent analytical point of view. He simply puts a negative spin on every observation or study he can cite, making everything consistently downbeat.

In fact, many of the cited studies on the effects of unemployment are now known to have false correlation problems. When a young man has drinking and other personal problems and also sporadic employment behavior, we cannot assume the latter caused the former. It may be the other way around. As for the negative impact of high unemployment on cohorts who come of age in those years, well, Millennial (born 1982-200?) are trying to avoid that negative impact by *not* just taking the first lousy job that becomes available. But the author gives Millennials no credit for that, but bashes them for the softness and risk-aversion etc.

This brings us to what he says about generations and Twenge, which is pretty much all garbage. He says that “Gen Y” got jobs in the high-tech boom of the late 1990s and that that’s why they’re optimistic and rule abiding (as opposed to “real” Generation X (born 1961-1981) who got jobs in the early 1990s)? What? Where does he get his dates?

I’ve been on several radio shows where the host asks me about the impact of recession on youth generations. They often cite the famous Glen Elder book. My response, which seems to make sense to most people, is that how a generation responds to a recession depends upon the underlying peer personality of the youth generation in question, which in turn depends on how they were raised. For the young Silent (born 1925-1942) in the 1930s depression, economic hardship accentuated their other-directedness, their trust in big institutions, and their long time horizons. For the young Xers in the early ’80s, it accentuated the opposite traits. There is no mechanical one-to-one link between an economic shock and the youth response.

It’s the author’s failure to acknowledge generational and era (“turning”) differences that explains how he comes to the conclusion that the emerging ’10s will resemble the ’70s. He has no inkling of seasonality. E.g., youth crime rose strongly throughout the ’70s. But today youth crime is still falling. Incredibly, cities like NYC and DC had fewer murders in 2009 than any year going all the way back to the early 1960s. No mention of this in this article!

Lifecourse Blog

Goldman Sachs and Boomer morality

The End of Bretton Woods?

Millennials’ Concerns

How are Millennials Reacting to the Recession?

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