The Saeculum Decoded
A Blog by Neil Howe
Jul 032012
 

I just got back from eight days in Italy, on a trip that featured a wonderful stay in Tuscany hosted by my friend John Mauldin, the world-famous market analyst. While there, I got to enjoy leisurely discussions of economics and history with a handful of eminent financial experts and political notables whom John manages to entice to his villa (among them, David Tice, Rob Arnott, and Newt Gingrich.) I brought along my daughter Giorgia, whose astounding fluency in Italian saved us all on more than one occasion. We saw several Euro 2012 soccer matches in village squares with large outdoor TV screens. Italy’s victory against Germany brought screams of joy. Italy’s crushing defeat against Spain brought groans and tears. Italian flags were hanging everywhere—soccer being perhaps the sole exception to the age-old rule that Italians would rather quarrel with each other than come together as a nation.

It has been some 35 years since I was last in Italy. This is obviously a much more educated and affluent country than the one I recall. The main “autoroutes,” for example, are vastly superior to those I drove on in the 1970s—with wonderful bridges and tunnels and high-speeded entrances and exits. Intercity trains are very fast and efficient. Poverty is much less visible. Yet there are signs of recent economic stress. Driving across the Apennines, from Siena to Ravenna, we saw construction projects halted before completion and large stretches of highway closed due to lack of maintenance.

The mix of traffic on Italian autoroutes is peculiar: It’s all either trucks or high-end cars like BMWs and Volvos. Because gas is heavily taxed and because the trains are so fast and inexpensive, the middle class doesn’t use the autoroutes. The resulting speed differential between the slowest truck and fastest Beemer is dangerously large, leading to deadly accidents when two vehicles collide. We witnessed the aftermath of one deadly accident only moments after it occurred.

As everyone knows, Italy has a large public debt and, even worse, a poorly performing economy that has not managed much growth over the past decade—putting it, along with Spain and Portugal, as one of the sick “Club Med” economies that worry Euro Zone leaders and traders. PM Mario Monti is trying to whip Italy back into shape by some well-time fiscal austerity measures. Against that backdrop, let me relate an astounding scene we witnessed while touring Florence. All of a sudden, just a block or two from the Duomo, we hear a roar of automobiles and then witness a parade of about 90 Ferraris come into town. After cruising in circles around the narrow streets for a half hour, they all then parked row by row in the middle of the Piazza della Signora, right next to the Medicis’ Palazzio Vecchio and the copy of Michelangelo’s David. All the drivers, dressed in beautiful Italian racing uniforms, then just hung out for a while in the local cafes.

Now think about this for a moment: Each of these Ferraris (depending on the model) cost about $175,000 to $390,000, so that the total value of that parked machinery was somewhere in the range of $20 to $30 million. Wow. Does this look like a nation that has no wealth? Or rather like nation whose elite still has lots of fancy toys to play with while its public sector cannot make ends meet. Most of Italy’s fiscal woes are due to an unsustainable growth in total government spending (now over 50 percent of GDP, including an amazing 15 percent of GDP just in public pensions). Yet some of these woes are also due to undertaxing—or at least Italy’s chronic failure to enforce tax laws, especially on capital and business income. (For the heavily taxed middle class, which pays through VATs and payroll taxes, compliance is not a problem.) PM Monti has started a campaign to stigmatize tax evasion. He has also authorized dragnets that stop drivers in fancy cars (like Ferraris) and check their records to find out if they are hiding income. Many of the southern European economies suffer from chronic underpayment of taxes. (Some of you may recall the recent scandal in Greece over its tax on swimming pools, which almost no one pays—even after a satellite image confirmed tens of thousands of pools within the Athens area alone!)

Is it quixotic ever to expect the Italian elite to pay their fair share? In a culture which historically winks (both on the right and the left) at the dandy or anarchist who cleverly manages to defy authority? We will see. Super Mario is trying his best to reconstruct this cultural heritage. Some Italians vigorously support him. Some despise him as the technocratic errand-boy sent by Angela Merkel to make Italy sober up, dry out, and do Germany’s bidding. (Good thing we beat them in soccer!) Still others support Beppe Grillo, now number one in some polls, the comedian-turned-politician who denounces all current parties in favor of something he calls “hyper democracy,” a regime of total accountability and disgust at corruption. Grillo’s Five-Star Movement has some striking parallels in Germany’s Pirate Party. Both, interestingly, are disproportionately popular among young Gen-X voters. In future posts, I hope to say more about this multi-national movement.

One thing is certain: The image of Ferrari drivers being required to stop at Italian roadblocks and answering awkward questions about their income is an apt image of the 4T coming to Europe. In the United States, we do not have the same problem with tax compliance (at least not to the same degree). But if we did, where would we place our roadblocks? Maybe on drivers of Land Rovers. Or on amazon purchasers or Bugaboo baby strollers. I’m just guessing here.

One last note. In the Tuscan countryside, one notices virtually no new construction. Occasionally, yes, one sees an old building being retro-fitted with new interiors and amenities. But taking new pristine woods or fields and cutting trees or bulldozing roads to build a new home? Nope. It just doesn’t happen. The reason: Iron-clad regulations against any new development. Now on the one hand, you can marvel at this regulatory regime as a guarantee of a verdant and pristine countryside for generations to come. Or you can reflect on how easy these regs are to implement in a low-fertility society whose working-age population (age 15 to 64) has just begun to enter negative growth, according to the UN official projections. This declining population trend is expected to accelerate in the decades to come. Unless Italy’s fertility rises again, Italy will lose roughly two-thirds of its current population by the year 2100. As western Europe discovered during late antiquity (from the fourth to eighth century), it’s easy to leave nature alone when your numbers are shrinking.

Jun 072012
 

Allow me to turn our attention again to generations abroad—this time to the emerging Millennial Generation in Mexico. And to offer an account about what’s happening generationally in Mexico in the context of the 2012 general election (scheduled for July 1, 2012), I am going to quote at length from a news-rich report emailed to me by Edwin Carcano Guerra. Edwin is a Gen-X polymath:
He teaches business and economics in the International Business College of Yucatan; he starts businesses; he appears frequently in the Mexican media; and he has written books on both economics and chess (check out his study of “Bobby Fisher”). But what’s most interesting for our purposes is that he has been studying the generational history of Mexico for years—and it is in the course of that study that we met and became friends.

Before letting him speak, let me just highlight one great irony in the “Mexican Spring” he describes. Mexico’s rising Millennials—potentially a hero-archetype generation—is protesting against the political tactics of the PRI (the Institutional Revolutionary Party), which was originally created by the last hero generation during the last Fourth Turning. The one-party PRI state was the final and exhausted outcome of an era of indescribable chaos and suffering—beginning with the Mexican Revolution of 1910 and extending through the civil wars and regimentation of the 1920s and ‘30s practically until the eve of World War II.

What will be the final outcome of the era of troubles in which Mexico currently finds itself? Hard to say. We’ll have to have to watch how effectively the young mobilize—and where their mentors (like Edwin) lead them.

Now, Edwin:

For the last six years Mexico has faced tremendous challenges. The War on Drugs has taken nearly 90,000 lives. Young people no longer feel free to go out at night or have fun like students did fifteen years ago. After graduation it’s difficult to find a job. A few in power seem to get everything and the rest are on their own. Mexican youth are tired of it, and they are beginning to fight against the worst of Mexico: corruption, mass-media manipulation, and wealth in the hands of the few.

The Mexican Millennial Generation was born between 1983 and 2006. They represent the largest and most educated generation in Mexico’s history. History indicates that they may turn out to be a civic powerhouse.  The country’s previous Hero Archetype generations have produced 28 presidents and governed 73 years out of 200 since independence from Spain.

President Carlos Salinas de Gortari governed Mexico in 1994. During his term he worked hard to make the country one of the world’s strongest economies, and he spoke constantly about economic and social progress. Mexicans believed in him and the future looked very bright. That year, the number of Mexican births reached its historic peak (according to INEGI) as Mexican families looked forward to the future.

Those 1994 babies—right in the middle of the Millennial Generation—are turning 18 this year and they will be voting for the first time in a Presidential Election. The presidential candidates are prepared for “business as usual.” But they won’t get it. They have missed the generational shift from pragmatic young Gen Xers to the civically engaged Millennials. As a Hero Archetype generation, the Millennials are known for their community spirit, their technological prowess, and their support for strong national institutions.

In the 2012 presidential election we have four contenders:

• Enrique Peña Nieto (Gen Xer, born in 1966): He belongs to the PRI and is now the top contender in the polls (42.80%).

• Andres Manuel Lopez Obrador (Boomer, born in 1953): This is his second run for the Mexican Presidency. He belongs to the PRD, Mexico’s left-wing party. Today he ranks number two in the polls, though still far behind Nieto (27.40%).

• Josefina Vazquez Mota (Gen Xer, born in 1961): She belongs to the right-wing party PAN. Today she ranks third place in the polls (26.20 %).

• Gabriel Quadri de la Torre (Boomer, born in 1954): He belongs to the PANAL party, which is also the Teacher’s Union Party. Today he is the last contender in the polls (3.60%).

These candidates are finding themselves embroiled in a new Millennial movement. It all started in May 11 when candidate Enrique Peña Nieto visited the Ibero University and students began shouting protests against him. The PRI tried to minimize the student revolt and the mass media ignored the students, suggesting that they were not real students but hired agitators with orders to sabotage Nieto’s presentation.

However, 131 students released a video that day identifying themselves as real student-objectors and not hired agitators. The video was uploaded to YouTube and heavily promoted on Twitter. Soon, sympathy from other students and other Universities began to mount. In order to show their support, the phrase “I am 132” gained new currency. What began as a social network movement grew rapidly into a large-scale national political movement. The Topic Trend #YoSoy132 became the number one Twitter Topic Trend not only in Mexico, but internationally, as students from around the globe gathered to support their Mexican counterparts.

The movement is being called “The Mexican Spring”—and it is just the tip of the iceberg of what this Millennial generation is likely to accomplish. They see their movement as an outgrowth of the financial crisis, of Mexico’s dead and abducted political activists, and of the poverty in the nation’s rural areas. They want a fair country in which the masses and not the elite elect the government. They are against Enrique Peña Nieto and protest the support he receives from the main TV stations in Mexico, Televisa and TV Azteca.

The TV Stations eventually surrendered and accepted some of the student demands, but that is just the beginning. Student protestors from 54 private and public universities recently held their first congress in the Mexican National Autonomous University. They want peace, prosperity, democracy, dignity, justice, and a Mexico free of corruption. They don’t want to live with the injustice of the past and don’t want to go back to the totalitarian regime of the 70 years of the PRI. They are committed to monitoring the elections to ensure that they are fair. After the elections, they will push an agenda to supervise the elected President and peacefully enact change.

This movement represents the political baptism of the Mexican Millennial Generation. Mexico, like the United States, is going through a Fourth Turning, which will present new challenges and opportunities for broad structural changes. This rising Millennial generation will shape 20th century politics, and help determine the country’s new direction. Thanks to Neil Howe and William Strauss, we can understand these fundamental generational shifts, understand what they mean, and look ahead to what is likely to come next.

Jun 012012
 

People often ask me about generations in non-U.S. societies. As someone who travels and speaks often outside America—and who does plenty of international research for clients—I have thought a lot about this question. I believe I offered a short answer to this question in an earlier post (on Spain). I have spent most of my time trying to figure out Europe and East Asia, whose generational line-up roughly matches out own, and the Muslim world, whose line-up is very different in certain important ways.

What about Central and South America?  Ten years ago, I was very unsure.  But after travelling in these areas and speaking to many residents there, I am growing more convinced that here too the generational line-up is similar in certain respects to our own.

Last summer, I flew down to Sao Paulo to speak to business leaders and the media in Brazil about emerging generational differences in one of the hottest of the BRIC economies.  Before going, I wasn’t sure what to expect.  But once there, I was hugely struck by how similar the questions asked of me were to questions asked here in the United States.  (Admittedly, they were talking mostly about Brazil’s emerging middle class families, who are stampeding to all the new malls they are building.)  Everyone who interviewed me told about how protected, special, group-oriented the new generation of youth is.  The people asking  the questions, in their 30s and 40s, all felt they had a much rougher childhood.  As for those in their 60s now in power (I’m thinking of the peers of Lula da Silva and Dilma Rousseff), many came of age with showy, left-wing, Che Guevera radicalism just like Boomers in the US.  (Though I know this radicalism resulted in a great deal more violence and death in Brazil and throughout much of Latin America.)  I saw one photo of Dilma Rousseff in the newspapers showing her as a 20-year-old with a bullet bandolier across her chest.  Made me think of Patty Hearst.

Anyway, with this introduction, let me introduce a Brazilian correspondent of mine who will deliver her own testimony on generational differences there.  She lives in Porto Alegre, RS, in the south of Brazil.

I’m 32 years old–so I remember, as a child/teen, the time we had a big inflation, till it changes with “Plano Real” (1994).  Also, I’m talking from a middle class perspective, with all the limits and subjectivity that it implies in my perceptions.

What do I see in Brazilians of different ages today? Well, personally, as a last wave Gen-Xer, I do not feel that my childhood has been so unprotected as the childhood of my friends a little older, in their 40s; I believe that, at least in my family, the concept of childhood already was more for “Three men and a baby” than for “Rosemary’s Baby”; but also was not as protected as the children who were born after, especially those in their 20s today.

I believe that we knew how to have fun.  The Millennials seem better behaved and more conventional, in general. Indeed, only in the last year was smoking prohibited in nightclubs here in my city, which was surprising for me, and it is a clear sign of protective behavior towards young people. Also I see a tendency to protect more children; on the other hand, I see a certain movement back to a childhood a little more relaxed, back to nature, and a search of a less stressing style of parenting.

Yes, there is a lot in common, but there are some things that are widely different, and maybe it gives to a certain “national flavor” that is unique. For example, the Puritan influence is very strong in the history of the USA.  Here, we don’t have this influence, so our Idealist type will be a little different. And, of course, historical facts affected us in different ways. The effects of the  World War II had more impact over the G.I.s in the USA, empowering them, than over the same generation in Brazil–or, at least, produced a diverse impact, considering the political context and our participation on the war.  In fact, the Civic type is the most difficult to identify, to me.  Oscar Niemeyer and Juscelino Kubitschek are good examples of G.I.s, maybe?

What bothers me is that we don’t have a good study on generations here in Brazil.  Every time the newspapers and magazines say something about Generation Y, it’s something very superficial, with no real basis, talking about the internet and the work force (only), and saying that this generation doesn’t like hierarchy and wants to go to the top quickly.

This is a very nice letter.  I was especially struck by her mention of Niemeyer (the great modernist architect-designer of Brasilia) and Kubitschek (the president who built Brasilia).  Brasilia, that vast utopian tabula-rasa New-World Constantinople built smack in the middle of the jungle back in 1960 as Brazil’s new capital.  Can’t get much more “G.I.” than that!  Niemeyer, in fact, was a huge modernist sensation even in the U.S. during 1950s, where he taught at Harvard and joined with Corbusier in designing the UN headquarters in New York City. His main problem in the U.S. was his communist party membership, which kept getting him deported.

Here is the stunning Niemeyer-designed Roman Catholic cathedral in Brasilia.  (Communist architect for a Catholic Church? I guess in Brazil it doesn’t matter!)

I’m going to report regularly in this blog on generational differences in other countries, using as much as possible reports from residents.

May 262012
 

It is well known that organized Christianity in Europe faces a crisis of abandonment and disinterest. This is even true in the predominantly Catholic countries of Mediterranean Europe, which are still popularly regarded as traditionally devout.

In terms of daily cultural habits, yes, plenty devotion still survives: belief in miracles is widespread, genuflection is spontaneous, and a glimpse of the procession of Virgin Mary can still freeze traffic.  Yet in terms of church attendance, the decline is astonishing.  In today’s Spain, only 20 percent of the population goes to church weekly (versus 40-50 percent in the United States).  Roughly half never go to church.  And rest are “holiday” Catholics, going only on Easter and Christmas.

What happened?  Very simply, a large share of Spanish Boomers (born roughly in the same years as in America, perhaps a few years later) simply stopped going to church when they married and formed families in the 1970s and 1980s.  To some extent, American Boomers did the same thing–but then they came back to churches later on, and most Xers and Millennials followed them.  In Spain and Portugal and Italy, Boomers didn’t come back, and younger generations never followed them back.   (Similarly, a cynic might point out, the ’60s and ’70s-era declining birth rate eventually rebounded in the United States, but has just kept trending downward in southern Europe.)

This generational shift has produced a very conspicuous age gradiant: Namely, those who do attend church today tend to be old.  Italians who attend an ordinary mass in the United States are shocked by the sight of so young families with small kids; they simply don’t see that in Naples, Rome, or Milan.  Even more dramatic is the aging of the clergy.  As of 2009, according to one report, the average age of priests in Spain has risen to 63; in some regions, it has risen to 72.  Ireland has responded to its own priest shortage by bringing in legions of zealous Nigerian clergy. Spain, thus far, is simply spreading what is has a lot thinner.  In roughly half of Spain’s 23,286 parishes, there is no permanent priest in residence.  In some rural areas, a single priest ministers to ten or more parishes.  Seminaries, especially during the huge economic boom of the mid-2000s, saw almost no new young people knocking on their door.  As of 2009, Barcelona (an urban area of well over four million) had only 30 seminarians.  Total.

Now comes the crash after the boom.  Now we see one quarter of all working-age Spaniards–and one half of Spaniards under age 25–unemployed.  Vast numbers of Spanish youth have been hanging around public urban areas for months, where they are known as the indignados (the outraged) and carry signs saying Juventud Sin Futuro (youth without a future).  With Euro-credit drying up, with new businesses and real estate in free fall, with economic deleveraging in high gear, with secular dreams dying… could this be a good moment for the Church to recoup its losses?

In 2011, seminary recruitment actually rose by 4 percent–the first rise in decades.  Will it continue?

Before answering that question, let me digress briefly.  Anyone who has followed my writing knows that organized religion typically experiences great challenges entering the “crisis turnings,” 2Ts and 4Ts.

Entering a 2T, the problem is that churches have come to represent the “salvation by works” establishment–in an era when society as a whole (and especially the young Prophet archetype) yearns for values and meaning  and “salvation by faith.”  (This collision has defined all of the great awakenings in American history.)  Long-term winners?  Those who know how to place their bets with young Prophet archetype.

Entering a 4T, the problem is very different, but no less severe: Society as a whole (and especially the young Hero archetype) is looking for practical, material, collective solutions to Establishment breakdown–at a time when the leadership of organized religion is most apt to emphasize the most moralistic, individualistic, and exclusive aspects of its doctrines.    Long-term winners?  Those who know how to place their bets with young Hero archetype.  Very likely, this is going to be a movement that champions the Social Gospel, an emphasis on serving God by doing good deeds in the service of the great mass of His people.

This is the light in which I would like you to reflect upon the following video, produced by an association of Spanish bishops together with an ad agency.  The video has recently gone epidemically viral in Spain.  Note the shrewd focus on youth, service, community, and hope.  (Almost nothing about salvation, conversion, truth, or morality.)  I will show the bi-lingual youtube version here.  My sincere thanks to  Deon N. (Xer living in La Habra, California) for point this out to me.

Will this new appeal by the Spanish Catholic Church succeed?  I have no idea.

But I do know a lesson of history.  It often happens that one ideology and institutional framework, after triumphing over its rivals and delivering great success, suddenly and epically fails.  And when that happens, societies sometimes switch their allegience back to the ideology or belief system that was devalued.  I’m not judging here, just observing.  Look at what happened in Eastern and Central Europe after the fall of Communism, a system of thinking which suppressed or marginalized any expression of religious faith.  Result?  Today, several (though certainly not all) of these countries now show rates of (Catholic) church attendance that are much higher than in any western European country–most notably Poland, but also Rumania, Slovakia, and Croatia.

The odds are still long against the Spanish Church making a comeback.  But they’ve been around for nearly twenty centuries.  And they’re are giving it their best shot.

Nov 082010
 

This article gives an interesting description of the Millennial generation in China. There is quite a lot that is indeed very Millennial (born 1982-200?) about the rising generation in China: They are protected (in uniforms and behind gates), pressured (got to get a credential), conventional (they now all read Confucius), civic minded (look what they did after the earthquake near the Yangtse), and trusting in big institutions (they really do believe in “peacefully rising China”).  As many observers have pointed out, there would never be a raucous youth protest a la Tiananmen Square today.  And yes they are very optimistic.  Clearly, given their economy, they have a lot more to be optimistic about than Millennials in Europe or America.

I think the “risk” this Millennial was referring to is collective risk, not personal risk.  The operative word here is “we.”

Obviously, there is a gaping chasm in China between poor rural Millennials and affluent urban Millennials—a much larger gap, imo, than in any of the developed countries.  An outrageous degree of social  and economic Inequality is one of the vast challenges facing this generation.  Much as it was for the young “Long March Generation” back in the “warlord era” of the 1920s and 1930s

I’ve been looking at the “Little Emperor” generation for a while—and have read all the books and surveys about them I can find.  They are definitely of the hero archetype.  And when all the centripetal forces cause everything in China to fly to pieces, they will be the ones to build something new.  And I don’t think we’ll have to wait all that long for this to happen.

My favorite is “China’s Generation Y.”  See:

http://www.amazon.com/Chinas-Generation-Understanding-Leaders-Superpower/dp/1931907250/ref=sr_1_2?ie=UTF8&s=books&qid=1287609193&sr=8-2

Nov 022010
 

In the U.S., we’re raising our top marginal rate up past 50%–but without any of the huge spending cuts.  In 2010, the typical top marginal tax rate on ordinary income in America was about 44% (35% federal, plus 2.8 in uncapped Medicare tax, plus an average of maybe 6% for state taxes).  By 2013, due to the expiration of the Bush tax cuts, a hike in the Medicare tax (thanks to Obama’s health-care reform), and a phase-out of itemized deductions, this top rate will rise by about 7 percentage points—to just around 50%.  The top rate in New York City and California will be well over 50%.

A 50%+ top marginal tax rate is today high even by European standards.  So you might be wondering… if marginal rates on ordinary income are approaching (or even exceeding) Europe’s, why has Europe always been able to extract a much greater share of GDP out of its economy in the form of government revenues?  The answer is that Europe’s *inframarginal* rates have always been much higher—meaning that Europe taxes its middle and lower-middle classes much more heavily than we do.  The bulk of their welfare state, after all, is paid for by one-rate-fits-all value-added taxes and payroll taxes.  The U.S. federal income tax code, by contrast, leaves the middle class pretty much untouched, while ramping up steeply at higher incomes.

Europe is not cutting its high personal tax rates and in the UK David Cameron is even boosting them.  On the other hand, both Europe and the UK continue to cut their tax rates on *capital* income, so that over the last decade the U.S. has come to be regarded as a punitive outlier in its treatment of capital income.  (Case in point, Cameron’s proposed hike in the capital gains tax rate is the one hike that is not likely to be enacted.)  In this new “age of austerity,” Europe is following the brutal law of “efficient taxation,” to use the economists’ lingo.  To wit, you raise tax rates on those who don’t have a choice about whether or where to earn their income… and you lower tax rates on those who do.  As the age of austerity worsens, European voters may insist that governments pin down and regulate the wealth and income of capital owners more rigorously so that they can tax capital at higher rates.  We’ll see.  I can easily envision this happening in America.  Even if the GOP wins big, I doubt that a more populist GOP party will make big cuts in capital gains or estate taxes a big priority.

As for the bond markets, it is true that the U.S. can borrow freely at very low interest rates and will probably continue to be able to do so unless or until the global economic situation becomes truly catastrophic.  The reason is that, due to America’s unique superpower status, bad news anywhere in the world (even here in the U.S.) causes people around the world to invest in U.S. bonds as a safe haven.  So even our own bad decisions cause only others to suffer.  Valéry Giscard d’Estaing (former Finance Minister of France), in a closely related context, once called this America’s “exorbitant privilege.”  Other countries do not have this privilege.  So the UK, Japan, France, and Germany all have to take bold measures against the specter of fiscal insolvency lest the same thing happens to them (sudden hikes in interest rates, and a bond market crash) that has happened now to several of the PIIGS countries.

This explains why—to bring the discussion back around to turnings—America may be the last place in the world to experience the “age of austerity,” that is, to experience the 4T mood in its full economic brutality.  To America, and to America alone, there seems to be no penalty at all to endless borrowing at zero interest rates… and if that is so, then why do any of us need to worry?  Of course, I may be mistaking here the opinions of America’s elites (e.g., Paul Krugman) for the opinions of ordinary citizens.  The midterms may be very revealing in this regard.  I’ve had several opportunities in the last few months to visit cities in the Midwest.  In each of them, I ask my hosts, what issues really concern local voters in the midterms?  And they say, the huge and growing federal deficit.  And then I say, yes, of course, sure, but what do they *really* worry about?  And then the hosts say, no, honestly, they are *really* worried about the country going bankrupt.  I found these conversations very ominous and very [4T].  Bankruptcy is all in the eye of the beholder.  If most people come to view an institution or government as insolvent, a landslide of distrust, hedging, aversion, falling confidence, and nonparticipation begins to feed on itself until, in the end, the institution or government does indeed become insolvent.  Most Americans believe that their government cannot continue to borrow for long without toppling off the brink.  That becomes an important social fact, regardless of the opinion of the Council of Economic Advisors.

Oct 082010
 

When Boomer (born 1943-1960) GW Bush went to war, it was in traditional land-force “invasion” mode with trumpets blaring.  When Generation X (born 1961-1981) Obama goes to war, it is with multiple levels of stealth, subterfuge, and deniability.  Our assassin predator missions are way up.  Our anti-terror surrogates are training in a still-growing number of countries.  And now—to prevent or at least slow down Iran’s race to get nukes—we are apparently waging a full-scale commando assault just under the radar.  News stories report mysterious explosions in Iranian factories, odd fatal “accidents” befalling top Iranian scientists, faulty alloys showing up in imported equipment, and horribly destructive computer viruses eating away at computers in Tehran.  At some point, I suppose, Iran could just say, OK, we’ll declare war.  But what’s clever about Obama’s approach is that the Iranian leadership may figure that, to declare war without any overt and large-scale aggression, may make them look weak.  I wonder if it will work.

A great book will someday be written about this campaign.  I love the description in the article about how you attack Iranian computers that are deliberately left off the net.  You actually have to get someone to physically insert a thumb drive.  Reminds me of the final scene in “Independence Day.

Jul 132010
 

Farrell pulls out all the stops in this histrionic, if not hysterical, overview of the America’s economic prospects.

Still, there’s no denying the mounting bad news: China has peaked, Europe’s in trouble, and the American economy has hit a “rough patch” at the very least.  The Dow is down seven straight days.  The fear about inflation is being eclipsed once again (as we always warned) by fears about deflation.  The long bond keeps climbing.  The gap between the TIPS (inflation-adjusted) rate and nominal rate keeps narrowing.  The Fed continues to pump reserves into the banking system (literally half of the money supply created in the U.S. over the last 234 years has been created in the last three years), but the velocity of money plummets because no one wants to lend… or borrow.  Initially, everyone said, well, we’re just too uncertain about America’s immediate political, regulatory, and economic future to want to lend.  Increasingly, potential lenders are beginning to wonder: If I just hoard my cash, will it be worth *more* a year from now than it is today?  Central bankers fear nothing more than the psychology of deflationary expectations.  They fear it even more than inflation.  It is the one monster against which they have no weapons.

Some (most notably Krugman) say we need a vast expansion in fiscal stimulus.  Keynes to the third power.  It is certainly too late for that for Europe.  (After all, they actually need to worry about a collapse in their exchange rate.)  But it may even be too late for that for the United States.  We’ve simply taken the “debt” cure too many times—its side effects now exceed its efficacy.  Farrell excerpts a good quote from the Economist: “Borrowing has been the answer to all economic troubles in the past 25 years. Now debt itself has become the problem.  A society built on consumption will have to pay more attention to saving. The idea that using borrowed money to buy assets” is over, “the debt-financed model has reached its limit. Most of the options for dealing with the debt overhang are unpalatable. … The battle between borrowers and creditors may be the defining struggle of the next generation.”

Apr 302010
 

This interesting—and implicitly generational—piece by Henry Allen discusses the changing assumptions about America’s role in the world.  This view that Allen describes, of America as history’s existential good guy, is very linked to the psyche of his Silent (born 1925-1942).  It is simply so hard for this generation ever to believe that there are vast numbers of people in the world who really don’t like us or would even enjoy seeing us suffer, and not for anything particular we have done but (to use the phrase that became popular after 911) simply for who we are.  It’s fascinating, in retrospect, that the Silent interpreted the warmth with which a war-devastated world regarded Goliath America just after WWII as genuine affection, as opposed to transient gratitude triggered by necessity.  Gratitude is a very difficult emotion for any society, or even for any individual, to sustain over time.  Especially, when the gift we have received cannot be paid back.  Often, we end up resenting the emotional burden.  Case and point: France’s fraught attitude toward America since our nation-saving intervention in two world wars.

In any event, Generation X (born 1961-1981) seems entirely unmoved by the emotional tensions and turmoil that Allen describes.  I would suggest he is describing something that pretty much affects his generation alone.

Back in the 1990s, Allen interviewed me at length about a feature story he was doing (it was later published in the WP) on how people of different ages react to that old Warner Brothers cartoon about Roadrunner and Wile E. Coyote.  In a talk he was giving at a local college, he discovered by accident that all of the (Xer) students sympathized with the coyote, not the roadrunner.  He was flabbergasted, because for as long as he could remember, he and his peers had always rooted for the roadrunner.  He wrote a moving account—Allen is a wonderful writer—about why these differences arose.  And he gave a fairly good rendition of some of the basic generational drivers that may be behind the shift.

Could these two differences be related?  When you look at America’s role in the world, what view do you take—that of the Roadrunner (beautiful, swift, above the fray, never has to think about eating—and never worried about losing), or that of the coyote (ugly but clever, determined, just another dog who’s got to get a meal—and always too-aware of the probability of failure).

Apr 142010
 

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, IMFWorld BankNATO, 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.