In 1996, demographers William Strauss and Neil Howe published the book The Fourth Turning. This study of generational cycles ("turnings") in America revealed predictable social trends that recur throughout history and warned of a coming crisis (a "fourth turning") based on this research.
Fourth turnings are defined by disorder and great changes brought on by a breakdown of the systems and operating principles that dominated the prior three turnings.
Our society has entered a fourth turning (consisting of the twenty-year periods leading up to and out of it immediately.)It is a season you have to move through before you are born again — so to speak — as a society, and regain institutional confidence. You have to go through a crucible to get there.
I think the fourth turning started — probably, if I were to date it now — in 2008: the realigning election in that year of Barack Obama against John McCain. And, obviously, simultaneously with that, as we all recall, an epic, historic crash of the global economy from which we still have not recovered.
We are sort of hobbling along in kind of a low-earth orbit, with continued high unemployment and excess capacity — not just in the United States, but around the world. And, of course, all the rules of economic policy seem broken and lie in fragments on the floor. People are wondering what the heck do we do in this new era?
Each of the generational cohorts living within this turning (e.g., Boomers, Gen X, Millennials) have roles to play.
This is a period when, in each of these turnings, each generation is moving in their new phase of life. Boomers are beginning to retire, they are beginning to redefine the senior phase of life. X’s are beginning to assume mid-life roles as the dominant parent generation and leaders. These are people born in the ‘60s and ‘70s. And, Millennials are fully beginning to come of age and redefine young adulthood. And, meanwhile, a very small generation is just beginning to come on stream, which remembers nothing before 2008.
We can already see these generational divisions forming, and it is interesting how each generation is to some extent defined by the thing they have, they just have no memory of, they just barely have no memory of (e.g., Boomers are defined by the World War II that even the oldest of them cannot remember).
History gives us patterns that predict how these generational archetypes will collaborate, compete, and collide with one another as we enter into crisis. Understanding these in advance will give us a big advantage on the types of policies and solutions most likely to yield success. And we sorely need these, as the problems we're heading into have no easy answers:
There are patterns here which we recognize, and it is very important not to have historical amnesia. To look back and see where we have been, see where we are going, and more importantly, to understand the dynamics behind these social trends have familiar parallels. We just need to have the historical imagination to look far enough backwards and forward to see where else they have happened or to see where they possibly will happen again.
I am nervous. I am nervous about the future right now. I think we have a lot more deep issues, deep crises, to save in the economy. I am also very nervous about what I see geopolitically.
We cannot possibly afford the government we have promised ourselves. And, that will be a painful process of deleveraging, and it is not just deleveraging the explicit debt that we have already actually formally borrowed, it is all the implicit debt. And, I think we will deal with it, because we have no other choice.
But, my point is this: No one simply solves a terrible problem on a sunny day when they can afford, at least for the time being, to look the other way. Problems like that are faced when people have no other choice, and it is a really grim day. And, it is white-knuckle time, and horrible things are happening with markets around the world, or horrible things are happening, at least historically; we have seen that geopolitically around the world. And, that is when people are forced to act.
Strauss and Howe's research provides another lens through which to view how the next twenty years will be remarkably different from life as we've been used to. It's one worth looking through.
Click the play button below to listen to Chris' interview with Neil Howe (60m:25s):
Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, of course, Chris Martenson, and we are living through one of the most exceptional periods of human existence defined on one side by extraordinary technological advances and on the other side by ecological and resource limits that we are just starting to bump up against. And I think although it is really tempting to think of this time being different, it will not be, not really. If history does not repeat, it sure does rhyme, and if looked at correctly, history is not names and dates strung along in a blur marked by events, but rather it has a structure that repeats. A grand motif that plays over and over again, but maybe with different notes.
To help us get our bearings today is Neil Howe, an American historian, economist, demographer, and best known for his work with William Strauss on social generations and generational cycles in American history, including the book, The Fourth Turning. He is currently president of Life Course Associates, a consulting company he founded with Strauss to apply their generational theory to real-world business and governance practices. He is also a senior associate at the Center for Strategic and International Studies on their Global Aging Initiative and a senior advisor to the Concord Coalition. And we are just delighted to have him with us today. Welcome, Neil.
Neil Howe: Thank you, Chris. This is great, to be here.
Chris Martenson: Excellent. I want to start with The Fourth Turning, which walks the reader through, what, five hundred years of Anglo-American history, and reveals a cyclical pattern that repeats itself about every eighty years or so, the length of a long, human life, I guess. Can you tell us about that cycle and its components for people who have not read the book, so we can start with that?
Neil Howe: This was a pattern, actually, that we discovered indirectly, simply by looking first at differences in generations throughout American history. We did a book back in 1991 called Generations, and it was really a history of America told from the viewpoint of separate generations being formed, young and coming of age, mid-life leaders, and parents growing old. And we found that each group saw itself very differently than even neighboring generations, and certain had different attitudes and behaviors, collectively. But as we looked at it, not only did we see that century after century, we saw these very different generations follow each other. We found that the differences actually had a pattern within them.
And, of course, since generations are shaped by history, it means that if there is a pattern in generations, there is a pattern in history itself. And indeed, what we saw – and not just in America, but in most other non-traditional societies, societies that have broken free of tradition –we find an oscillation of society between periods of political and economic and outer institutional reconstruction, and eras which have been called by some social historians “awakening era,” where we rebuild the world of values, morality and religion, that is to say, more of an internal reconstruction.
It has often been noted that the great external turning points, political constitutional turning points of American history often marked by total war, occur about every eighty or ninety years apart. We are familiar with the Great Depression and World War II, the Civil War, the American Revolution. Going back before that, the gigantic struggle of the War of Spanish Succession and the glorious Revolution, which played a bit part not just in Europe, but in American colonial life, and so on, in earlier periods.
But, it is also true that roughly halfway in between these periods of sort of outer world reconstruction, we have these periods of huge inner world trauma, that at least in American history have been called the “great awakenings” of American history, and they have actually, as been given numbers. There is the First Great Awakening, which dates back to John Winthrop or Jonathan Edwards, and then there is the Second and the Third. And it is interesting that many historians call the late ‘60s and ‘70s America’s Fifth Great Awakening, showing many of the same attributes from everything from the violence and risk-taking by the young – who lash out against an elder-built world, usually built by veterans of that last great struggle – to an interest in cultural creativity, personal exploration, and interestingly, even substance abuse typically peaks in these periods, and of course, before the fabrication of modern drugs, that was a huge surge in the alcohol consumption per capita, which we can actually trace going all the way back to the seventeenth century.
These are patterns which have been unearthed by social historians separately, through the tremendous literature on these. We found that we were sitting there doing huge amounts of primary research. What we did, simply, in The Fourth Turning, was to say there is a metronome, there is a governor of these cycles that people notice, cycles of realigning elections, of the K wave or the Kondratiev cycle, which is a long wave in economics, cycles in family life, and in religion and culture. All of these things are governed by this basic rhythm of generational change, all having, as you pointed out, this alternate long cycle of eighty or ninety years, this long human life you talked about. We chose the word seculum to describe it. Seculum is the Latin word meaning century. But it is interesting; it is not related to tentum or the word century from a hundred. It is an old Etruscan word in Latin, and it originally meant the length of a long human life. It was simply that. Seculum is not exactly a hundred years; it is just kind of a long time, as long as anyone can remember.
And, indeed, with some of the most interesting theories of generational cycles, actually, one that was most famously articulated by Arnold Toynbee, was that the great wars in history occur because of “generational forgetting.” And, the reason you had these great conflagrations every eighty or ninety years apart is because the generation that does not remember the last war, even as children, when they become elder political leaders, lead the world into it through the next war.
Chris Martenson: All right. So these generations, these four turnings, the archetypes that you have outlined, are going from hero, to artist, to prophet, to nomad. Where are we right now in these turnings?
Neil Howe: These are the generations, and of course, they move through all turnings, they are just at different ages. The turnings themselves are sort of moved from Spring to Fall to Summer to Winter. We actually numbered them, talk about First, Second, Third, Fourth Turnings.
The First Turning is what we call a high, and this is, and each of these turnings is about twenty or so years long, about the length of a phase of life. Think about the time between being born and coming of age fully as an adult. And the First Turning is a high, and these are periods which are post-crisis periods of progress and conformity, and individualism is weak; institutions are strong and forward-looking. Minorities and anything that is outside the mainstream is kind of pushed off the side of anyone’s consciousness. Vernon Carrington called these the “great barbecues” of American History.
We think of the American high of the presidencies of Truman and Eisenhower and John Kennedy. And these are typically periods on the artist archetype, this coming of age in a world that was just built just before they arrived, and typically a very conformist generation. We think of the generation that was given the label “silent,” the Silent Generation in a famous Time magazine essay in 1951. And these are people born in the late 1920s, 1930s, early 1940s. Today, they are mainly in their seventies and eighties today.
The next turning, we call an awakening, this is our Second Turning. An awakening is, I just described it; these are the great awakening eras in American history. This is a time when people tire of the social conformity, spearheaded by a new generation that does not remember the last crisis. And they lash out at all the social discipline; they want to throw it off. Everyone wants to find themselves, who they are authentically as individuals, again. Most recently, we all recall the period of the most of the 1960s, 1970s, maybe early 1980s. We went from a rebellion in the culture, mainly on college campuses, to ultimately a rebellion in the economy: anti-tax movements, anti-regulatory movements. The whole motive of this whole thing was to throw off social obligation. And pretty soon, it involved all the members of, particularly the generation coming of age, both on the right and the left to a degree, which I think even today, they do not realize how much they took part in the same general ideology, which is mainly free the individual. Free the individual from control.
And, then we entered a Third Turning. We sometimes call these, in our words, the unraveling. Third Turnings are the opposite of First Turnings. In a Third Turning, institutions are weakened, discredited; individualism is strong and flourishing. You think of Third Turning decades, these are all decades of cynicism and bad manners; you think of the 1990s or the 1920s, or the 1850s, 1760s. These are times when civic authority feels exhausted and the culture feels frenetic. And people do what worked for themselves. These are some of my favorite X’er slogans, things like, “Just Do It,” or “It Works For Me.” I love that one. It works for me. I really do not care if it works for you or not.
Chris Martenson: Yep.
Neil Howe: It is interesting; when you go into a bookstore recently, all the most upbeat books are about me, myself, and I. I can solve anything, I can conquer the world. I have this unbelievable confidence in myself. Any book title today having to do with anything we share collectively is down-beaten and pessimistic. the end of family, the end of community, the end of society. And I think that is a Third Turning mood.
And, then most recently, I think our society has entered a Fourth Turning. And these are, again, these are twenty-year periods. You are not just into it and out of it immediately. I think the lesson of history is that Third Turnings always ultimately culminate in a Fourth Turning. It is a season you have to move through before you are born again, so to speak, as a society, and regain institutional confidence. You have to go through a crucible to get there.
I think the Fourth Turning started in, probably, if I were to date it now, it would be 2008, possibly a realigning election in that year of Obama, Barack Obama against John McCain. And obviously, simultaneously with that, as we all recall, an epic, historic crash of the global economy from which we still have not recovered. We are sort of hobbling long in kind of a low-earth orbit, with continued high unemployment and excess capacity, not just in the United States, but around the world. And of course, all the rules of economic policy seem to have been – are – broken and lie in fragments on the floor. People are wondering what the heck do we do in this new era?
And I think that this is a period when, in each of these turnings, each generation is moving in their new phase of life. Boomers are beginning to retire, they are beginning to redefine senior, the senior phase of life. X’s are beginning to assume mid-life roles as the dominant parent generation and leaders. These are people born in the ‘60s and ‘70s. And Millennials are fully beginning to come of age and redefine young adulthood. And meanwhile, a very small generation is just beginning to come on stream, which remembers nothing before 2008. And these are the kids who are now just entering the first couple of years of elementary school.
We can already see these generational divisions forming, and it is interesting how each generation is, to some extent, defined by the thing they just have barely no memory of. Boomers are defined by the World War II that even the oldest of them cannot remember. Gen X’ers are defined by the American “I,” which I would say was anything up to and until the assassination of John Kennedy, whenever they began to change so much rapidly after than in 1963. That is an event that even the oldest X’er has no memory of. And Millennials have no memory of the consciousness revolution and all the family and social experimentation of the ‘60s, ‘70s, early ‘80s. It is all over by the time they came and were first looking around. So for a millennial in school today, you know ,Woodstock is an SOL question. [Laughs] It is as far removed from them as the New Deal is for a Boomer like myself.
That is how generations move, and of course, each generation needs to correct and compensate for the excesses of the generations that came before, often the mid-life generation, when they are coming of age in youth.
Chris Martenson: This is fascinating, that you mentioned some of the self-help books you might find on the shelf during the unraveling, sort of the me, me, me approach. And when I look at where we are today, if we look at just the economic crisis of 2008 as maybe being a dividing line, and certainly a precipitating point for the Fourth Turning, that was really brought about, I think characterized best by the attitude that Dick Cheney espoused where he said, Deficits do not matter. And, just economically, if you look at what happened from about 1982 to about 2007, 2008, when it cracked, we were racking up debts at a far faster rate than income. So you can measure that by debt-to-GDP, you could look at that household debt levels compared to income, all of these things. But this was basically the idea that we could just borrow and borrow more faster than we were earning, and it sort of got institutionalized culturally and actually in institutions, and maybe politically. And now when we get into the Fourth Turning, so here we are in crisis, how is it that a generation either sheds or deals with what I would call an entrenched fallacy that maybe the prior generation is preserving at potentially any cost? Is that a fair way to look at it, and do you have a view on that?
Neil Howe: Generations deal with it because they have no other choice. I am down here in Washington, D.C., and at least some of my life is dealing with public policy issues, such as what to do about the extreme imbalance of our fiscal policy. And just to add to what you explained, it is worse than just the explicit debt we have been piling up. There is also all the implicit debt, which are the unfunded liabilities of all the benefits we have promised to ourselves, which no one alive today has any intention of paying in taxes.
Chris Martenson: Right; of course.
Neil Howe: Which is, possibly, up to $100 trillion present value in unfunded liabilities. We cannot possibly afford the government we have promised ourselves. That will be a painful process of deleveraging, and it is not just deleveraging the explicit debt that we have already actually formally borrowed; it is all the implicit debt. And I think we will deal with it because we have no other choice. I wrote my first book, actually, with Pete Peterson back in 1988, called On Borrowed Time, and it was on this huge fiscal imbalance that we could see back then. We had these tables showing Medicare and Social Security by the year 2020, 2040. Back then, we had all the time in the world to take care of it.
Chris Martenson: Yeah.
Neil Howe: The Silent Generation is retiring, the small generation. A huge generation of Boomers is paying all their FICA taxes and all their spouses are working. And we have increasingly pushed toward surplus. In fact, by the very late 1990s, as you recall, we were actually in a formal surplus. Do you remember? That was just before G.W. [Bush] took over, but we completely squandered that window of opportunity, and now it is gone. Now we no longer have that leeway.
But, my point is this: No one simply solves a terrible problem on a sunny day when they can afford at least for the time being to look the other way. Problems like that are faced when people have no other choice, and it is a really grim day. And it is white-knuckle time, and horrible things are happening with markets around the world, or horrible things are happening, at least historically we have seen that, geopolitically around the world. And that is when people are forced to act.
Remember that we passed the original Social Security Act, which completely reshaped the role of modern government, in 1935 at the depths of the Depression. And I think that that is what we have to recall. These things occur when we do not want to do them; we have no other choice. We would be greatly aided by the fact that the generation which was extremely civically cohesive joined every political movement and always acted in unison with their own generational interests to a surprising degree. And that was the GI generation, also known as the Greatest Generation. They all joined the union movement back in the 1930s and 1940s, and then as soon as they started retiring in the 1960s they all became AARP members, and all of a sudden we called old people “senior citizens.” They were the ones that younger Americans felt really had earned any public benefits that they thought they deserved; we paid, because they did create the system. We knew that, so whatever they wanted, we said, Okay, you’ve got it. And they defended it. They defended those benefits. And they created the system of entitlements and to some extent, the Silent Generation, which Richard Easterlin, the demographer, called them the Lucky Generation, because they have always done so well economically in their lives. Woody Allen has that joke about 80% of life is just showing up. [Laughs]
Chris Martenson: Yep.
Neil Howe: I do not know any X’er who believes that is true about their career. Anyway, they have enjoyed it. But I think the advantage now is that Boomers and X’ers do not have that political cohesion, and they will not fight – at least they will not fight effectively – to preserve those benefits. I talk a lot to Boomers. We do a lot of surveys of people in their 50s and early 60s, and I would say most Boomers are completely philosophical about those benefits. They say, Yeah, I don’t know. I didn’t really earn them. I don’t know where they came from. I know I paid a lot of taxes, but I was never counting it. And, as for senior citizens, no one is going to call Boomers “senior citizens.” The term is already falling into disuse for the Silent Generation, and no X’er is going to call an ex-Woodstock hippy a senior citizen. It is just not going to happen. So, basically, the Boomers are just going to relinquish hold, and we already see Boomers preparing for it, because they are all working. None of them are retiring.
Here is an interesting statistic about the economy. Since the peak of employment, all-time peak of employment was in September of 2007, and since then the economy has lost three million jobs from then to today. But here is the killer. We have lost six million under age 60; we have gained three million over age 60. Over age 60, we have actually continued to gain jobs almost every month since the Fall of 2007. It is amazing. These Boomers are not retiring, and a lot of them, a lot more of them, are continuing to work. We do surveys of expected retirement ages, and now we are going to go up, up, up in age. So it is an interesting adjustment.
In other words, I guess what I am saying to you is, I think we are already adjusting. I think we are already deleveraging, and I think that is already shaping some of the mood of the Fourth Turning as we speak.
Chris Martenson: It is interesting, one of the things I note in my work. I think I can grossly characterize the economic and fiscal split between Boomers and Millennials like this: The Boomers actually have everything to gain by preserving the status quo, and the Millennials have nothing to gain but plenty to lose by preserving their status quo. And I am referring to the status quo here as ever-increasing amounts of debt being incurred as a means to preserve current spending levels, yet almost none of that borrowing is really going towards long-term infrastructure improvements or other tangible investments that I think the Millennials can look at and say, Yeah, that is to my benefit.
Is this gap real, and if so, how is it going to resolve itself? I know you mentioned before that it resolves during crisis, but how would you see that playing out?
Neil Howe: It is real, and we have to see how it plays out. You are going to have some groups of silent Boomers who will dig in their feet. There is no question about it. I guess what I meant was, it is ultimately not going to be effective, because today’s retiring generation does not have the moral clout, the legitimacy in the eyes of other generations for those benefits, not the way that the GI generation did. And they do not have an instinct for organizing the same way that the GI’s did. So they will lose that fight.
But it is interesting, when you look at attitudes of Millennials, Millennials are a pro-government generation. They believe government ought to be doing much more for the community than X’ers and Boomers, which is why, in the last couple of elections, they voted much more for the Democratic Party than older people. We have seen this in this suddenly a very large age gap in partisanship. But I would qualify that by saying, if you look closely at what Millennials want, they want government to invest in their future. They want the social infrastructure. They want the physical infrastructure. They do not want a government dominated by entitlements to individuals. That is their parents’ thing; that is the world their parents inhabit, not the world that they really want for themselves. And so they do think more than older people that these programs need to be reformed and their future growth needs to be cut.
I think what allows these generations to avoid conflict, which could be a bitter conflict, is the fact that in their personal lives, these two generations get along so well together. One of the more remarkable generational trends recently is how well twenty-somethings get along with their Boomer parents. We have polled surveys on this. We have never seen a time since the end of World War II in which so many teenagers and college-aged students say they have no problem with their parents. They get along just great with them.
According to the UCLA freshmen poll, the share of college kids who say they want to live near their parents has nearly doubled over the past fifteen years, and we see a record share of them, as living at home. The share of 25-to-34-year-olds living at home has gone up from 11% back in 1980 to 22% today. And it is not just the economy. One of the things you are seeing for the first time is, Millennials, even after they get a full-time job, they still live with their parents. I am noticing that around here. They get to save for their first mortgage; they get to save for their marriage.
And the disappearance of the culture gap between generations is very significant today. Young people and their parents watch the same movies, they listen to the same music, they wear the same brand-name clothing, they talk about problems in their lives, to an extent that Boomers never did with their own parents. And this is a pattern also. It is interesting that [though] the Greatest Generation were great in so many things, they had some real problems, had some real failures as parents. I think one of the greatest tragedies and disappointments of the Greatest Generation was that they were so distant from their own kids. They had recalled being so close to their own parents, you know back in the 1920s and 1930s when they were growing up, but they were so distant from their own kids.
And there was such an enormous values gulf in their own kids. And similarly, I am noticing, when I talk to Boomers today, that the biggest surprise for Boomers is that they are so close to their own kids. They expected, given their own early life, that their own kids would just give them the finger and take off, and they are not. They are hanging around; they are not going anywhere.
There is a very positive side of this, actually, and that is, extended family life becomes much closer over the next couple of decades. This could hugely ease and relieve pressure on third-party entitlement payment programs and allow families to deal with resource issues internally that we now rely on public programs for. And it could ease the burden on our tax system and on government, and allow government to spend on things, or invest in things, which truly benefit our collective future.
Chris Martenson: This is something I want to turn to now, which is, given that we are in the Fourth Turning and it is marked – I guess its placeholder name is “crisis” – and as we have looked through past periods of crisis, obviously there is a lot of wars embedded in that list. That seems to be one of the defining things that comes up, but what I am really interested in is using this fascinating information. What do we do with it? Knowing that we are in crisis that started in 2008, we have twenty years of it in front of us. Based on history, what can we expect? I am really interested in what we might be able to expect economically, but also politically. What are the big trends that we could count on happening here, knowing that if I have this right, we are pretty early on in the crisis stage, this Fourth Turning?
Neil Howe: Yeah. In the Fourth Turning, we actually lay out a morphology of how Fourth Turnings usually progress. it starts with a catalyst, something which pushes us a little bit over the edge and out of the Third Turning. I think we already had that. that was 2008. Suddenly, everyone kind of realizes the world is different now, all the jokes and TV shows about the “new normal.” [Laughs] I think that is it. We are in the new normal now, and so we are there.
Okay, the next thing that is going to happen, which has not happened yet, goes from the catalyst to what we call the regeneracy. That is when there begins to emerge somewhere – amid the despair, the hopelessness, the individualism, the centrifugal motion of American society toward billions of pieces and separate interests and the world seems to be in chaos – that there is a nexus, a political party, an interest group, somewhere in society, a place where people begin to reacquire social trust. And this begins to spread outward toward a gradual sense that there is some force out there which people can join, people can feel part of some sort of sense of community. And this is not necessarily a formal organization. I am not talking necessarily about a political party, which is usually the last thing to actually join this movement. But the sense among Americans is that they have something in common collectively which is positive, and positive energy, and usually focused on the rising generation, which in this case would be Millennials.
I think everyone is sort of amazed at how Millennials have this confidence about their future. I just did a story, was just interviewed yesterday by the L.A. Times, she interviewed me and says she does not understand; she is looking at all these opinion polls, and it just says that twenty-somethings are just so confident and optimistic about the future. [Laughs] How could they be, you know? I do not get it; all these Boomers are tearing their hair out and contemplating suicide, but these young people are so confident.
Remember, in the 1930s, it was the coming-of-age generation, the GI generation, that was confident. And by the 1940s, they were all singing songs like “Accentuate the Positive,” and everything was upbeat for that generation. That finally became a pathology for Boomers.
Chris Martenson: [Laughs]
Neil Howe: We could not stand that quality of the GI’s; they were just always optimistic. And finally, it forced many of us to just – we were like Meathead with Archie Bunker, just screaming in their face.
But, the point is that we see that in Millennials today, and ultimately, that will cause a regeneracy. And the regeneracy will be a growing movement of confidence among Americans, which will eventually attach to itself to organizations, political movements, and will allow us to organize ourselves out of our problems and design long-term solutions for them.
Ultimately, the next stage in a crisis is the climax. That is when we are finally organized to do the right thing, but, of course, everything on the problem side is worse.
Neil Howe: And in our last Fourth Turning, all the problems of the world, the depression, the trade wars, Fascism, everything became one big problem, and that was World War II. Total victory, and then that had a climax, which was probably sometime in the Fall of 1942 and the beginning of 1943, where we suddenly realized we were probably going to win this thing.
And that typically happens in a Fourth Turning. All the different problems, all the different struggles, all coalesce into one big struggle, and there is a climax. And then the final moment of the Fourth Turning is the resolution. And that is when all the treaties are signed, all the new institutions are created, the cement is wet so that things are free to be shaped any way you want them. And people are going to become masterminds of a whole new global system, which is –you can imagine. At the end of this Fourth Turning, it is all going to be aided and abetted by Millennials designing these enormous information technology systems to make sure that we are all looked after, like in a game of SIMS or something, a giant SIM City.
Neil Howe: That is going to be the new Bretton Woods, the new World Bank, the IMF, the United Nations. That is going to be a whole new global infrastructure that will set the stage for the next First Turning, an era suddenly of surprising social stability and general optimism about the future. And ultimately, a period that will be the object of growing resistance and scorn by yet another generation, who will find it so bad and arid culturally, valueless.
And, of course, history keeps moving. [Laughs] The ebb and flow does not stop. One solution always gives rise to another problem.
Chris Martenson: Ah, interesting.
I want to turn back to where we are in this story, which is somewhere between catalyst and regeneracy.
Neil Howe: Yes.
Chris Martenson: And that sense of community, because community is something we hearken on a lot in my community, and we talk about it, and I see people searching for it. If I could define it this way, there is a sense of people are seeking something they know is missing and they want more of this thing called community, maybe with a loose internal definition of what that is. They will know it when they see it.
Neil Howe: Right.
Chris Martenson: And, I think back to things like the Grange movement, which really, people self-organized for a set of purposes and I am seeing Transition Town movements today, and others, still early, they feel early. People grasping for how do we put this back together? Also, a sense that current life as it is configured, if you are living within the framework of the dominant culture, is fairly isolated, is fairly shallow, from a cultural standpoint. Many connections are not really all that deep from either work, with neighbors, sometimes with family itself, and there is a sense that we want to re-deepen that. Is that what you mean by regeneracy? Is that a coming back of community?
Neil Howe: I think that is absolutely right, and I see it among a lot of X’ers and Millennials trying to live it – a lot of X’ers who have not reentered the formal economy as we have seen a huge exodus from the labor force, from people aged 25 to 55. And they are not counted as unemployed. We have sort of hidden this problem.
But part of what they are doing is they are doing things in their community. Gen X’s are obviously big do-it-yourself-ers, and they are beginning to regenerate the community that way. It is interesting that Frederick Lewis Allen, who wrote so many wonderful books about the 1920s and 1930s as he lived through them, when he wrote about the 1930s, he described it as the decade of community and belonging. He said the 1920s were all about Babylon and were all about moving to the cities and jazz and just sort of losing yourself in the urban throngs and doing wild things. He said, in the 1930s, everything changed. Everyone wanted to bond themselves with their neighbors, their localities, their regions.
This is the time when Roosevelt and his Brain Trust were inventing all of these Alphabet Soup agencies and patches and badges you can identify yourself with. It was a great seed time for community and professional organizations in America. It was local color in the fiction. We had all these local color writers. Everyone remembers the WPA murals, which show these people all in groups pulling and hauling at common causes – these murals that are now in our train stations and our airports around America. And I think that is what we recall from the 1930s.
And this could be very interesting. That mood, which was so much fused to where this coming of age, very team-oriented GI generation back then – it is going to be very interesting to locate over the next decade. And that is going to be the spirit of America. That is going to be the thing which changes us as a people and ultimately gives us the power to solve these huge challenges that we face that are going to manifest itself, I think, in further economic and geopolitical crises. Because I feel that the kind of economic recovery that we have had so far is inherently stunted and unstable. It depends upon this forced hot air and kind of greenhouse armor-plating of Ben Bernanke’s bond purchases. [Laughs] And it also depends upon the fact that the labor market is hugely underutilized and that we have no labor pressure for wages.
So as long as we kind of stay in what I call this “low-earth orbit,” the economy kind of functions, but as soon as we go back to full capacity, nothing is going to work anymore. And so we are teetering between the forces of deflation and the inflationary forces of full capacity, which we cannot possibly handle. This quantitative easing is like the roach motel. The Fed chairman can go in, but I do not know how he gets out. [Laughs]
Chris Martenson: There is no way out. [Laughs]
Neil Howe: I do not know how he goes out. We have corporate earnings that are at a record share of national income today. If that reverts to mean, you can just imagine what happens to the S&P 500, which basically means the economy right now, at least for the stock market to function, depends upon zero wage pressure.
So, I am nervous. I am nervous about the future right now. I think we have a lot more deep issues, deep crises to face in the economy. I am also very nervous about what I see geopolitically, and this is another analogy to the 1930s. I think the Eurozone is going to break up. I think it is going to start with Southern Europe, and it is not going to be because of sovereign debt default. Mario Draghi can always write a bigger check than any investor trying to bet against him.
So that was never an issue. The issue is political disaffection from a euro, which has become a prison for Southern Europe. The euro for Southern Europe today is what the gold standard was back in the 1930s.
It is a jail for those societies. Greece today would be vastly better off if they had gone back to the drachma back when this thing first surfaced in 2008. They would already be eligible today for new credit. if Argentina is any guide, they would have everything renewed, and they would have a competitive currency. It boggles my mind that these countries have stayed in it.
Here is what is interesting, that the euro was designed by a generation that was not really interested – they were partly interested in economic integration, but what they really wanted was to assure that Europe would not fight any more wars. this was the war-child generation of World War II, who are fanatics about European unity. And you still see these guys in their seventies. Many of them are still in official capacities in the EU. And they are die-hard advocates of staying in the euro. But younger generations just do not get it. They do not remember any of that.
And you see younger people in Europe. They are the ones that think national anthems are fine, they love their countries’ flags. You see huge changes in community and national identification of younger people in Europe. And, perhaps more ominously, we see some of those same changes in East Asia. Look at the phenomenon of Shinzo Abe. Look at the new generation of leaders in China. We see rising nationalism there, and this worries me.
As you can imagine, Chris, I look a lot at analogies to the 1930s. I think we all remember what happened back then. And Abenomics. What is Abenomics, except an effort to push deflation and unemployment onto other countries? I think the word, which was used, it was coined by the Brazilian finance minister back in 2010, he called it “currency wars.” I think back in the 1930s, we called that “beggar thy neighbor.”
But the point is that there are patterns here which we recognize, and it is very important not to have historical amnesia, to look back and see where we have been, see where we are going, and more importantly, to understand the dynamics behind these social trends, have familiar parallels. If we just had the historical imagination to look far enough backwards and forward to see where else they have happened or to see where they possibly will happen again.
Chris Martenson: Neil, one place I see that very clearly, and tell me if I am stretching this too far, but in the 1930s we had this rise of fascism, and today we have this rise of corporatism, and one of the most important things I want to relate this to is this idea of what Abenomics is really trying to do.
Let us be clear about something. This is a point I make over and over and over again because the press gets this absolutely back-asswards time and time again. Deflation is not a bad thing if you are a consumer. Consumers love falling prices. I would love to know that college would be cheaper in ten years for my kids than it is today.
But deflation is a killer for banks, and that is a certainty. And for financial institutions, so when the Bank of Japan in cahoots with Abe says what we have to do is just create inflation at any cost, they are not doing that for the benefit of their society at large. The benefit, if there is one, would be ancillary. If their financial institutions are strong, the thinking goes, then the people benefit, too, because then they have a better functioning economy. It is not a linkage I draw all the way through. I think sometimes they are confusing coincident indicators.
Neil Howe: The way I would put it is this. The problem with deflation is – when you see all these central bankers talk about that, and most economists will talk about that – it is the zero-bound problem. We cannot lower interest rates lower than zero. And also the fact that you cannot actually cut peoples’ wages; that just never happens. Nominal wages never get cut. If you cannot cuts interest rates below zero, and you cannot cut nominal wages, then a deflationary economy creates a very asymmetrically different situation than an economy that goes from 6% to 4%, or 4% to 2%. You go to 2% to -2%, and you are in a huge new Alice-in-Wonderland place. With shrinking capacity, shrinking labor, shrinking capital utilization, that is when you do get a debt deflation spiral that actually involves a decline in GDP.
There is a very interesting piece out. By the way, all of the people on what I call the “reflationist left,” sort of the Brad DeLong and Paul Krugman and all these people that think the government is not doing nearly enough to stimulate the economy, they all love Abenomics. They all love it. There is a paper out by Christina Romer, who is at UC Berkeley, and she was the Chairman of Barack Obama’s CEA up until 2010. And it is a paper basically saying that Obama’s effort to create inflation out of nothing by whatever means he can, by just bringing it out of his hat, just drawing this rabbit out of his hat, is exactly what FDR did in 1933. And he did it successfully, and my god, Shinzo Abe will do it successfully, and this is the best chance that Japan has.
Here is this group that is ecstatic about it, because that is what the super-Keynesian reflationist left wants, what it always has wanted, which was enormous fiscal and monetary stimulus together, to get these economies going again. Because once you have inflation, then you can create negative real interest rates by keeping interest rates low, and then you can really zoom the economy. You can create any kind of stimulus you want, and that is what they are after. It does have, obviously, the extent that you are partly expanding through dropping your interest rates and devaluing your currency. There is an extent which comes at the expense of neighbors, at the expense of trading partners in other countries. And it will breed resentment.
China, for example, does not want to drop its interest rates. It has its own monetary problems, but it is going to suffer in terms of its trade with Abenomics. The European Union does not want to drop its interest rates, but they are going to suffer as the yen declines the way it has. So it is going to create animosities, and it is going to create problems.
I think you are right about banks. You know what banks hate? Banks hate a flat-yield curve. Because banks borrow short and they lend long. And if that yield curve has no slope, they are in trouble. That is what they do not like. So banks have been hurting lately, and I think you are right about that. Because you look around the world, and that yield curve is pretty flat everywhere you look.
Chris Martenson: Sure, and when I look at the history of economics, though, we had periods of inflation and deflation prior to 1913, and they happened. And you had your whole Schumpeter creative destruction, which would come and go, and my analysis now says that what we did was we accumulated far too much debt, both implicit and explicit. And instead of allowing those to wash out, the central banks are, and I think rightly, they are afraid. They are afraid of what happens if this becomes a self-sustaining, negative feedback spiral, as you say.
Neil Howe: Yeah.
Chris Martenson: Because what will happen is all those bad debts will wash out, and the pendulum will probably overswing. They will probably clear out some okay ones, too, and it will be a pretty nasty reset button. But really, that is a failing of the idea that the business cycle has been terminated. Greenspan rode out to slay the business cycle; he claimed victory on that front. I believe what he did was, he stored potential energy for a future crisis, and the snow just accumulated on the cornice; it did not actually dissipate. And so now we have a situation where, I think you are right, they are in a box.
They cannot let deflation happen, because it would be so awful, yet at the same time we do not have any of the ingredients you need for a proper inflation. So what do you do? You just keep printing, you cross your fingers, you hope for the best. But like you, I have the sense that there is another shoe to drop, and that is the last part of this podcast with you. I would love to know how do people insulate themselves or protect themselves or plan or invest, if you have advice there. But also, how do corporations, institutions, navigate this environment, knowing this sort of macro backdrop that you have.
Neil Howe: I think mainly, to offer what seems obvious, is, to stay liquid, know exactly where your investments are. I think that Ben Bernanke. as well as Abe and all these people that are pursuing QE, basically want to take away the returns on risk-free fixed-rate instruments to push you into equities. They want to push you in to risking your markets to get the economy going. The stock market for the first time ever has become an instrument of policy. We have never had that before. I think it is one of the most remarkable and sort of unobserved features of the last couple of years. That the stock market – people say, oh, the stock market is going up. That must be great. That always was the case, because the stock market was always investors acting freely, giving their own estimation of what the present values and future dividends and earnings were.
That is what the stock market was. Now, it has become an instrument of policy by absolute design, people are being almost forced into investing in equities, because the Fed is deliberately making every other option unprofitable, or taking any rate of return on it, in order to get you to invest in that direction. And I think that that is why I said earlier that this current rally has a hothouse quality to it. It is like a beautiful orchid growing in the middle of winter, because there is this wonderful little construction that has been placed around it. So I do not trust this rally. I do not believe in it, and I think once it washes out, once it comes down, we will be facing the same reality we were before.
Look, I tell people, families, to get more involved in your community. We know in Fourth Turnings, everyone is going to require more, their neighbors, their friends, their region, their locality, and I find America is already drifting in that direction. If you look at Buy Local movements, and flash mobs, and just all the stuff going on today, and you look at the surveys, you see this, too.
Andy Kohout runs the Pew Research Center. He says there has been this huge movement of the American public just over the last decade, away from globalism and all these beliefs in multilateral institutions. Everyone now believes in their own region, and I think that, again, you see that very strongly among the young, to go with that, to become involved with that. Because one thing that we recall from previous Fourth Turnings is that there will be times in a Fourth Turning when your involvement in your community, being known to friends and having contacts, people who know people who can help you in trouble, becomes very important – particularly people who know people in positions of power, in government, who can help you. Because what government does becomes very important in a Fourth Turning. This is what I tell businesses. In the 1990s, you did not want to do anything with government. Stay off their radar screen. Maybe if you are really good they will not even look for you to tax you, you know.
Chris Martenson: [Laughs]
Neil Howe: Today, that is different. Today, you need to know what government is doing, because I think in the years to come, public authority could become extremely important and could suddenly acquire vast powers as the crisis elements we have talked about pose new dangers to people. So I think that is another thing people ought to do.
I am wary about investing in emerging markets. I find emerging markets are the tail end of the whip. They have done really good under QE. There is a kind of a carry trade now; you can borrow short in all these high-income countries, and you can invest in these emerging market stock markets. I find that very risky. I would not do that. I think that when the high-income countries, particularly the United States, do badly again, those markets will come down the fastest. They will come down the furthest.
I think investing in Japan is a very interesting play right now, and it is maybe for the strong of heart, if you are willing to do it. I think Abenomics is assuming risk that may be uncorrelated with the rest of the world. And so if you want something that probably will not go up or down the same as say the EU or the dollar, or the U.S. dollar and the U.S. markets, that may be an interesting play for diversification, because I think something special is going on there.
So it is going to be a difficult time. It is going to be a tough time. And let me just say further on the question you asked about inflation: Right now, unlike a lot of people, I do not see this as a fundamentally inflationary era. I see this as a fundamentally deflationary era, and I said that consistently since 2008, and I remember in all of those years, 2008, 2009, 2010, 2011, just people constantly saying, Oh, my god. Hyperinflation is about to break out. You can’t create all that money; you can’t print all that money. But that money that gets printed, that high-powered money that the Fed creates, just sits there as excess reserves. People have no use for it. We have a deficit of trust today in the global economy, and when there is no trust, no money gets created. No credit becomes created, and so the fundamental forces of the world today remain deflationary.
The consumer price index (CPI) around the world is hitting record lows, even now, in the Spring of 2013. Ten-year public rates world-wide and the IMF and the World Bank, they measure this stuff, is now at lowest rates ever since World War II, or since going back even before then, probably to the Great Depression. Commodity prices, most remarkably – and Chris, you may have your own views about this; it is remarkable – they are down lately. Precious metals, energy, wood; amazingly, a lot of the constituent raw materials for construction you would expect to go up if GDP were planning to go up. What is going on? Is it just China? Has China over -stockpiled? What is going on here?
So, I guess that is maybe my final comment, is that do not discount the strength of the deflationary tide that is not just in America, but around the world today. It is not abated yet.
Chris Martenson: With that, we are going to draw this podcast to a close. Neil, you have been fantastic. Just, if I could summarize what I heard, this is a time where one summary element was your saying this is a time to avoid risk knowing that the Federal Reserve and other central banks are really using the stock market as an instrument of policy, as one thing. But they are really pushing and shoving people toward risk, with the idea that the tail can wag the dog.
Neil Howe: Right.
Chris Martenson: Maybe it can; maybe it cannot. But in the context of avoiding risk, you stay liquid, you know where your money is, you maintain and enhance connections with important people – government people particularly, if that makes sense for you – and community, because we are entering a period where community is probably your greatest determinate of outcome and happiness as we go forward. Did I get that right?
Neil Howe: Nothing to disagree with there.
Chris Martenson: Great. Tank you so much for your time. This has been fascinating. We are going to post this at the site, spread this around. We are going to have a great discussion under it, because I think having this social construct and scaffolding to begin to understand where we are in this story is really, really helpful. Not just for knowing where we are, but potentially helping us understand where we are going, so I want to thank you for that.
Neil Howe: Great. Thanks, Chris. It was a pleasure to be here.