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379: Do Human Cycles Drive Economic Cycles?

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Catch the full episode: https://www.wealthformula.com/podcast/379-do-human-cycles-drive-economic-cycles/

Buck: Welcome back to the show, everyone. Today, my guest and Wealth Formula Podcast is Neil Howe. Neil is an acclaimed historian, economist and demographer and the best selling author of The Fourth Turning. He is considered by some the nation’s leading thinker on today’s generations. Who they are, what motivates them, and how they will shape America’s future. He’s also managing director of demography at Hedge Risk Management and an independent financial risk firm, as well as president of Life Courses Associates, which serves hundreds of corporate, nonprofit and government clients. Neil, welcome to the Formula podcast.

Neil: Thank you for having me Buck.

Buck: So first of all, this is as an aside, I thought it was interesting, the producer of the show mentioned that you coined the term millennial. Is that right?

Neil: Yes, That was a book I wrote with Bill Strauss back in 1991. And it was a History of America told me the sequence of generational biographies. And we were somewhat surprised. No one had done that before we did it. We started with the Puritan Great Migration to New England in the 1630s. We went all the way up to the present. And lo and behold, there was the the the 14th generation had not yet been named. They were just kids being born. And we expected that their first cohort, born around 1982, would be the high school class of 2000. So we named the millennial. And so yeah, and that was very it was it took a while for the name to catch on it. During most of the 1980s, they were called Gen Y or something like that. And I started the letter after X, but not too long after 2009, 11 people began to actually see who these kids were as they started becoming adults. And they realized it was a very different generation and millennials did catch on.

Buck: Yeah. Interesting. Well, let’s let’s pivot back to, I guess, what’s relevant to our show. You are, you know, a historian that’s interested in looking at human cycles that also drove economic cycles. And specifically, as it goes with your book, The Fourth Turning, why don’t we start with that? What are the four turnings?

Neil: Well, this is we start out by talking about generations and my first interest was simply and goes to interest, too. We wrote together for a very good while was in looking at generations themselves, differences in generations, awareness of generations. And we found that many people my age, we came of age with the late sixties and seventies. Everyone is talking about generations back then, but then by the late eighties, no one’s talking about it. You know what I mean? That there’s sort of ways when we talk about generations and we’re aware of the differences and then we don’t. Well, we found that people had been talking about these differences all the way back, all of American history. And not only that, but these generations tended to follow each other in a certain kind of pattern. Right. Every time we have a very idealistic crusading generation like boomers, where you get kind of a pragmatic, cynical generation, that it was nothing new. We said the same thing after the transcendental generation of Abraham Lincoln and Ralph Waldo Emerson and Walt Whitman. We got the younger generation of Mark Twain and Ulysses Grant. And the more we looked at these patterns, but the more we realized that these patterns are actually closely linked to a pattern that historians have often noticed about American history, about political and economic rhythms, long-term rhythms.

And that is that about once every long human lifetime, we have this period of huge public mobilization and sort of civic makeover of American society. We have it in the the glorious Revolution during the colonial era, a period of revolt and revolution. And in the late 17th century, about a decade later, we had the American Revolution excuse me, a lifetime later, we had the American Revolution, a lifetime later, the Civil War, a lifetime later, the Great Great Depression, New Deal in World War Two and a lifetime later. Here we are, right? The title of my book is The Fourth Turning is here because since the GFC we have been in this period, it’s going to be a generation long era. It won’t end until the end of the 2020s, probably the beginning of the 2030s. And these areas have predictable similarities and and, and interestingly, halfway in between these crises, we have the great awakenings of American history. You know, we’re not rebuilding the outer world or rebuilding in our world of religion and values and culture and art. And most recently, we had the 1960s and seventies, which was after some historians call that America’s Great Awakening. Right? So these are patterns and they’re related to a pattern. You know, we sort of put these in a certain kind of order. We call them turnings, right? So, like seasons of the year, you start out with the first turning sort of like the spring season. Most recently, we recall the American high, the presidency of Truman and Eisenhower and John Kennedy, a period when institutions are strong, individuals were weak, period of social conformity and a great sense of sort of collective progress.

Buck: When you when you’re breaking these down, like what’s I mean, just so we can kind of get on the same page, like, what is the first turning? What’s the second turning like? Just broad strokes.

Neil: That’s where I’m going with you. Okay. Okay. So that’s the first turning. That’s an example of the third. Okay. It always comes after a crisis, right? So the crisis is over and everyone rallies around this new newborn sense of community. Right. The second turning the summer is a period when individuals attack that social conformity. Everyone wants to throw off all that social obligation, all those rules. And in the 1960s, it started in universities. People wanted to throw off the patriarchy, the family. And then finally it was in the economy. Everyone wanted deregulation and tax cuts, so all parties and ideologies sort of participated in individuation of American society. And then the third journey we call the unraveling, and that is the opposite of a high.

That’s the period that most recently that would be the late 1980s, the 1980s, the early 2000. And that’s a period when individualism is strong institutions are weak. You go into a bookstore recently and every book is about, you know, me, myself and I and how powerful I am and but all the downbeat books are about everything we share in common, right? The end of the family, the end of society. That’s the mood of a theory. Turning cynicism, bad manners, distrust of public institutions. And you see, these are the decades like the Roaring 1980s or the Roaring Twenties or the 1850s, 1760s. You can see these earlier decades. But history shows that every third journey eventually ends in 43.

And of course, it’s turning into a period of crisis. And it’s a period where we regain a sense of community by the time it’s over and a new sense of public trust. And I think that’s where we’re going. As tumultuous and as scary as this era is and has been, both in the economy and in politics. We think that it has a really decisive ending and it shifts history back. It shifts the cycle of back to a place where America hasn’t been for a long time. That is to say, you know, in the summer season, no one wants order. Everyone wants a community to be less powerful and individualism to be stronger by the end of this journey.

People want community to be stronger and individualism weaker. And I think you can see that in the generation coming of age. Boomers are coming of age in the late sixties and seventies. They definitely wanted individual stronger and institutions weaker. Millennials are coming of age and this cohort turning, and I think they want the opposite. I think they want institution to be stronger, to protect people better. They’re risk averse. They want the security that those institutions will bring. And they don’t mind individualism being weaker. And I think one symptom of that is you see the millennials are strongly supportive of the party that happens to represent community today, which happens to be the Democratic Party. And that’s simply a fact on the ground. Generation X is, on the other hand, is older. They’re being they’re obviously in a mid-life right now and they support much more supportive of the Republican Party. In fact, they’re one of the most Republican leaning generations we’ve seen, you know, since the last, you know, born in the 1880s. So we see some striking changes. And our method really is to follow generational cohorts through their lives and seeing how these generations, as they’re shaped beyond as children coming of age, as young adults, go on to shape history as they become parents and leaders.

Buck: How does the how do you see the parallels here with what’s going on in the economy during these periods of time? I’m just curious if you can certainly talked about the, you know, some of these patterns, but do you do you have shadowing patterns in the economy?

Neil: I mean, the last two four turnings were actually precipitated by or the catalyst was a great global balance sheet crash and a recession. It was black. Thursday, October 24th, 1929, which quickly spread across the world and most recently it was the GFC, the global financial crisis of late 2008, which had a similar impact and it also became global, was also very durable balance sheet recession. They both had the same decade over decade, slowing the impact on GDP per capita growth and it’s in the wake of this recession that a lot of millennials came of age and came of age with very pessimistic expectations about future standard of living growth and I think one of the great hallmarks of our era is our younger people, not only millennials, but a lot of Xers are no longer by age 30, at age 40, earning more than their parents.

In fact, boys are generally earning less than their fathers today, and a record share of them are living at home. Exactly what happened in the 1930s, by the way, we all remember those Frank Capra movies like, you know, Mr. Smith Goes to Washington with all of many generations living in one big Victorian home. Right. Well, that’s happening again today. And I think, too, globally and geopolitically, we see the same trends. Globalization is in full retreat After 2008, global trade as insurer of global product reached its peak in 2007, is generally been declining ever since. The same thing happened in 1929 when we reached their peak. We were declining throughout, particularly after the Smoot-Hawley Tariff and all of the trade policies of the thirties.

That was also in decline. We saw authoritarian populism raging around the world in the 1930s. In fact, in the thirties it was generally popular. Only two choices. You either became communist, your fascist, there was no middle anymore. Capitalism failed, liberal democracy failed. And I think in the same kind of mood today, you look around the world, right? You see authoritarian populism in South America, you see it in southern Europe, you see it in the India, the Philippines, China, Burma. I mean, you go around the world today, you see this is a rising trend. And we do cite polls that many of them are showing that millennials today around the world have much less trust in democracy than older generations, not only today, but if you go back and look at older generations, you know, in their twenties and thirties had much more trust than millennials today.

So this is a moment of real political instability around the world. Ten years ago, no one even did polls on civil war in America. You know what I mean? No one even pulled it. It just seems so outlandish. Today, you find about half of Americans think that’s likely in the near future. We also see the threat of geopolitical conflict in a way we never had before. And these are again, do I have to remind you the parallels to the 1930s right, this idea of scaling up and that the priority of community above the individual was a strong theme of the 1930s and it’s becoming a strong theme today. And I think it’s particularly as always embodied in the Rising generation today. And we see this pattern again and again. This is not something new. This is and I think we should we should recognize that there’s a certain familiarity to this. We’ve seen it before. We see it again. And I will say that the generations in you had to make big institutions work out who, because they built them during crisis, are all dying out right. And I think this is also a pattern we see again and again. Certain lessons need to be relearned and certain skills simply disappear and new habits after we learn.

Buck: How often does a fourth turning end up in war.

Neil: Historically, almost always, not only war, I mean, there are words all the time. I mean, it’s almost every generation, a long period in American history there’s been some war. But I think what’s what’s a lesson for history is, is that these tend to be very urgent wars. These tend to be total wars during fourth turnings. And, you know, going all the way back to the last six or seven centuries, all total wars have been in their fourth turning every fourth turning. It’s had a terrible war. Right? I mean, the examples I just gave you, I think you recall, is a war. NASA’s story for a fourth turning. I don’t know. I don’t know the answer to that.

I will say this, that a sense of strong urgency and a sense of survival for the nation to motivate people to create a new community where before there has just been partizanship division and complete institutional dysfunction on the national level is a property of the climax of all four turnings, right? You wonder where America would be in the late 1930s under a completely divided nation over the New Deal if that had just been run in fast forward and that was never resolved. Great work. The Civil War. If we had just been frozen in place, right? No, these things do resolved and very often conflict is part of the resolution.

Buck: Yeah, I mean, I guess the reason I’m asking is again, trying to figure out, you know, when you look at where we are right now, what brings the nation together, a nation that, as you mentioned, you know, people literally talking about civil war, what brings people together potentially for that first turning, it’s like potentially an extrinsic type of enemy. And you know, is that a requirement? I guess I’m just trying to figure out how do you get from where we are to what you’re describing is a first verse journey.

Neil: It’s very hard to predict. It will my estimation is it will end one way or the other. And but it’s very hard to predict in advance. If you had asked Americans in 1936 or 37 that there was going to be a big crisis, what would it be? Would it be internal or external? I think there was an internal right. We had we had Republicans thinking the 1930s was the red decade and we had Popular Front supporters of FDR saying it was the fascist decade. You can understand how people would have predicted it back then. Right? But interestingly, we ended up in a very different place. And I actually narrate the histories of these different four things and kind of go through the story of how knife edge the balance is like which way we tip, right. When Abraham Lincoln was elected, his secretary of state was William Seward, who was also a very prominent Republican. And Seward’s April 1st memorandum just after Lincoln was sworn into office, was a delegate to the Army to declare war on Britain, France and Spain didn’t strike the very government so well. Lincoln turned down that proposal. That’s crazy, you know. Yes, that is going to do the trick. You know, we are in the Deep South has already seceded, but we understood what was going on in Seward’s mind right.

Buck: So, you know, obviously as a historian, one of the reasons we study history is so that we can understand, you know, lessons from the past, how to deal with crises. And so if you look at where what we know and what you’re studying, what you’ve studied in your career, you know, what can history teach us about dealing with this crisis state that we’re in right now, in emerging it, emerging from it?

Neil: I think it can tell us a lot. You know, first of all, it can just it can do as rude as in part of a general sense of connectedness, both of their past and our future. I have been telling people that they have a tremendous personal contact with others over time. I think think about that. Like the oldest person you knew when you were a small child. And think about the youngest person you will know before you passed away. Right? Because they’re think of their combined life spans. I like to call that you personal history span, right? Yeah. I bet you it extends over 220 230 years. That’s as long as the United States has been around. And I often tell people we need to think about all they’ve been through. All your kids are going to be through. We’re so often taught that history is nothing but a lot of random technological changes and accidents that you’re your children’s world is going to be utterly different from yours, right? You have no connection to them, really. You have no connection to your parents. I try to route people in time better. And I also think that there are some lessons for us moving into the fourth turning. Some of them have to do with family life. Some of them have to do with politics and the economy. In family life, government is going to be busy, probably in the climax of the fourth turning. It may be less generous for your benefits. You know, you may not have the resources to protect you to be that kind of safety net you’re accustomed to. And I often tell people that families become much more important during fourth turning. So one lesson I have, particularly for younger people and a lot of boomers, too, we’ve got alienated in the family is reconnect with your family.

They will be very important to you. And then, you know, I’m a financial adviser, right? So people are often asking me, you know, what your my portfolio be. You know, how should I invest it? How should I diversify? Should I how do I get, you know, all the usual questions? And the first question I say is, well, first of all, what’s your long-term care insurance plan? That is, you know, there is no affordable long-term care insurance. Just forget it. There’s nothing you can buy. There’s only one long-term care insurance that’s family and friends. And if you’re not connected with them going into this era, you need some repair work to do. That’s one of my most important pieces of advice. I think when it comes to the economy, diversification has to be much broader than it usually is when sometimes think about style factor diversification.

But when you add a big crisis, you know, all of the correlations go to one, right, particularly in a single economy. So we have to think about diversification much more radically in terms of different kinds of assets like commodities, you know, even something like a, you know, a hard asset that people usually don’t like just having a little bit in gold or something like that. And geographic genuine geographic diversification becomes much more important, you know, in these kinds of events. I also think fixed income assets are nominal fixed income of that assets are probably not very good because these tend to be from the surges of enormous inflation. And so inflation is one of the ways government pays up its debt. This always happens during every fourth inning, right?

I mean, that’s one way government gets out from under its debt, right? So if you’re if you’re locked into a fixed-income asset, you’re you’re rendering yourself vulnerable. You want something which is a real asset, which and hopefully one that is not too subject to onerous regulation or even confiscation, you know, at a time of crisis. So I also think commodities always come back and forth turnings they already are. In fact, we see a lot more attention to commodities today, you know, in other words, materials and energy. If you want to look at this S&P sector terms, manufacturing is true. But more importantly, because for eternity, they’re always eras. When we rebuild the outer world, we’re not going to be rebuilding the inner world. We’re going to be rebuilding the outer world.

And so manufacture really is important defense, obviously. And we’ve already seen a recovery in defense. I mean, countries around the world are already amping up right, not only due to the invasion in Ukraine, but due to the prospect of hostilities in the Western Pacific. So these are trends that have already started. They will accentuate, I think private equity, so long as it’s unleveraged, is a great bet. I think so long as it’s unleveraged because again, you get into that problem of, you know, leveraging becomes very perilous at a time when God knows when you can roll the loan over. So these are some tips, you know, have a lot of time, but you wanted to know a few things and that would be my advice. But for the decade coming up.

00:25:12:06 – 00:25:28:05Buck: Yeah. You know one thing about the decade coming up is and I’m curious in your take on this first of all was the first was what part of the cycle was the previous Great Depression? Would that have been?

Neil: That’s the fourth turning with turning around the parallels. Yeah, that’s.

Buck: Right. So so one of you know, I’ve talked to a few different economists concerned about, you know, the demographic cliff that we’re headed towards towards the end of this decade with regard to, you know, Medicare, Medicaid payments. And on top of that, all of these boomers being out of the work workforce and drawing in on all the retirement funds and the concern that that would trigger ultimately, you know, a Great Depression in the 2030s that would not coincide with sort of a first, with a first turning with it.

Neil: Then demographically that’s happening right now. So I don’t know. I don’t know whether talking about the 2030s, some of the biggest cowards in America were born again from 1959 to 1964. They’re all turning early. You know, the median age or retirement, Social Security is 64 right now. So, you know, you do the math. We’re right there. It’s happening right now. And it was accelerated by the pandemic. So that’s happening as we speak. And the new cohorts coming into the workforce are very small. And I’m not just speaking demographically here now. We’ve been very fortunate thus far post pandemic to have a pretty superheated economy here. Labor force participation among working prime age Americans is pretty high, Unemployment rate is pretty low.

So right now things are pretty good, but the demographics, fundamentals are terrible. And in fact, by 20 2026, 2027, this is just sort of OECD, UN demographic projections, The working age population in the entire high income world and emerging market world. I’m going to throw in China and India and Brazil. There is going to be shrinking. I mean, that’s amazing. You know, basically the entire economically relevant world, its working age population will be shrinking. This is the first time since Adam Smith wrote, you know, this is the first time since the Industrial Revolution that we have had sort of the entire effective global economy shrinking in terms of its effective demographic workforce. So it’s in this decade, but this is happening. Yeah, at most dramatically what’s been happening in China.

Buck: Yeah. I was going to ask you about the one-child policy that was there for decades and you know how that is going to in your view, affect China’s role in the future economy?

Neil: Well, I’m telling you, every demographer knew for a long time this is coming. China played denial, denial, denial. And then when it happened, it was covered up statistically. And then when they finally looked honestly at statistics, they just saw this freefall. And right now you have a very small cohort moving into the childbearing ages. So even with the same, you know, what we demographers call total fertility rate, you’re going to have an actual further shrinkage in the birds. So the birth numbers in the 2020s in China are going to be disastrous. And you know, that plus their rapidly declining productivity growth, their total factor of growth there, that if you just look at how much they produce or they give in quantity, labor and capital, it’s falling as well. So I do think this has geopolitical repercussions, namely this parity, the accurate sense know when China was growing much faster than the rest of the world, there was no reason it should start.

It can’t just wait, you know, time. This makes us stronger and stronger. Right. And we don’t have the you know, yes, we have the century of humiliation we have to overcome. Right. But we don’t have to do anything now. And the way we’re going, the West is going to fall apart on its own. Now, I think the psychology is changing and actually becoming more dangerous. Now. I’m in Great Falls, Virginia, outside DC. I’m very close contact with a lot of national security people, and I guarantee you that that’s not just my thinking. I think a lot of people are thinking that the mood in China is changing. China no longer believes that time is is is is is the wind at its back? You know, time may be a wind that it’s that it’s a headwind and it may need to act soon to actually change the mood of its people and to change the facts on the ground. I think there’s worries that you know, tensions, economists but national security tax here.

Buck: And what is the what is the implications of what it would what is the thought that China would do because of its concerns.

Neil: Based on the West? I think it’s pretty clear. I think it’s making common cause with that, you know, with fellow regime, certainly with Russia. I think that was very clear in 2020 to it. Now, you know, it’s likening the United States and India and Australia and New Zealand and Japan with the neighbor, with the West, you know, it’s growing all these parallels with Russia. They’re making common cause and with a number of other regimes as well. I think, you know, North Korea and Iran and many other sort of client nations. And I think what they want to do is, is at some point face down the West and show the West that it’s not the way of the future. Their prestige is also on the line. Right. They need to show that to all of the countries they’re investing in and so on, that they really are the wave of the future, that the West really is still the imperialist power and that it’s in some sense illegitimate. And at some point they need to demonstrate that with facts on the ground.

Buck: When you look at globally different countries, which country based on demographics and growth, are you most bullish on, let’s say in the next ten, 20 years?

Neil: I would say right now I’m very positive about China. And just from a particularly from a demographic point of view and partly just that geopolitical situation would be Southeast Asian countries other than China, who are demographically not too bad. Some of them are still in sort of the Confucian orbit. I mean, all the Confucian culture countries have pretty negative demographic prospects right now, but a few of them are bad at looking at Vietnam and Thailand, Philippines, you know, very high fertility rate. It’s going to be going for a long time. And it’s an Anglophone population, right? So they know how to speak English. They have a lot of they have some of the same benefits that India does. Now, India is slowing down. You know, India is almost all the way down to replacement rate in terms of fertility. India is no longer the great grower that it used to be.

But in India also is still relatively a promising country and obviously a very large country and a country which is rapidly modernizing under Narendra Modi. So that area of the world, I think is is also pretty well run. I think Singapore is an alternative for Hong Kong. Obviously, people are already finding that out. It’s hard to read out of ground.

Now in Singapore, I hear Taylor Swift is coming soon in Singapore rather than Hong Kong. And so, you know, it really is going to be hard to rent a hotel room. But my point is, is I’m pretty bullish on that area. I’m opening up and opportunistically bullish on Latin America. And I of Brazil did something pretty good. They did one thing great under Bolsonaro. They didn’t solve some of their huge pension problem. One thing that was not noticed, they really did solve a lot of that enormously unsustainability of the Brazilian Pedro epic stories in Brazil about you can retire at 55 and just lay on the beach and collect your checks. You know, that problem has been is it has been solved.

And as long as they get three-year terms there, the political back and forth between left and right are potentially great future. So, you know, Latin America, somewhere in the middle, I think, you know, Europe is facing huge growth headwinds. I mean, Southern Europe in particular, Right. The the Mediterranean countries in Europe are shrinking in an alarming rate. And I think many of these countries I tell about Portugal, Spain, Italy, Greece and so on, these countries are their workforce is shrinking so fast that then even in a normal year, their number of employees will shrink faster than their productivity improves. The Netherlands, they’ll have negative GDP even in a normal year. So in other words, we might even call it an aging recession, sort of a permanently slightly negative GDP growth and Europe is facing not only for fertility, but also a lot of emigration, right. To Western Europe, Russia. I don’t think we need to comment that, you know, the long list of headwinds for Russia.

Buck: So fascinating stuff. You know it’s you know, obviously a huge, huge topic. And I appreciate your time today. How can people. Okay. So the book itself again, is the fourth turning is here what the seasons of history tell us about how and when the crisis will end? That was released in July. I presume it’s already on Amazon and all that, right?



Buck: And how else can people get hold of you and, you know, learn what you’re doing and what you’re thinking?

Neil: Well, we do have a subscription service podcast, daily stuff going out of written podcast video, and we actually have a feature that we’re going to be starting this month called All about the indicators looking monthly at the indicators for the US economy, and that will be starting on late August on Substack. So the name of the Substack publication is Demography Unplugged. So that’s all you need to know. Demography unplugged. You go there. It’s not very expensive and it’s a great way for people to keep up both with what I see in the book. The fourth Turning is here, but also just degree interested in demographics and the economy moving forward.

Buck: Phenomenal. Thanks again, Neal. Love to have you back again sometime in the future.

Neil: Right. Thank you.

Buck: We’ll be right back.