EPISODES / WEEKLY COMMENTARY

Neil Howe: Fourth Turning Predictions

EPISODES / WEEKLY COMMENTARY
Weekly Commentary • Aug 18 2020
Neil Howe: Fourth Turning Predictions
David McAlvany Posted on August 18, 2020
Play
  • Inflation pressures mounting or can we just print forever?
  • The future conflict with China
  • Politics: If the “Blue Zone Wins,” does the “Red Zone Comply,”?

Neil Howe is the Managing Director of Demography at Hedgeye. President of LifeCourse Associates. Author of The Fourth Turning, Generations, and Millennials Rising.

 

The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

Neil Howe: Fourth Turning Predictions
August 19, 2020

“Boomers have been pushing all their lives to let loose all the diversity and individualism of America, all their talents, all their vices and virtues – let it go. And this is the result. We’re living in it today. We’re living in the end-point of those trends, and the result is a country which has become almost ungovernable.”

– Neil Howe

Kevin: Our guest today, Neil Howe. David, this is our fourth time to have him on. He wrote an excellent book called The Fourth Turning. You are the one who turned the office onto this, well over a decade ago.

David: It has been a really helpful overlay for thinking about changes in the macro economy, anticipation of many of the things we have talked about with financial market issues, economic concerns, political dysfunction, even geopolitical conflict. There’s a way of looking at things which can be sort of dire in nature, almost sort of terminal – things are getting worse and worse until they get worser, and that’s really not what you get with this particular model of history. The Fourth Turning, what cycles of history tell us about America’s next rendezvous with destiny, kind of gives you an impression that over the last 600 years, combining English and American history, you’ve got this pattern of recurrence, and things do get worse, and then they do get better. And it’s just a helpful pattern.

It’s worth noting that models are helpful for explaining how things work. They’re useful for organizing data and understanding what it means. We also know from the history of science that models change, and that interpretive frameworks once accepted as a helpful sort of Rosetta Stone by which you understand and interpret things, they can be discarded. You have the Ptolemaic model, accepted for hundreds of years. Then came the Copernican model. Where are the flaws in this model? That’s something that a listener should be thinking about it. And yes, it’s helpful, very helpful. And it continues to be after almost a decade and a half of ruminating on its content and reading it, re-reading at three or four times, it’s just worth turning over.

Kevin: That was something that I was careful about when I read it. Any time I read a book that says this is a model that repeats over and over and over, that can be very useful but you also want to keep in mind that it is a model. You brought up the Ptolemaic model. That was when people believed that everything circled the earth – earth-centric. And then Copernicus – that was heliocentric. And if we go to the stars down the road, we’re going to have to look at a different model than just heliocentric. Same thing with Fourth Turning. One of the things that impresses me about Neil How, though, is that I can go back and listen to the past shows – 2011, 2017. Like you said, this is the fourth time that we are interviewing him. It’s a useful model. This is a book that was written in the early 1990s and came out, I think, in the mid 1990s. And it’s still being used now. In fact, not only is it a model, in a way it’s a talking point. You’ll hear people say, “Well, we’re in a fourth turning.” It’s a cliché at this point.

*     *     *

David: Neil Howe, great to have you back on the program. We were interested in getting your perspective on the state of our union about six months after the Trump Administration moved into the Oval Office. The last time you were on the program was July 2017. Prior to that, in May of 2011, with the global financial crisis still working its way through the system. Even then, nearly 10 years ago, we were addressing a rise in populism globally and a breakdown of civic institutions. We spoke more recently in 2017 of the Bannon fascination with culture and Steve Bannon’s influence coming through the election process, to some degree capitalizing on popular discontent.

We spoke about complacency in the markets, adding to risk dynamics across asset classes, actually spent a good bit of time in previous conversations, Neil, with the Minsky thesis, his instability thesis. Basically, stability begets instability. Now we’re pre-election 2020 and it’s important to see this race from multiple vantage points, not partisan vantage points, but I think more critically, the cultural and historical vantage points. We want to explore your insights on the fourth turning, a long period of transition with a distinct mood, reflecting generational differences, and obviously put in a time and place where the consequences of past policy preferences get played out. In brief, that kind of period is one you refer to as a period of crisis.

Let’s start for the benefit of our new listeners with sort of a 20-second summary, if you can do that, of the fourth turning thesis, and our listeners can, of course, go back to the May 2011 interview, the July 2017 interviews, if they want to explore it more. Better yet, read the book, The Fourth Turning. Let’s look at the fourth turning thesis in brief and then let’s frame up this election cycle in light of the thesis.

Neil: Yes, better yet, read the book. A new book, by the way, is going to be due probably in early 2022, so it’s not over in terms of what I’m writing about it. But basically the thesis is, and this began actually in a book that Bill Strauss and I wrote in the late 1980s, it goes back to actually 1991, the book Generations, and then later on The Fourth Turning, which was 1997, that the social mood in America follows a cyclical pattern, and that this cycle is driven by generational aging. That is to say, history creates generations and shapes them, and then later on these generations get older and they in turn shape the mood. So it’s a sort of a completed feedback loop.

One particular aspect of this cycle is a period, a generation-long era, 20 years or so, of civic upheaval and civic re-creation, which has typically coincided with wars and revolutions. I’m talking about big civic upheavals that really redefine who we are as a nation. These have occurred about every 80 or 90 years in American history, going all the way back to the very late 17th century when we were just colonists, the glorious revolution, the war of Spanish succession, and then a lifetime later we had the American Revolution, the American Civil War, the New Deal and World War Two, and then here we are today.

And there are generational drivers behind that, whether or not you’re shaped in that event or you were born right after it. And just to complete the idea, we also have observed periods of cultural awakening which occur roughly halfway in between those civic crises, most recently the 1960s and 1970s, but we’ve had our 3rd, 4th, 5th, 6th awakenings in American history and this is the other side of the cycle. So in these wakening events we re-create the inner world of America – culture, values, religion, pop culture, all the rest of it. And then in the civic crises we re-create the outer world – politics, economics, infrastructure, the objective, not the subjective side of who we are.

There we go, that was probably a little bit more than 20 seconds, but there you have it.

David: And as we look at the election cycle coming up, where in that fourth turning, a period where things are beginning to feel the excesses of the previous cycle, and that’s getting played out. Maybe we see that in financial terms, maybe we see it in social terms. There is a number of places for it to express itself, and sure enough, we get to, in the democratic society that we have, express our feelings and thoughts about the future through the ballot box. So maybe take that thesis and apply it to 2020 and November, and what you see there.

Neil: Well, we see just a deepening mood that are in. One element that we’ve seen over the past decade is this growth in authoritarianism and populism around the world. In Europe, I think particularly South Asia, East Asia and Latin America most recently in the past couple of years. And obviously we’re seeing some of that in the United States. And to some extent, these generational currents are global. They’re aligned. It’s not just us, it’s happening everywhere.

I think we certainly saw it with the election of Donald Trump, I would say, the most incredibly unlikely candidate in American history to win an election, but it really said something about where the American mood is. And now, of course, we’re coming into 2020 when you’ve seen the Democratic Party move ideologically faster than I’ve ever seen it move in my lifetime. We have a candidate who’s clearly a moderate in his party, seeking to portray, I think we’ve actually seen now in the convention that’s taking place, the incredible online convention that we now have, a reasonably moderate face of the party.

But there’s no question that this party is moving very rapidly to things that we wouldn’t really have imagined, a doubling of the federal minimum wage, government provision of higher education for everyone, some form of higher education, free college for all or free college for most, perhaps. And then a large infrastructure and New New Deal or Green New Deal program and large changes in the tax structure and all the rest. I think it’s coming at a time almost as an anti-climax because some of the biggest changes we’ve seen were already introduced with the pandemic. The really practical implementation of modern monetary theory and flooding our economy with liquidity, both fiscal stimulus and Fed purchases to their balance sheet on an order of magnitude higher than we’ve ever seen before in history.

And it was funny, late in 2019 the charge was that, you know Bernie Sanders was a socialist and America wouldn’t elect a socialist. And now, it’s like we’re all socialists. I mean, we’re all wards of the state. I don’t know about you, but I can’t think of an asset owner now who doesn’t know that they would be toast had it not been for this massive Fed intervention, or workers who know that they counted on that federal unemployment bonus plus PPP to keep them where they are today. So we’ve had this weird period with the most enormous real economic shock in terms of employment and production that we’ve had since the Great Depression, and perhaps even more rapid even than the Great Depression, actually happened economically. And yet we’ve completely hidden it by this enormous flow of largesse.

And now it’s an interesting question. I think equally important with the upcoming election is the threat that stimulus may stop for a while and as we know, I think everyone in American economics is really trying to track that interruption of stimulus, plus the coming back of Covid-19 infections. Deaths nationwide on a seven-day average are about double where they were a month ago. It used to be around five hundred, now they are over 1000. And the idea that that could get worse as we move into the fall, obviously you have climate playing a role. Is that going to further depress the economy, or is Covid going to go away and we’re going to get stimulus reconfirmed once Mitch McConnell and Pelosi and all those people can meet again and Trump can sign on, I think that’s one of the big uncertainties right now. We’re always on the razor edge of that one, but we can see enormous macro-uncertainty either way.

I do think that if stimulus is reconfirmed, Biden is elected, and Biden, as expected, will want to continue this stimulus for a while, we could see real danger of inflation expectations really accelerating again and it’s worth to keep in mind, although Jerome Powell denies it. He says the yield curve is nailed to the floor for two years, nothing is going to change his mind and he wants to do everything possible to keep expectations firmly rooted. There’s no question that if you see a real surge in inflation expectations then all games are off for the Fed. That’s a complete game changer. Suddenly, borrowing money is no longer free again.

David: We saw an indication that last week in the bond market, as we get a higher-than-expected CPI and PPI read, and there is a small revolution in the bond market – very small, but still, across the yield curve, 10-year to 30, it was painful to be in those safe havens, treasuries and really anything in fixed income. So yes, there is this presumption of control in the interest rate world, but maybe some concerns of inflation.

Neil: Well, you see signs of it, this kind of continual fall in the dollar and acceleration in commodity prices. Look at gold, you look at kind of all the obvious sign posts, and you just see the market is expecting something, that we’re getting ready for something longer-term here, and it’s not a huge further leg down in depression and deflation, although again there’s a tremendous amount of uncertainty right now. I think the failure to sign on to an extension of stimulus just renders even more uncertainty right now in the outlook.

Most people, and certainly we were, expecting that that was too important for Trump not to sign on. I think I was surprised with everyone else that they failed to come to an agreement. I thought in the end, Trump had to have that for his election, if nothing else. In fact, given Trump’s love of debt, I’m surprised he didn’t come out with a $4 trillion plan and call it the Trump Plan, and then dare Pelosi to match it. I think that would have been the master political gambit. But you know, that didn’t happen. I think, on the conservative side, and on the Trump side, the whole idea of the postal service seemed to stick in his craw, and I think for the conservative Republicans this whole thing doesn’t taste very good to them. And I think neither of them wanted to give all that much money to state and local governments. So that’s kind of where it ended.

David: You’ve got this idea within what you wrote in The Fourth Turning that crisis brings reform and both crisis in the period that follows it are long and the changes occur over a longer period of time. You mentioned the anti-climax with the pandemic, so we’re moving toward this ultimate period of crisis and then a response to it. And yet we’ve had something that’s kind of blown up in advance and we now have events catching up with policy.

Neil: It raises the stakes. Talking about a Minsky moment and how in Minsky’s paradigm, complacency breeds risk-taking. But there are always ways you can raise it to another level. Simply raise the stakes. And I think we did that with macro-economic policy this year. We basically said we’re just going to put so much liquidity into the system, and of course there is so much dis-intermediation now. So many companies are borrowing in markets that the Fed now had to actually back the bond markets as well as back the banks, and bring interest rates down.

And that, combined with this extraordinary fiscal stimulus, the CBO now estimates at the end of 2021 we’re going to be at something like 108% of GDP and a publicly held national debt. That’s higher than we were at the end of World War II, and we never had a war. Well, again, that’s affordable once interest rates are down new zero, but what happens if they start rising again? Suddenly, everything begins to change. And that’s the problem now, there’s a lot more at stake from the macro point of view.

David: Raise the stakes. Increase debt to solve what was a debt problem. Seems like an echo of what we did in 2008 and 2009. Not that we have to learn from the past, but we had the opportunity to. You say that periods repeat – celestial ones exactly, social ones approximately. A question I’ve had and just lingered on going through your book multiple times – could those social periods take on a different dimension under a planned economy where social mood or its expression is managed?

Neil: Well, spin that out a little bit, David. Give me an example of what exactly you’re talking about.

David: Let’s say, for instance, you’ve got China, and you could cross-apply this to the U. S., just take the same technological wherewithal. But this is a place where you get sesame credits. If you’re a good citizen, you get bonus points. If you’re a bad citizen you’re marked down and there are life benefits to being a good citizen. And so if you don’t like what’s in the news, shut up about it or you’re going to get negative credits.

And this idea that somehow we can manage behavior and manage the feeling in the market place, or at least shut off its expression. The most extreme version might be a kill switch for the Internet, but much short of that, the idea that you’re controlling the narrative. Can you take these social periods as we move towards crisis and particularly now post-pandemic you see almost a top-down management structure. Here’s what we will do here’s what you must do. Can you somehow take the crisis dynamic and manage that social mood such that you have a different kind of outcome than you’ve had in the past?

Neil I think, actually, the managing of communication, the managing of everything from the top has been a feature of all four turnings in our history. It was certainly true during the American Revolution. You back the wrong position, you’re tarred and feathered and ridden out on a rail. There’s tremendous amount of terror that went on during the American Revolution and a large tier of America did not support it, particularly non-English speakers. And many of them went to Canada, or stayed quiet or went back to Britain. So every fourth turning has been a shock and awe project, a project of an intimidation, and it usually results in a post-crisis era in which opinions are much more homogenous. This is the era of good feelings, to talk about that that era late in the Virginian presidencies of Madison and Monroe.

But look in the 1950s. How much extremist stuff was allowed in the media back then. My memory of the 1950s and 1960s, at least early 1960s, was one of a very homogeneous media, albeit bland. As you know, we had a fairness doctrine back there, and we had three big networks and they all stayed kind of within the rails. There was a suffocating conformity of those decades that a lot of people, frankly, today might be nostalgic for, at least those who remember that time. So it does result in a different kind of America, and it does require, once you have to mobilize society for one single purpose, as happens in a fourth turning, everyone’s got to be on the same page. And that happens in the heat of the moment, and it usually has after-effects, after the crisis is over.

I have no question that the ultimate use of social media to foster and amplify social solidarity and political solidarity is absolutely our future. And not just in the social credit system in China but all over the world, which I think is why Google and Facebook are trying desperately to get rid of the responsibility for doing it. I think ultimately they will want to set up government boards to do it so that they won’t have to. They can’t possibly be the lightning rod for that. That is our future, and ultimately, when millennials take over in midlife, we’re going to have a much more homogeneous political culture. It’s going to be much more sedate, cleaned up. There is going to be a lot less edginess to it. I have no doubt about that.

It’s going to be a little bit like the GI generation back in the thirties who, obviously, many of them became communists, many of them became radicals. But by the time they inherited America’s culture in the 1950s and early 1960s, took over the presidency with JFK in 1961, it was kind of what they would have called a cleaned-up, happified America. Accentuate the positive, don’t keep harping on the negative. And, of course, that’s how they got into huge arguments with their Boomer kids who just didn’t understand the purpose of shutting up about anything negative. Always project a happy and complacent and integrated view of American life.

But I will say this about the GI generation. They took America in that Postwar era, by the time they started retiring, which would have been the mid to late 1960s, they took America to its low point of economic inequality in the 20th century in terms of both wealth and income, which the Gini coefficient probably reached its all-time low in the late 1060s, very early 1970s. Younger generations took over and just pushed America in a completely different way. Obviously, the silent generation, particularly the Boomers after them, were much more in favor of untethering individualism and Boomers in particular are much more comfortable with inequality and individuals going their own way.

Boomers hated the idea of a strong middle class. Remember all that conformity, The Pleasant Valley Sunday, we all thought the same, and we were all religiously similar. Boomers have been pushing all their lives to let loose all the diversity and individualism of America, all their talents, all their vices and virtues – let it go, and this is the result. We’re living in it today. We’re living in the end-point of those trends, and the result is a country which has become almost ungovernable. But again, this, too, has a rhythm to it. America felt the same way back in the 1920s, and it felt the same way in the 1850s.

David: In The Fourth Turning you document these periods of time. The first one that you document began with the War of the Roses – 1458, 1487, that time frame – and then moves forward to the armada crisis, followed by the glorious revolution 1675 to 1704, the American Revolution 1773 to 1794, the Civil War, and then the most recent one, the Great Depression and World War two from 1929 to 1946. And then now, of course, the crisis era we’re in today. In each of these, it’s the old civic order which was displaced by a new one.

And you’ve already started helping us to imagine a new civic order emerging from the current secular upheaval. That would be the sedate, cleaned-up, almost something similar to the GI generation post crisis. We’ve got to get there. Maybe fill that out a little bit more in terms of, imagine that new civic order. It’s really easy for me to see, when you describe terror, which is today present. If you’re on the wrong side of history you should be afraid, because social media amplifying social consequences, the doxing of individuals, the firing of even tenured professors for whatever. It’s a fascinating thing to want peace and to want something that is more homogenized and perhaps, dare I say, civilized? You can see how that might be a response to the current atmosphere.

Neil: Oh, it always is. And we saw that in the thirties everywhere around the world, people wanted peace, they wanted solidarity, they wanted consensus. You have to live long enough through a period when that wasn’t the case to understand why people long for it. I think the challenge for America, as it has always been in such cases, is to come together as a nation, as a people, and yet to preserve the underlying liberties that they value. Ironically, and interestingly, David, in almost all of our great crises, we’ve come together as a nation. But it’s always to protect America against an enemy, an other, that represented enslavement. The opposite of liberty. Whether it was Britain or whether it was the slavocracy of unbridled expansion of the South, or whether it was the growth of fascism. There’s always a vision of the complete enslavement which requires the country to come together, to actually take away liberties, in order to preserve what liberties it truly values. And I think it’s that balance which we will have to watch. The complete adoption of a social credit system in the United States, I don’t think will ever happen, and in fact, in any upcoming conflict with China, I think that will be how the issue is posed. Does America want to become and be drawn into that kind of world? So that’s how it’s going to come down. I think one thing you have to watch for if you’re really looking where we end up, I think equality is going to be a big issue. It was in the 1930s and it certainly was not just as an ideological issue, but in fact we became a much more equal society coming out of the thirties and particularly the forties. A lot of that was done almost equally. Part of it was deliberate through government taxation and benefit programs. A lot of it was done simply through destruction of pre-existing wealth, either physical destruction or just destruction of its of its market cap.

But that will be one thing. There’s a great book on this, actually, if anyone’s interested, a longer creative history about well Walter Scheidel called The Great Leveler, and how ever since the Neolithic Revolution 10,000 years ago civilizations always become more unequal over time.

David: It’s a great book.

Neil: Except for periods of great crisis. Those are always great equalizers, what he calls the great levelers. These are plagues, famines, total revolutions and total wars. So I know that’s not a happy way to look at history, but think about it. Inevitably, in peacetime, we all entrench in our own interests, the interest of our families. Look around America today. We’ve got older people who have entrenched their own interests in the budget. We’ve got Prop. 13 in America, which is actually now hereditary. You can pass on the tax value of your home to your kids, believe it or not, that favored tax value. We’ve become an incredible grandfather clause society where we’ve entrenched our interests. It takes a crisis to break that stuff apart. And people sometimes tell me, Neil, your fourth turning just sounds like a lot of chaos and disaster. And I say, no. You clear out all the stuff that throttles growth and freedom and that prevents the next generation from growing. You re-write the playing field away from the old, back to the young again. That’s another theme, by the way, of fourth turnings going into what follows and that is a huge new emphasis on investing in the young, which we haven’t seen before. Higher education when boomers were growing up was still largely funded by the public. We’ve moved toward completely socializing the cost of growing old in this country and privatizing the cost of raising kids. And then we wonder why the fertility rate is going down?

David, think about that. The incentives are obvious, aren’t they? If you don’t have any kids, you’re a free rider. It’s all the other kids who are going to pay their payroll taxes to keep you with income when you’re old. But if you have a kid, you have to fund everything yourself. Where did we ever get that kind of balance? Well, in recent decades, that’s how we’ve moved, really. Ever since the 1970s we’ve been moving in that direction. So that’s another big thing that will happen. I think in terms of culture, we will actually move toward conventionality, a reinforcement of more conventional norms. That may seem surprising to believe right now but that’s going be somewhere in kind of the ethnic and linguistic center of America. It’s going to be a world in which the fringes will be de-emphasized and populism always moves in that direction – successful populism. It always moves toward legitimizing the center of the culture, never the fringes. That was true even in the American Revolution, and it was true in Vietnam, which was actually the place I got to see in person before that finally went down. And it’s true around the world today. Look at Narendra Modi in India. Look at Xi Jinping bringing back the great Han in China. Look at Shinzo Abe, bringing back traditional culture in Japan. Look at Rodrigo Duterte. Look around the world today and see what is happening with populism. It always champions the center, the majoritarian culture. And that’s how you harness a people into cohering and actually doing things.

Right now, these societies, some of them, are still in periods of great upheaval. I don’t know if you saw the recent election in Sri Lanka. The same thing happened again, one family, basically in charge, enormous landslide election, and they are, again, the Buddhist ethnic center of that society. Look at Burma today where the Buddhists are actually expelling the Muslim Rohingya. I don’t want to go into that in detail, but if you look around there is a reason why Freedom House now has its 14th consecutive year of declining liberalism and democracy around the world. It is because all of these peoples are trying to energize their latent energies around, frankly, majoritarian ethnic world views, and this is just something you have to look at, and you have to understand why that is happening.

Now, typically, in America we have been a much more diverse culture just by who we are, a nation of immigrants, and I think most of them in the world today happen to be of Anglo-Saxon origin – New Zealand, Australia and so on. Now, Canada, very high immigration rates, reasonably diverse cultures, but even there undertake this shift. And I think that’s another thing to look for. We have a number of things, as you recall, from the chapter we wrote on the fourth turning we can look for. Obviously, the possibility of the nation galvanizing around some total, all-important civic project, with a particular end, is highly likely, and typically in our history it has been a war, usually a total war. And that is, I think, also something you should look for. Hopefully we can avoid the tragedy and destruction, but it needs to be something of urgency for the nation to actually execute in some way.

Well, when you’re talking about G. Jinping, Narendra Modi, Vladimir Putin, Duterte, Shinzo Abe, when you’re talking about them seeking an ethnic center, focusing on nationalism, I mean we can think of them strictly as authoritarian leaders, but you’re right they’re trending and taking advantage of social mood as well. And it’s in sort of a de-globalization trend that they’re moving towards their ethnic center.

Neil: De-globalization trend.

David: You also bring in this aspect of geopolitical. Geopolitical problems usually express themselves, and people have very clear understanding of who they are, and it’s distinct from who anyone else is. And you know, there’s an emphasis on rights and what is best for us and that nationalist trend. You tend to see sort of transnational emphasis and in a move towards understanding yourself as a global citizen in one period of history, and then it kind of shrinks back from this vague identity of who we are to a very specific identity of who we are. And that very specific identity of who we are does coincide with some conflict, because now it’s not about all of us. It’s about us versus them.

Neil: Right. And this has also been unleashed in Eastern Europe, obviously. Eastern Europe was, like the way we used to talk about the Austrian- Hungarian empire, a prisoner of nations. Well, these nations have been unleashed, and now they’re expressing themselves in their nationalistic particularity. And again you look at Hungary and Poland, and they’re a challenge now to the prevailing orthodoxy in the EU. It’s interesting, too, that in most of these countries they’re getting most of their support from younger voters. That’s certainly true in India, China, Japan, a lot of the ones I just mentioned.

And that’s where you know that you are in a kind of pre-crisis, as opposed to post-crisis mood. Typically, after a crisis is over the generation that vanquished the opposition that created all these new institutions during the crisis sort of sit on that after a while. There’s a sense of great satisfaction, complacency, perhaps, and they built all these new strong institutions in the heat of the crisis, and they tend to think very highly of these institutions as they grow older. So the younger generation tends to be more protesting for more individuality, for more personal space, for more personal freedom. Less restrictive institutions.

And that’s what we experienced, obviously, in the 1960s, a post-war Boomer generation attacking everything that their parents had built during the crisis. All of the concrete they were pouring, all of the harbors and dams they were still building, and the interstates and everything else. And that is a typical pattern. I think what happens is you wait a few decades after that and what happens is ultimately you find that it’s the older generation that’s protecting. That young generation of rebels and protesters eventually grows old and they’re protecting a more individualistic society. And it’s the younger generation that suddenly wants more order. They want more solidarity. They want government and big institutions to actually do more, which is exactly the opposite of what Boomers wanted. And I think that’s what you’re getting today around much of the world because you’re getting young people who want big institutions to do more.

David: So populism was a defining characteristic of 2011 to 2016. If you go back and replay the Five Star Movement, Syriza, here in the U.S. the Tea Party, tying in the Covid fanatics, is it possible that Covid provides governments around the world the opportunity to silence the popular voice and unify institutional civic initiatives around a common threat?

Neil: What happens, ultimately, is populism moves from becoming the outside to the inside. This is why populism and authoritarianism are actually two sides of the same coin. And that goes back historically to the very origin of the term. Who were the first Populares, as we used to call them in Latin. They were the ones that supported Caesar. He was the first dictator. He spelled the end of the Roman Republic, and those who opposed him were the Optimates, the good people, the senators, the elite class, those who deserved to rule.

Well, when a popular party takes over because it’s pushing out all the encrusted elites who used to run things, they need one person to embody their will and run it. You get the logic here. So populism almost needs a single authority figure to give expression to what it wants. And this is why the two have always been linked historically. Ultimately, what happens when populism finally succeeds is it creates this extremely effective, authoritarian government that can actually get things done. And that’s very convenient and it may be very welcome in a crisis.

I think one aspect of the pandemic that I think has been particularly demoralizing for Americans is to realize what a dysfunctional country they’ve become relative to the rest of the world. It has exposed all of our civic vulnerabilities – that we don’t follow laws, that we don’t trust our leaders, that we have no top-down federal power. I don’t know if you knew this, David, but you want to look at deaths per capita going on now in Australia and New Zealand? Even New Zealand. A new wave consisting of six infected people in a population of five million.

Trump was actually crowing about that the other day, “It looks like New Zealand wasn’t successful after all. I think we have six new infections about every five minutes in this country. My point is that we do have areas which actually practice successful containment and they now have almost no mobility restrictions. You can go to New Zealand. No one’s wearing face masks. A successfully practiced containment strategy can actually work, but in America we don’t have the capacity to do it. We simply don’t have the political trust. We don’t have the will. We don’t have the institutions in place.

And so we’re sitting here with a higher current death per capita rate than any other high-income nation in the world. And Americans know that, and you can see that in the opinion polls. America has very poor ratings today to how America has responded to this crisis, and it’s partly because we no longer demonstrate the civic talents that we used to demonstrate earlier in history. And I think going into a fourth turning, that’s the realization that we reach, how disorganized and dysfunctional we are from a civic perspective.

And interestingly, if you look at opinion polls, millennials, the younger generation, is most in favor of strict containment and a national top-down policy, which is interesting, David, when you think about it. And by the way, this is true with about 20 percentage points. Older people most want voluntary containment. “No one tells me what to do. If I don’t want to wear a mask, I won’t wear it. I’m an individual.” All of this stuff. Those are your early [unclear] and Boomers who were saying that. Millennials want a strict containment policy.

And it’s interesting when you look at it from a self-interest point of view, that’s contrary to their self-interest. Millennials are the most likely to lose work and lose income with strict containment. And they’re the least likely to get sick or die from this disease. So if millennials were acting in their own self-interest, they would be most in favor of no containment at all. But I do think the reason why you’re seeing millennials do that is they sense just a massive civic vacuum in this country, and they’re trying to respond to that.

David: We talked about slow motion crisis back in 2017 and I think of the rolling blackouts in California years ago. They returned this summer. The crisis dynamics seem to be rolling as well. I’m thinking specifically in terms of financial markets with the tech crash in 2000-2001 followed by massive monetary and fiscal interventions that gave us the real estate bubble crash of 2008 and 2009 which followed. Of course, that opened up the global financial crisis. And ever since, there’s been far more aggressive monetary policy, fiscal policy and as you mentioned earlier, the largest deficits outside of wartime. It seems like the crisis has been trying to express itself for a long time and various interventionist measures have taken it off the boil temporarily.

Is this the slow motion crisis we spoke of back in 2017 where gradually all political leadership is tested, and over time, discredited?

Neil: Yes, it is. And you keep upping the ante. You use all that liquidity, you stave it off. Of course that just means, ultimately, a much bigger challenge will have to be dealt with. The things that I see on the horizon in terms of real crises catalysts right now, and I would say this is all within the next 18 months as I see it. I’ve already mentioned one of them. That’s rising inflation expectations, which I think would suddenly take everything we’re now doing off the table. Everything now the Fed is doing would have to reverse course.

And so all of the stuff that we just consider our ultimate backup, all our palliatives, let’s just make sure everyone has income. If money is free, if we can pay it back in a year, or five centuries from now, let’s just print it. Literally, almost, the helicopter money phenomenon has been in force. You look at the income breakdown of the people who are receiving unemployment now, it’s actually amazing. It’s regressive. But we’re just basically giving money to everyone right now.

And obviously what the Fed is doing is completely regressive. And who’s benefiting from that policy? Who is, on a first order, benefiting from that policy? And not only in the short term, for the long term, because of course, this ensconces and protects, the S&P 500, all the incumbents, and prevents the creative destruction of capitalism. So all of that’s in place, but inflation expectations ruins that. It forces everything to change.

I think the second thing is the situation with China. I believe that what’s happening now in Hong Kong actually has an almost inexorable logic. It’s a little bit like a slow motion prequel to World War I where, inevitably, China, basically Xi Jinping, is absolutely adamant he is going to suppress all of these movements at Hong Kong and, ultimately, is going to bring the entire power of China to bear on this. And I think, ultimately not just the United States, but the U.K. and the EU are going to have to respond to this. And ultimately that means sanctions. And they’re already being placed on individuals.

Once those sanctions are in place on actual corporations, and that involves the banks, that becomes kind of like a nuclear option financially and in terms of trade. And I think people aren’t focused enough on how quickly that could snowball and cause a huge decline in global trade. And obviously Trump is doing a lot of other actions, too, in telecommunications and Chinese social media companies where he’s delivering ultimatums and so much is going on other fronts, as well. But I would just remind you that these sanctions efforts and these punishment proposals against China have sailed through both the House and the Senate with almost no opposition. These are unanimous votes. How often in America today do you find unanimous votes. And both Biden and Trump are trying to out hawk each other right now on China. I find that fascinating and ominous if you want to know what direction that whole standoff is going to go.

But I think the other issue will be what kind of economic and social and perhaps even cultural policies are put in place if and when Biden wins in November, because I think the other wild card on the table gives attempts of nullification by states, particularly red zone states, and perhaps even as time goes on, secession.

One way, David, I sometimes like to think about this, in thinking about red zone and blue zone in America today is that each of them has a very one sided, dysfunctional approach to what’s required to govern a country civically, and that is the red zone believes in authority, but has very little vision right now of community, and that’s pretty much Trump. And the blue zone has this great vision of community but doesn’t believe in authority. And that’s a weird place to be in right now. If I were the Democrats, and I believed I was going to believe in all these huge new taxes and income transfers and green new deals and enormous infrastructure, you’re going to transfer a lot of income from the rich to the poor. I would think I better believe in authority. How else am I going to enforce any of that?

Dvaid: That’s right. It’s coercion.

Neil: If I were Trump, and I believed in authority, I believe in the police, military, and Trump definitely believes in authority, but to what purpose? What vision of national community does he have? And I think it’s almost that way in which you see how fragmented our country is, but I do think that if the blue zone wins, so to speak, in November, the red zone will test the blue zone and basically say, “We’re just not going to obey. We’re not going to pay that tax. We’re not going to obey that regulation. And what are you going to do to stop us? What’s your authority? What are you going to do?”

Now, much as we like to think when the blue zone was in power during the Obama years and then when Trump took over, then we had our sanctuary cities and sanctuary states disagreeing on everything from marijuana to ICE and undocumented immigrants. I never thought that secession by the blue zone was ever a serious threat because I think the blue zone feels ultimately it sort of inherits or deserves national institutions, national power. I do think that’s a greater threat by the red zone. And don’t forget, David, that one of the fourth turnings in our history was within the United States, it didn’t involve a crisis from someone outside the United States.

David: Blue zone succession is a lower probability event, given the de-emphasis on second amendment rights and gun ownership. Red zone secession seems more probable, or at least more highly probable, if you consider who has perhaps a little bit of muscle to say, “We disagree, and we have the means by which to defend our opinions.”

Neil: Also the disbelief that the blue zone would do anything about it. Again, that’s the point. So I’m agreeing with you and ultimately see that, too. And the whole survival industry, everything from the safe rooms and the arms sales and all that, hugely tanked when, surprisingly, Trump won the presidency in 2016. The bottom went out of that industry. So all of the equity value collapsed. They’re coming back up again, by the way, as the prospect of a Biden presidency, so that’s an industry that’s almost completely counter-cyclical to the red zone being in power.

David: Let’s take the normal American pattern of crisis and victory. That’s generally been the case for us. Maybe you take the Civil War out of that mix, a very different sort of an outcome, a modeled outcome, difficult to define victory when we’re killing ourselves. Let’s say that the normal American pattern of crisis and victory is different this time. Maybe that reveals itself in the U. S. bond market suffering, the U.S. dollar reserve status being set back. What are the social dynamics you might expect if crisis leads not to victory, but to failure and a loss?

Neil: Well, it’s very different. It’s accommodating ourselves to a diminished future. It’s as simple as that. My gosh, Americans are so privileged, we’ve never been through that experience. And it’s also, I think, you see that privilege, too, and a sort of unrealism about Americans when it comes to issues of nationality and whether their nation survives. We don’t even think of that. If you are living in an Eastern European nation or you’re living in most nations in Asia, you think about it all the time because your entire history has been your nation either being wiped out, or under the threat of being wiped out just imminently, right there, and I think that’s very difficult for America. We look around the world and it’s hard for us to comprehend how differently other nations, other peoples, see the future much more contingently. Because, of course, they face the reality in their own history of defeat many times, and subjections by other people. Americans aren’t used to that. We tend to think that our culture is sort of the universal culture. Ultimately, everyone gravitates toward us. It’s hard to see what true ideological competitor we have out there, except perhaps from China, which actually claims itself to be a new system of organization, superior to the one we have in the West. And they are kind of run by experts, they have no problem with using markets and using just enough liberty to keep the prosperity engine going. They’ve been very successful, and this year, again, they’re showing their success. China almost certainly will be the only major economy in the world with no year-over-year loss in real GDP. My gosh, look at where the European Union and the United States are going to come out in that.

So again and again, China shows that its methods which strike us clearly as oppressive, authoritarian, dictatorial, completely unfair and abusive to minorities, they’ll just say, what we have works. And in the end, history is written by the victors. That’s the other thing we forget. There’s an old Eastern European joke about that. I don’t know whether it was a Bulgarian or Romanian or a Pole, but they used to say. “Gee. I wonder what the future is going to be like in 15 years?” And the other person says, “Can’t possibly tell that, we don’t even know what the past is going to be like in 15 years.” (laughs)

But that’s the point. Who knows how in the future we’re going to re-write the past and how we’re going to reinterpret everything? That’s one thing, by the way, as an historian, I constantly emphasize when I talked listeners, and that is we look on the past and we just think we’re seeing it as it was. No, we’re seeing it interpreted as the winners wrote it. It would have been written very differently if other people had won, or if another kind of cultural or social or political outcome had been gained. When you’re looking forward, you have to realize that, as well.

David: Neil, I have four kids, the ages of 14 down to 6, and they’re growing up in a period of turmoil that, frankly, doesn’t look like it’s going to be short-lived. So arguably, things will get worse before they get better. I’m going to ask you something I don’t think I’ve asked you before, but advise me as a father how to navigate this time in their development so that they’re capable of engaging the world effectively with the mindset and skills to flourish, despite external pressures, challenges and change, perhaps change on a level we haven’t seen in decades. Do you have wisdom you might share that addresses the generational differences in perspective and the radically different worlds we have, and will, in the future, live in.

I think this post-millennial generation – we often call them homeland generation – the first of them were born in the shadow of the Department of Homeland Security. And I will have to say, David, they’re literally at home more than any other generation in our history, with the quarantines. I think one thing you will see is that this generation raised in a time of crisis, first of all, they will be carefully protected by Gen-X who is basically raising them there. I think one of the most amazing things, and I think predictable things that we see historically is that this Gen-X kind of generation tends to be very protective, as parents, and we predicted that originally and I think it’s coming out to be true. They keep tabs on these kids to make sure they’re not doing anything dangerous, none of the dangerous stuff they did when they were young and home alone. So I think I think that that is something that you want to do because it comes to you naturally and these kids expect it. It will be a dangerous time. They will look to older people for clues, for guidance. They will be generally very well behaved, and they will respond well to optimism about the future. Get a bunch of X-ers and boomers together and there is often a lot of gallows humor about where the future is going to go. I think this is a generation that responds very well to optimism, that through all this stuff that’s going to happen, we will create a better world. We’ve done so repeatedly in the past, we will do it again, and that these periods of troubles is the price we pay for a golden age. That’s what we need to get there, and that’s what’s always happened historically, and we’ll do it again and they will be able to inherit that, they will be able to improve it. 

They will be the ones who come in, hopefully, just after the crisis either is over, or is closing, and then have the leisure and luxury to improve things, to take us up to an even higher level, not to deal with the horrible things, but to take us up and enjoy even higher levels of civilization. The parallel – I haven’t talked about this in this conversation, David, but in my work I have talked archetypes for generations, how each generation belongs to an archetype, and has a particular kind of location in history, and it has a certain lifecycle script. And this generation that we see as kids today has much in common with the silent generation that was just too young to fight World War II, but just too old later on to be a free spirit during the late 1960s, just too old to be hippies. This was actually Joe Biden’s generation. And by the way, the silent generation has never had a president, the only generation in American history never to produce a president.

But at the very last, clearly, their absolutely last chance to produce a president, it looks as though this generation they will do it with Joe Biden. Those who came of age in the 1950s, very early 1960s, and that generation grew up as kids heavily protected. It was dangerous during the Great Depression and World War II. They were looked over. Remember the image of the child back then was sort of Shirley Temple, the Little Rascals – these well-behaved kids with a tight envelope of parental and community protection. They were very well behaved coming of age, and they had very long time horizons, and they played by the rules. Joe Biden’s generation absolutely did that. They were absolute conformists. Fortune magazine had a famous cover story in 1949 called “The College Class of ’49,” and the subtitle was “Taking No Chances.” Their first questions on job interviews was about their pension plan, if you could believe that, and they actually got the name the silent generation because they kept their heads down during the McCarthy era. They didn’t want to raise any waves, they didn’t want anything to go on their permanent record. And you can see that about kids today, very careful about what goes on the Internet, what gets recorded. Same thing. And this will be, I think, like all generations, the generation we need right now, and a generation which will serve to take us where we need to go, coming of age, coming into adult careers, beginning to come in, at least young leadership roles once the crisis is over.

David: I look forward to our next conversation. Perhaps we can circle back around to early 2022. We’ll have mid-terms that we could certainly banter about, and we’ll have a new book that we can discuss, and look forward to that. Thank you for your contributions from the 1980s through the 1990s, the research and writing that you’re still doing. We look forward to continuing the learning. We know that you have put a lot of work into distilling that, and we’re the beneficiaries of it. If you haven’t read the book, The Fourth Turning: What the Cycles of History Tell Us About America’s Next Rendezvous With Destiny, I think it’s a must-read.

It’s been required reading here in our office going back 15, almost 20 years. And The Fourth Turning – here is our fourth conversation with the author of The Fourth Turning.

Neil: Yes.

David: And we look forward to the fifth. Thanks for your time today.

Neil: Thank you, Dave.

Stay Ahead of the Market
Receive posts right to your in box.
SUBSCRIBE NOW
Categories
RECENT POSTS
Inflation Is Slow Poison To Your Savings
Don’t Like Inflation Numbers? Change The Calculation!
Zombie Company Apocalypse
Petro-Dollar May Someday Face Petro-Yuan
Your Questions Answered Part 2
The Story Of Russia – Orlando Figes
Your Questions Answered Part 1
Fed Pays Banks 3.9% To Not Loan Money!
Double your ounces without investing another dollar!