By Jonathan Burton, MarketWatch
One is education. You see profound dissatisfaction among both Republicans and Democrats with our current system. Tied with bailing out kids for all of the debt they’ve accumulated, government is going to get much more heavily involved in higher education. Government will expand the supply, reduce the price, and both parties are on board with this.
Another area of rapid change is digital technology. Stiff antitrust rulings against Big Tech are just around the corner. We’re ultimately going to have a whole new government bureau — a digital regulatory arm — that’s going to reinvent how we regulate communications. There’s an enormous generational swing in favor of antitrust, and not just in Big Tech, but in pharmaceuticals, banking, food, transportation and other industries. Starting in the 1970s, we de-weaponized antitrust. Now we start re-weaponizing it.
Health care is another area. Yes, big hospital and clinic systems pose a growing market-power threat. But health care has other, deeper structural problems — namely provider immunity to price incentives and near-complete provider control over terms of service. On any honest basis, if national health is the output of our health-care system, this sector has shown negative productivity growth in recent decades. Republicans have not gone along with it, but there is an emerging national consensus that fundamental change is needed here.
MarketWatch: Increased oversight and supervision of Big Business would be in keeping with millennials’ supervisory and interventionist nature.
Howe: There are two classic approaches to antitrust. Break firms up or regulate them. You’re going to find a generational divide on this question. For Gen-Xers, their solution is never trust the bureaucracy, never trust regulation — just break companies up. Millennials are not anti-business. And unlike Boomers in their youth, they have no special animus against big business. Millennials would love to join a big employer and thereby join the middle class. And if there are substantial economies of scale, let big organizations reap them — so long as they play by the basic rules of the game.
Likewise, and contrary to rumor, millennials are not really into risk-taking entrepreneurship. For them perma-temping is a curse, not a blessing. Let Xers sing the praises starting up new companies. Millennials would rather work for one of those Xers who succeeded. Over the past 15 years, startups per capita have gone down for all age brackets, but it has gone down fastest for young adults.
‘The Democratic Party is about to change very rapidly.’
MarketWatch: How do you see these generational shifts reshaping and directing both the Democratic and Republican parties in the coming decade?
Howe: The biggest change generationally is going to be in the Democratic Party. The Democratic Party now is bifurcated by age. They’ve got strong support among older liberals — the Silent Generation and early-wave boomers, particularly among its leadership in Congress, people in their 70s and 80s. Then you have all these millennials coming in at the young end. You see this twin-humped age distribution in the House of Representatives.
The Republicans in the House, on the other hand, are mostly tightly packed in their 40s and 50s. Among voters, the most Republican-leaning birth cohorts are late-wave boomers and early-wave Gen-Xers, aka ”Generation Jones,” born in the late 1950s and 1960s. In fact, 61% of U.S. governors, congressmen and senators born in the 1960s are (or have been) Republican. That’s the most lopsided partisan tilt of any birth decade now serving.
What do they have in common? They grew up during the social and family experimentation of the “Me Decade” and they came of age as voters with Ronald Reagan. The next most pro-Trump voters are later-wave Xers who came of age with Bill Clinton — “Nintendo Xers” rather than “Atari Xers.” As you move older than age 65, voters begin to tilt a bit back toward the Democrats. And of course as you move younger than age 40, voters tilt very strongly toward the Democrats.
What this means is that the Democratic Party is about to change very rapidly. The older Democratic leadership cadre is going to be disappearing quickly, and the center of gravity is going to lurch younger to these new ranks of blue-zone millennials. They’ll be able to give the Democratic Party a do-over from scratch. The Republican Party, with so many more committee chairmen in their late 40s and 50s, isn’t going to change nearly as fast.
‘A secession crisis, if it does happen, won’t happen among the blue zone states. It would be a red zone movement.’
MarketWatch: How do you expect this current Fourth Turning to affect American life from now until the era winds down around 2030? What should Americans watch for — and watch out for?
Howe: In our book “The Fourth Turning” we laid out five scenarios for things that could happen that would take us deeper into a fourth turning. One was a WMD attack on New York City by terrorists. Another was a supervirus that causes quarantines and shutdowns. Another was Russia invading a former Soviet Republic. Fourth was a debt crisis that threatens to shut down government. All of those have happened.
The fifth scenario that we described — and hasn’t happened yet (remember we wrote this book in 1997) — is a secession crisis. I think that possibility is still on the table. If it does happen it won’t happen among the blue zone states. It would be a red zone movement, and that’s something to watch for.
Two other possibilities to watch for. One is open conflict with China. Recall my earlier advice: Always be watchful for policy directions supported by leaders and voters in both parties. Here’s one of those directions. The American public across the board has grown much more negative on China over the past four years and more in favor, especially on the Democratic side, of “re-engaging” with global issues.
‘By hurting creditors and helping debtors, inflation would ease wealth inequality. And by hurting seniors and helping young workers, it would ease a similar imbalance by age.’
Another possibility to watch for is inflation. My advice for investors: Do not get stuck in long-term nominal assets. The year 2020 has launched the world, and especially the United States, into the era of Modern Monetary Theory. The government can now borrow at negative real interest rates, which means that money is essentially free. So why not hand it out to anyone who really needs it? The Fed has practically guaranteed it won’t trigger inflation in the foreseeable future.
And if it does trigger inflation? Well — and here is where investors need to pay attention — what would be the matter with that? By hurting creditors and helping debtors, inflation would ease wealth inequality. And by hurting seniors and helping young workers, it would ease a similar imbalance by age. Today, households aged 75-plus have the highest net worth of any age bracket. That’s completely without precedent in American history. The Silent Generation, the “lucky generation” according to some demographers, played by the rules, had perfect market timing, and now towers economically over their grandchildren.
Meanwhile, most Xers and millennials are not doing as well as their own parents did at age 30. Younger people are saying, wait, when do we get to buy into the American Dream at a bargain? It’s not just inequity by income and wealth, it’s inequity by age.
One obvious way to reshuffle the deck is inflation. Once the Fed starts playing catch up with rising expected prices, a bond market crash is certain. Many will look at MMT and say, inflation isn’t a bug, it’s a feature.
MarketWatch: You mentioned a “secession crisis” — like a second Civil War?
Howe: I can see nullification or secession as a case in which a state says we’re not going to enforce that national policy here. If you want to enforce your law, what are you going to do — declare an insurrection and bring in the military? Democrats stand for community but they have a real problem with authority. Take from the rich and give to the poor, but how are you going to do that unless you are willing to assume enforcement powers? The Republicans believe in authority, but don’t believe as strongly in community, which is equally dysfunctional, at least if you believe in maintaining a union of states. So there could be a group of red zone states that are willing to call the blue zone’s bluff.
‘The Fourth Turning is a dangerous era, an era of rapid change and clashing group loyalties. But it’s also an era in which we solve enormous national or even global problems.’
MarketWatch: A Fourth Turning can turn a lot of people fearful, with its promise of change that no one person can control — and which could easily get out of control. Does this current Fourth Turning offer any hope?
Howe: People tell me the Fourth Turning is a pessimistic or apocalyptic view. On the contrary, I’m hugely optimistic about America’s long-term future. The Fourth Turning is an era in which we rejuvenate our civic institutions and our politics. We equalize our socio-economic situation. We reengage as citizens after a long period of civic decline. The Fourth Turning is a dangerous era, an era of rapid change and clashing group loyalties. But it’s also an era in which we solve enormous national or even global problems. They are eras of creative destruction in which we reinvent our national identity.
The most pessimistic future I can imagine is for the trends of the last 30 years to continue. America grinds on hopelessly, able to enact only inadequate patchwork reforms. There is no renewal. There is no change. Younger generations get permanently disinherited. The only ones who succeed are those with rich families. Our civic culture atrophies completely, and we turn into a barbed-wire society of haves and have-nots.
It’s hard to imagine this changing without a sudden and discontinuous change in our civic institutions. Fortunately, such eras of public rebirth have happened before. Instead of hoping it doesn’t happen, let’s hope it turns out well.
Neil Howe is managing director of demography at Hedgeye Risk Management. He is the co-author, with the late William Strauss, of The Fourth Turning: An American Prophecy — What the Cycles of History Tell Us About America’s Next Rendezvous with Destiny (Three Rivers Press, 1997). Follow him on Twitter at @HoweGeneration