U.S. faces a potential ‘secession crisis’ at home and ‘open conflict’ with China in the coming decade, says author who predicted 2020 unrest


a flag flying on a clear day: The U.S. is down at No. 91 for its access to quality basic education. U.S. kids get an education roughly on par with children in Uzbekistan and Mongolia.

© Ronald Martinez/Getty Images
The U.S. is down at No. 91 for its access to quality basic education. U.S. kids get an education roughly on par with children in Uzbekistan and Mongolia.

Neil Howe foresaw that 2020 would be time of crisis for the U.S. — back in the 1990s.


Load Error

As scholars of demography and generational trends, Howe and his colleague, the late William Strauss, observed that every generation of Americans fits a particular archetype that influences the personality and practices of subsequent generations.

Think of the G.I. Generation — “The Greatest Generation” — who rose as one to victory in World War II and engineered America’s postwar economic boom; the Silent Generation, who never quite escaped from the G.I.’s long shadow; the postwar wave of baby boomers and Generation X, who trumpet the “Me Generation” of individualism and self-determination; and collectivist-minded millennials, born between 1982 and 2004, who came of age during two major economic recessions and ongoing financial insecurity, and who with each passing year hold the keys to the nation’s future.

Howe and Strauss concluded that every 70 to 80 years or so since the founding of the United States, this generational cycle reaches a tipping point. The crisis generation at such times — notably G.I.’s and now millennials — ultimately sweep away many established norms and institutions and open the gates to social, economic and political changes that carry the nation forward on a new path.

Howe and Strauss called this Phoenix-like era “The Fourth Turning,” and their influential 1997 book of the same title predicted that the U.S. would enter another Fourth Turning early in the 21st century.

Welcome to 2020.

The Fourth Turning actually is here, Howe says. It began around 2009 after the Great Financial Crisis, meaning that the U.S. is about halfway through this transformational and critical period. It’s hard to argue otherwise after a decade of tremendous upheaval that has created deep and often dark divisions in Americans’ lives and lifestyles.

If Howe is correct, we ain’t seen nothing yet. In this recent telephone interview, which has been edited for length and clarity, Howe, who now charts demographic trends for an investment research firm, says the coming decade will be one of “creative destruction” in the U.S.

The rocks and rapids that Americans will navigate won’t be so much right vs. left or red vs. blue, he says, but rather old vs. young: boomers and Generation Xers vs. millennials and the youngest Homeland Generation. This existential clash of generations — played out against the backdrop of the post-pandemic recovery, mounting personal and national debt, climate change and the rising power of China — will challenge and change what it means to be American.

MarketWatch: Fourth Turnings by nature are disruptive and disturbing, but out of the ashes can come rebirth and renewal. How might this current Fourth Turning in the U.S. reshape democracy and its institutions and ideals?

Neil Howe: The Fourth Turning began in 2009 with the Great Financial Crisis. It received its second blow with the COVID lockdown. The Fourth Turning is a generation-long era, so we expect it to last until around the year 2030. So right now we’re roughly halfway through it. Typically Fourth Turnings accelerate. Solutions are deferred, people start putting things off, and then people panic and insist that someone take charge. In the great awakenings of American history — like the 1960s and 1970s — the rising generation leads the public in demanding less social order. In the great civic crises — like the 1930s and 1940s — the rising generation leads the public in demanding more social order.

In this respect, we’re now witnessing a curious age reversal. During the pandemic, young adults have been most in favor of a top-down national policy that insists on strict and universal enforcement of mask wearing and testing and tracing. Look around the world, figure out what works, and implement it. This is remarkable, because it is directly contrary to their own self interest: Millennials are the least likely to get sick and die from COVID, and they’re the most likely in a government lockdown to lose their jobs. But remarkably they favor a strict policy a lot more than older people, who despite the greater threat to themselves tend to favor a less authoritarian response. Imagine if we’d had a pandemic back in the 1970s. In that case, it would have been the older G.I. generation insisting on mobilizing national agencies — and it would have been the young boomers raising their fists and saying “hell no.”

As for socialism, it’s no longer a “Bernie-bro” fantasy. Government this year has turned both workers and businesses into wards of the state. How are we going to manage that shift? So long as government is restructuring things, we’re going to think strategically — how much savings should America have, what should we do about student debt, infrastructure, urban planning, climate change. It’s now all on the table. Most Americans now favor universal forgiveness of student loans. There’s also a majority consensus that our health-care system needs a total makeover.

‘Don’t be surprised if, like in the 1930s, young people are attracted to undemocratic alternatives.’

What really concerns millennials is whether liberal democracy can actually perform. Around the world today, confidence in democracy is rapidly declining in the generation now coming of age, which is a major reason why it is drawn to populists on both the right and the left. The way millennials see it, democracies are failing to invest in the future. While they brilliantly protect the rights and entitlements of older people, they leave the next generation to fend for itself. In America, you can see that with college funding — rigged to extract maximum unsubsidized payments out of young people and turn them into indentured servants. And then there’s health care, whose growing and massive subsidies go almost entirely to old people.

Don’t be surprised if, like in the 1930s, young people are attracted to undemocratic alternatives. Sure, few in the west like the system in China because the PRC is a blatant violator of human rights. But young people dislike it less than older people. They look at a country that saves and invests 40% of their GDP, does a pretty good job maintaining jobs and growth, and knows how to create communities and build infrastructure. This is what millennials don’t see in America today.

a man wearing a suit and tie smiling and looking at the camera: Neil Howe

© Chris Flynn
Neil Howe

MarketWatch: Demographics dictate that millennials are going to wield more power and influence as boomers and Gen-Xers exit the stage. Except the older generations don’t seem to be leaving so gracefully. Is now the millennials’ time or must they wait a bit longer?

Howe: We may be seeing the beginning of this. The voting rate (as a share of eligible adults) surged to the highest level in a century in the off-year election of 2018. A rising share of Americans want one party to control all branches of government. Generation X and boomers have generally liked the idea of divided government, because it prevented either party from doing much. Gen-X is not connected politically; the idea of a government that couldn’t do much suited them fine. That’s changing now, for all generations. And millennials are at the cutting edge of this change.

Remember that 1932 was not nearly the decisive victory for Franklin Roosevelt that 1936 was. I’m not saying it’s going to play out the same way. But the millennial impact will become larger as they become energized, and you have 4 million adults every year becoming voter-eligible, and almost as many adults dying off at the other end. That can’t help but make a difference.

MarketWatch: Have boomers failed America, or did they simply play their archetypal role of laying the groundwork for the next crisis that a younger generation must face?

Howe: Every generation has strengths and weaknesses. I never judge generations. It is fair to say that every generation has certain strengths that are revealed by its coming-of-age experiences. Where everyone defers to boomers is their strength in the interior rather than the exterior of our society — the realm of culture, religion, art, vision and values. I know we’re all pretty sated on such things today, but what boomers brought to America in their youth seemed incredibly refreshing after the American High. A civic crisis, by contrast, is when society focuses on the outer world of politics, class, economics and infrastructure. Whenever we’re referring to recent civic events, we always talk about “post-World War II” America. But whenever we’re referring to cultural trends, we talk about “post-’60s” America.

This is the yin and yang between millennials and boomers, as it was between boomers and the dominant generation in charge when they were children, the G.I.s. Boomers are extremely influential in their own way. Boomers are necessary to give rise to millennials. And typically there arises a gray champion, so to speak, who helps mobilize the younger civic generation to become energized and engaged. Franklin Roosevelt was worshipped by Lyndon Johnson and so many of the G.I. Generation not because he was like them but because he was different. He articulated a vision. In any great creative task you need generations working together. You need visionaries guiding it, giving some idea of where you’re going to go, and you need a pragmatic hands-on generation to be the hands-on leaders. And then you need a civic generation like the millennials to create a sense of community. And all of this takes place in the Fourth Turning, in these crisis eras.

‘Fourth Turnings tend to change the axis of political division — what it means to be a conservative and a liberal.’

MarketWatch: What do these demographic and social shifts mean for the U.S. economy? Millennials’ values and ethos eventually will influence consumers, investors, the American social fabric, government intervention and how wealth is distributed. Millennials are considered a more collectivist generation as opposed to boomers’ individualism. Do you expect American millennials to create a more collective government and society?

Howe: Fourth Turnings tend to change the axis of political division — what it means to be a conservative and a liberal. In general, politics tends to turn economically and politically to the left and socially and culturally to the right. So if a more powerful government is going to give you new benefits — bailing out college loans for instance — then it’s going to make new demands of you. Citizenship is a two-way street based not only on getting but giving. Very often the way Republicans see it is that Democrats want to create a lot of no-strings-attached entitlements. I don’t think it plays out like that. There will be more benefits, government will be more involved with the economy, but more will be asked of citizens to participate, to serve and to make sacrifices.

‘Stiff antitrust rulings against Big Tech are just around the corner. And not just in Big Tech, but in pharmaceuticals, banking, food, transportation and other industries.’

MarketWatch: Where do you see major changes in U.S. government policy happening fastest over the next few years?

Howe: One good bellwether of which changes we’re going to see first is where we see both political parties leaning in the same direction. With such a polarized electorate, when both parties happen to favor something, it’s highly likely we’re going move that way.

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.

Read: Jim Steyer: Only a breakup of Facebook and controls on social media can reduce disinformation and lies on the internet

Also read: We’ll find out after the 2020 presidential election if Americans were just too angry and fed up with democracy to save it

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

More: ‘Vote with your ballot, not your life savings’: This veteran stock investor is sticking to his strategy no matter who wins the 2020 presidential election

Plus: Billionaire investor Ray Dalio on capitalism’s crisis: The world is going to change ‘in shocking ways’ in the next five years

Continue Reading

Source Article