by John Mauldin
I had a chance to catch up with my friend Neil Howe at my recent Strategic Investment Conference about the “Fourth Turning”—a recurring generational cycles theory that Neil helped to write the book on, quite literally.
In his view, it’s ongoing right now. Specifically, in the cycles of history, we are in a crisis era that’s comparable to the 1930s and 1940s. Neil believes it began in 2007-‘08 and will climax in the coming decade.
Fourth Turnings usually include a war, but these are not all gloom and doom. Neil said it’s possible our current problems will get resolved in a “kinetic” way, as Fourth Turnings tend to spur great thinking and creative problem-solving.
I probed Neil on whether we will see a larger and more intrusive government arise from this period. He thinks absolutely so, but may not intrusively “big” with big, semi-contractual spending commitments like Social Security—a child of the last Fourth Turning.
This period could spawn more such programs because very few people, and clearly most voters, don’t think of them as “intrusive” or big government.
Don’t think of it an entitlement. Or a depression, for that matter.
My friend Felix Zulauf is watching what’s happening in the world with great interest from his hedge fund in Switzerland. He isn’t bullish, but he also doesn’t foresee a Great Depression-like scenario here in the US.
He listed three key differences between then and now.
- There was no social welfare in the 1930s. Now transfer payments are as much as 40% of GDP in some countries.
- We entered this recession with much larger government deficits than at the bottom of the Great Depression.
- The demographic picture is quite different, with low birth rates and/or negative population growth in some places today.
Felix expects to see something more like post-1989 Japan, with essentially no growth for many years and a nationalized bond market. Attempts to increase employment will make the economy less efficient. He also pointed out that, with negative bond yields, many pension funds having to pay out more than they earn.
This means we are redistributing wealth from future generations to current retirees. The result will be a population that, in real terms, gets poorer over time.