Make Me Want To Holler
Time marches on. Here we are in 2020, within 60 days of the next presidential election. If you remember the song Inner City Blues by Marvin Gaye, and I do, then you are probably a member of the baby boomer generation. Remember the racial and social tensions our country was experiencing at that time? Mr. Gaye’s song addressed social ills from the early 1970s, but the lyrics can also be applied to today’s problems. Study the words to this song; they could have been written last month.
All of this being said, I believe social instability has risen in our country and may remain escalated for some time.
Summer of 2017 – BCA and Mariner Wealth Advisors
BCA, the economics research firm based in Canada, produced a comprehensive piece in June 2017 detailing their thoughts on the macro direction of the U.S. economy and society. This piece, Populism Blues, How and Why Social Instability is Coming to America, was the foundation piece that I referred to in a piece I penned during the summer of 2017.
In the piece I wrote that the United States was on the verge of a political shift to the left, in which an upward push in governmental social and economic control was probably going to eventually occur due to the following factors:
- Demographics – millennials and other younger generations could bring a more liberal bias to political standards. Additionally, the immigration of millions of Hispanics could add to a national liberal bias. I believe that many young people have a strong socialist bias and believe the market economy has failed and needs to be altered.
- The widening of incomes between the “have’s” and the “have nots” would add fuel to the fire, driving a more socialist bias in our nation’s future.
- When asked how Americans labeled themselves, not long ago, they most closely associated themselves with racial, geographic, gender or religious identities. Today, many Americans attach themselves primarily to a political party instead. This is per studies by the Pew Research Center.
- All of the above has led to “social tribalism,” a polarization that won’t allow political compromise to exist. It’s all “my way or the highway” for some Americans these days, irrespective of political leaning. This is important and something reasonably new on our political environment.
Update from Summer 2017
All of the above bullet points are from my work written in the Summer of 2017, prior to the last election, but after the inauguration of Donald Trump. I suggest the trends noted more than three years ago are doing nothing but gaining national traction. To bring these factors up to date, I submit the following:
- Demographic update: According to the Economist magazine, as of 2019, the baby boomer generation no longer represents the largest generation in the United States. Millennials now hold that honor. According to Pew Research, there are 72 million Millennials in the United States (aged 23-38). That is 500,000 more than baby boomers (aged 55-73). Over the last eight years, members of the baby boomer generation and “silent” generation (considering both generations, or people at least 55 years old) has shrunk from 48% of those eligible to vote to 40%. The shift in political power has been swift and unmistakable.
- Younger voters tend to support more liberal views compared to older voters. This isn’t just an absolute, the trends across the board are moving toward more liberal voting patterns. Want proof? During the last congressional election (2018), those voting Democrat or Republican broke down as follows by age group as compared to party affiliation during the last presidential election in 2016 (data from Brookings Institute and William Frey):
- 18-29 years old: Those voting Democratic increased to 68% in 2018, as compared to 59% in 2016.
- 30-44 years old: Those voting Democratic increased to 59% in 2018, as compared to 55% in 2016.
- 45-64 years old: Those voting Democratic increased to 48% in 2018, as compared to 44% in 2016.
- 65+ years old: Those voting Democratic increased to 47% in 2018, as compared to 45% in 2016.
- The trend here is unmistakable. Democrats picked up voters across all noted age groups in 2018 as compared to 2016.
- But what stands out is the degree of Democratic Party pickup in those age 44 years and younger. This younger age group voted overwhelmingly Democratic in the 2016 and 2018 elections, but the pickup in 2018, as compared to 2016, was rather remarkable. Close to two out of every three voters younger than 45 years old now count themselves as a Democrat. There is no age group the Republicans can point toward that has this level of broad-based loyalty. According to Bill Frey, a demographer with the Brookings Institute, “America is moving from largely white, baby-boomer-dominated politics and culture in the second half of the 20th century to a more racially diverse country fueled by younger generations – Millennials, Gen Z-ers and their juniors.”
- Along with liberal young people, Hispanics now represent 18% of the U.S. population (2019) . Over the last 10 years, Hispanic population growth has counted for approximately half of the total population growth in our country and represents the largest minority racial group. And, 62% of Hispanics identify primarily with the Democratic Party as compared to 27% who call themselves Republicans. These statistics come from Pew Research Center.
As demographics tend to be economic destiny, it starts to become apparent that the Democrats have a lot of wind in their sails coming into the 2020 election. They tend to lean toward liberal solutions to economic and social issues and tend to be in favor of the federal government solving social and economic problems compared to conservatives.
What message do the Democrats preach to attract younger voters? According to Pew, Millennials and Gen Z are the most likely to say governments should do more to solve problems, that same-sex marriage is good for society, that climate change is caused by human activity, and that black Americans are treated less fairly than white Americans.
Younger people seem to be conditioned, by both their own experiences and the influence of others, to believe the government should help solve social ills. Some seem to believe capitalism needs to be more tightly controlled.
According to the Pew Research Center, younger voters believe and trust the government to do the right thing for society more than they trust the capitalist system. This is the first ideological generational shift to the left we’ve seen in decades.
Experiences Shape Our Perspectives
As I am not a member of the Millennial generation, I don’t have inside information into their thought processes. I do possess such inside information regarding the baby boomer generation since I belong to that group. But people’s attitudes and beliefs aren’t inborn; they are learned. With this in mind, we need to think about the life experiences of Millennials.
But first, think of the experiences of the baby boom generation. Boomers spent their adult formative years during a period of government disappointment. They have experienced the Vietnam war, Watergate, the meltdown of U.S. influence winding up with very high inflation, very high interest rates, a tarnishing of the American dream, and Jimmy Carter telling people to turn down your thermostats and to wear another sweater. Some boomers came to the belief, through their own experiences, that government didn’t work, was costly and inefficient. In addition, some came to the belief that government shouldn’t be trusted as it didn’t work, and the free market did.
Now, let’s talk about the life experiences of Millennials. Coming to adult age in the year 2000 through today, our world has experienced three recessions during this period – two of which were the hardest, deepest recessions the world has seen since the end of the Great Depression. As young adults, Millennials have experienced the terrible attacks on our country in 2001, to be followed by restrictions and attacks on personal security.
Thinking about each generation and how their experiences have shaped their views helps to see why each generation may look differently at the role government should play in solving our issues.
What All This May Mean
Over time, I suggest that all of this could lead to a more powerful and bigger government. It could mean higher levels of taxes. Higher levels of regulatory restrictions on business could also be in store.
From an economic perspective, in my opinion, this all means higher levels of inflation risk and lower probability of strong economic growth. My studies back this view. Historically, the larger the government, the slower a country will grow. This trend is true irrespective of geographic location or if the economy is developed or emerging. Higher government spending has led to lower overall economic growth over time.
Getting down to details, I suggest the following trends might unfold over the next few years.
- Carbon emission industries may struggle to grow domestically. The focus will likely be on investments in companies that provide services/products to foreign, developing economies.
- Large investments in renewable energy sources may occur. Think both solar and wind. Large-scale energy costs may rise.
- The health care system may continue moving toward a one-payer world, where the government will set prices and service levels nationally for most people. Drug companies may face lower overall revenue from products, leading to a lowering of research and development spending growth. Life expectancy rates will likely stagnate or even fall as research and development expenditures shrink.
- Local, trade school/junior college tuition may go away. These education venues may be viewed by students as free. That of course isn’t the case. These costs will likely be paid by taxpayers and not students.
- Unionization membership may push upward. Wage growth, as compared to corporate profit growth, may rise. Corporate profit margins may be under pressure.
- Minimum wage may rise to $15 per hour and rise again from there. This may push wages upward across the board with unionization being a beneficiary of these trends. Corporate profit margins will likely pay the price.
- There may be a bias toward very high levels of government deficit spending until the currency/bond markets riot, at which time I believe spending won’t be cut, but taxes will rise.
- Most may pay higher taxes in the future – not just the wealthy – as government spending (total, including state and local) rises toward 50% of gross domestic product (GDP). Under this scenario, investor confiscatory risks will likely rise.
- With slower overall economic growth, higher inflationary pressures and a weakening currency market, bond investors may struggle. Equity investors may outperform bond investors, but I suspect the returns on the U.S. equity market over the next decade may be stunted in relation to long-term trends. In the meantime, real asset values should hold up reasonably well.
This Too Shall Pass
I know this commentary may be full of news that gives one pause. Perhaps things will be fine as the Millennial generation continues to slowly take the reins of control away from the baby boomers. But I think the risks of a generational-driven change in attitudes toward market-driven versus centralized command economic systems may be at hand.
“Millennials Overtake Baby Boomers as America’s Largest Generation,” Pew Research.
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