A number of years ago I read a relatively obscure book that made me completely rethink the nature of economic cycles. Prior to reading that, I had read extensively on economic crises and military crises of centuries past. I could not get over how strikingly similar they were to one another. This book offered a very simple explanation: Once all the previous participants of the prior crisis were dead or in their twilight years, the younger generations would begin making the same mistakes their ancestors had many decades prior.
The name of the book in question was The Fourth Turning - by William Strauss and Neil Howe. The theory is also closely followed by a writer who I often reference, John Xenakis and his website, "Generational Dynamics."
There are many that refer to such theories as heresy. The Kondratiev Cycle is another one - and he was sent to the Gulags by Stalin for his opposition to the idea of perpetual communist utopia. I don't hold any theories as gospel. But I do believe there can be some use for any economic theory under the right circumstances - especially when used in conjunction with other analysis. I have found this theory to be the most logical, and will attempt to explain the basics and how it could potentially be used for investment purposes.
The theory revolves around major economic crises and major wars and it holds that they inevitably happen every 70-90 years (the average lifespan of one person). The crisis naturally has enormous effects on social attitudes, birthrates, political ideology and much more. Crisis eras are always followed by "Highs" or "Recoveries", which are followed by "Awakenings," which are followed by "Unravelings." The era that a person grows up in shapes a lot of his/her social attitudes for the rest of their lives, and this gives them one of four different generational archetypes: Prophets, Artists, Nomads or Heroes. Furthermore, as the generation become Adults (or "come of age" as the authors put it), the conditions around them shape much of their direction in life. From the book:
* Prophets are values-driven, moralistic, focused on self, and willing to fight to the death for what they believe in. They grow up as the increasingly indulged children of a High, come of age as the young crusaders of an Awakening, enter midlife as moralistic leaders during an Unraveling and are the wise, elder leaders of the next Crisis. The Boomers are an example of a Prophet generation.
* Nomads are ratty, tough, unwanted, diverse, adventurous, and cynical about institutions. They grow up as the underprotected children of an Awakening, come of age as the alienated young adults of an Unraveling, become the pragmatic, midlife leaders of a Crisis and age into tough, post-crisis elders during a High. Generation X and the Lost Generation are examples of Nomad generations.
* Heroes are conventional, powerful, and institutionally driven, with a profound trust in authority. They grow up as the increasingly protected children of an Unraveling, come of age as the Heroic, team-working youth of a Crisis, become energetic and hubristic mid-lifers during a High and become the powerful elders who are attacked in the next Awakening. The G.I. Generation that fought World War II is an example of a Hero generation. Millennials are expected to emerge as the next generation of this example.
* Artists are subtle, indecisive, emotional and compromising, often having to deal with feelings of repression and inner conflict. They grow up as the over-protected children of a Crisis, come of age as the sensitive young adults of a High, rebel as indecisive midlife leaders during an Awakening, and become the empathic elders of an Unraveling. The Silent Generation is an example of an Artist generation.
It should be noted that this theory is typically applied to the United States, but is applicable to all nations, even though they may be operating on their own unique cycles. Take a look at the table on this website which explains how the last few cycles have played out. Note the slight divergence during the American Civil War, which happened about 15 years too early and caused a generation 'skip.' This serves as reminder that no theory is airtight and anything can happen.
Clearly though, the theory has some merit, even if it is somewhat open to interpretation. Unfortunately, what this means for the present day is that we have just gone through a generational unraveling, where the institutions and oversight created after the Great Depression and WWII have been cast aside as relics of the past. Where social values of community and family have broken down. Speculation and materialism ran rampant - just as it did in the 20's. Now we are paying the ultimate price for that lack of fiscal responsibility and nearly the entire world is engulfed in financial crisis that seems to know no end.
From the perspective of Generational Theory, this crisis must escalate. The crisis must be so devastating that it changes the attitudes of children and adults for the rest of their lives. And most followers of the theory hold that it must result in a major war on the scale of previous crisis era wars. To this I would argue (and hold out some hope) that it is possible such a war is relatively bloodless and fought on more religious or ideological grounds (such as the Glorious Revolution 1648-73.)
As I mentioned before, anything is possible. If the US could have skipped an unraveling era in the 19th century, logic dictates that we could avoid a terrible crisis in the 21st. But the chances are slim. The current spike in unemployment is leaving our younger generations jobless, and their idealistic and cynical nature leave them in a position to eagerly accept going away to war.
The unfortunate part about researching these cycles is that we see how inevitable major crises are. No matter how much emphasis we put on remembering the past horrors, we seem doomed to repeat our mistakes.
However, as bad as this may all seem, the cycles also teach us something good. That no matter how terrible the crisis is, it will also end, and the world that re-emerges from the ashes of war and financial ruin will provide much opportunity. There will be amazing technological advancements, a renewed sense of social community, and an emphasis not on material want, but rather the pursuit of happiness.
So as much as we see the words "Armageddon," or "end of days," in our media, rest assured that nothing of the sort will occur. Things will likely get worse before they get better. But they will get better. Sometime.
My posting of this on Remembrance Day is no accident. I ask that my readers take extra care to remember not only the horrors we have been taught about the two World Wars, but rather all major crises the world has experienced. Let us remember the tactics used by tyrants of centuries past to awaken nationalistic fervour and the lust for blood. Let us remember the failed 'solutions' to previous economic crises. Let us remember the dangers of entangling alliances with foreign nations, whose actions we have no control over.
If we can acknowledge our past mistakes honestly, perhaps there is a slight chance that we can be a beacon of hope, truth and prosperity in a world destined to devolve further into crisis.