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January 2009
The following
article was recently updated by one of the legends in the investing world.
In it Doug Casey shows how different each generation is and how each
carries the seeds of its future allowing history to repeat itself.
Consequently, it gives us a glimpse of what is in store for our near
future. Because it was originally written in 1997 we can what has already
come to pass and the accuracy of his wisdom, along with his current
comments. ~ Editor
By
Doug Casey, Chairman,
The Casey Report, Casey Research, LLC.
Everybody wants predictions. The following article does a little
better than that, in that I wrote it back in November of 1997,
outlining several theories of history, and pointing to a logical way
of anticipating what will likely happen to the world at large over
the next generation.
As you will read, the methodology I relied upon for anticipating the
events that are now unfolding – 11 years later – were actually quite
accurate, confirming, in my mind at least, that now is a time to be
very cautious in your personal and financial affairs.
The article is unaltered in its text from the original, though I
have added some current commentary in bold italics
Doug Casey
"Don't know much about the Middle Ages, look at the pictures an'
I turn the pages. Don' know much about no rise and fall, don' know
much ‘bout nothin' at all" "Wonderful World," Sam Cooke.
The lyrics quoted above probably describe the average American's
knowledge of history about as well as any academic study. Not only
don't they know anything about it, and think it's irrelevant, but
what they do know is inaccurate and slanted. And they must not think
very much about the future either if the amount of consumer debt out
there, mostly accumulating at 18% interest, is any indication.
One point of studying history is that it gives you an indication of
what's likely to happen now, if you can find an appropriate analog
in the past. This is a tricky business because as you look at
factors contributing to a trend, it's not easy to determine which
ones are really important. Making that determination is a judgment
call, and everyone's judgment is colored by his worldview, or
Weltanschauung as the Germans would have it.
Let me briefly spell out my Weltanschauung so you can more
accurately determine how it compares with your own, and how it may
be influencing my interpretation of the future.
I'm intensely optimistic about the long-term future. It seems to me
a lock cinch that the advance of technology alone – and
nanotechnology in particular – will result in a future of incredible
abundance and prosperity, and that alone will solve most of the
problems that plague us. Space migration, intelligence increase, and
life extension will be commonplace realities. These things, plus the
growth of both knowledge and its accessibility and the concomitant
rise of the individual from the group, will constantly diminish
politics as an element of life. The future will be much better than
anything visualized on Star Trek, and will arrive much sooner.
That's the good news.
The bad news is that within the longest trend in history, the ascent
of man, there is plenty of room for setbacks, and much of history is
a case of two steps forward and one back. My gloomy short-term
outlook, and my reasons for maintaining it, is recounted here
monthly. Whether it's right or wrong, from an investor's point of
view, the short term is more relevant than the long term.
Notwithstanding Warren Buffett's great success in going for the long
term, Keynes was right when he said that in the long run we're all
dead. History shows that goes for civilizations as well as people.
The problem is that our civilization is probably just now on the
cusp of the long term.
Hari
Seldon: Where Are You When We Need You?
Isaac Asimov's classic Foundation trilogy centers around a
scientist, Hari Seldon, who invents a science called psychohistory,
which allows the fairly accurate prediction of broad trends in
society going for centuries into the future. Seldon lives on Trantor,
the planetary capital of a galactic empire; the entire planet is
covered with a high-tech version of Washington, D.C., devoted to
nothing but taxing and regulating the rest of the galaxy. Seldon
forecasts that the empire will collapse and Trantor turn into a
gigantic ghost town. And of course that's what happens, because it's
a novel, and that makes for a good story. It's a good story because
it's credible, and it's credible because people know nothing lasts
forever, and there is a cyclicality to everything; birth, youth,
maturity, senescence, and death. These stages are shared by
everything in the material world, whether it's a person, a city, a
civilization, or a galaxy. It's just a question of time and scale.
From that point of view everyone knows the future, i.e., we all know
that everything eventually dies. But we'd like a bit more precision
on the timing of their lifecycles. Some gurus believe, or appear to
believe, they can actually predict the details of the future; I
consider them knaves. People who actually do believe them should be
considered fools. That said – Nostradamus, astrology, channeling,
tea leaf reading, and the like aside – I do think the best indicator
of what will likely happen in the future is what has happened in the
past. That may seem like an obvious statement, but it's not. There
have traditionally been three ways of looking at the problem; call
them theories of history.
Oldest is what might be termed a chaotic view, which presumes
mankind doesn't have any ultimate destination but is wafted on the
wings of Fortune or hangs by the thread of Fate. Subject to the
arbitrary will of the gods, whether it's the Old Testament's Yahweh,
or Homer's Zeus, the future is unpredictable, and prophecy or an
oracle gives you as good a read as anything else. I discount this
theory heavily.
A second ancient view is that everything is cyclical, and therefore
somewhat predictable. History may be viewed like a giant sine wave
that's possibly headed somewhere, but the direction is unknown. Or
history is really a circle, constantly repeating itself, much like
the four seasons of the year. There's a lot of wisdom to the
cyclical view.
The third view sees history as a linear sequence, one that's
actually headed somewhere. That view holds a special appeal for
followers of evangelically oriented religions, particularly
Christians (many of whose beliefs have an apocalyptic tinge) and
Marxists (who were, until lately, given heart by the "scientific"
inevitability their views would prevail). The linear view ties in
with the idea of Progress, that (more or less) every day and in
every way, things are getting better and better – although there's
also a subculture populated mostly by deep ecology, animal rights,
and anti-technology types who believe things are headed to hell in a
hand-basket. But they all believe we're headed somewhere in a
more-or-less straight line. There can be a lot of truth to the
linear view, certainly if you look at the technological progress of
mankind over the past 10,000 years, and this view prevails today.
My own view is a synthesis of the cyclical and linear theories. I
see history evolving towards an incredibly bright future, but
cyclically suffering setbacks, cyclically repeating the same
patterns along the way. To me history looks like a spiral, heading
off in a specific direction, but always covering the same ground in
a different way with each revolution.
That's one reason The Fourth Turning, (Broadway Books, NY,
1997) by William Strauss and Neil Howe got my attention; we're all
drawn to those who see at least part of reality the way we do. The
book is an extrapolation of their last work, Generations, and
notwithstanding its literary faults, is simply brilliant. I've never
met Howe, but did have lunch with Strauss once about five years ago.
The way I see it, although they're both conservatives, neither of
them has any particular economic, political, or social philosophy,
and they're not trying to grind an ax. Their books are a value-free
look at U.S. history, and their conclusions are more credible as a
result.
Their basic hypothesis is one I suspect Hari Seldon would recognize,
and my thoughts are built on the research Strauss and Howe have done
over the years. I suggest you get a copy of The Fourth Turning
while it's still in the stores. That's also true for my own
Crisis Investing for the Rest of the ‘90s, which has several
chapters on related subject matter, and Arthur Herman's
just-released The Idea of Decline in the West, which also
bears on the subject. With 50,000 new books published every year,
very few stay available for more than a few months. If something has
appeal, you should buy it now, because it may be hard to come by
when you have the chance to get into it. (Of course, I was
wrong on that point -- websites such as Amazon and Alibris.com now
make it easy to pick up many older books.)
Generations
Generational conflict has been recognized since ancient times. The
twist here is the discovery of several things that have previously
eluded observers. One is that the well- known conflict between
fathers and sons is only half the story; there aren't just two
generational types that alternate (e.g., liberal and conservative),
but four. The reason for looking at it this way is that a human life
can be conveniently divided into four stages: Childhood, Young
Adulthood, Midlife, and Elderhood. Throughout all of history, a long
life might be considered to be 80 to 100 years, with each of the
four stages equaling a quarter of it.
Just as each person's life holds four stages of about 20 years each,
each generation comprehends a group of people born over about 20
years. Members of a particular generation tend to share values and
ways of looking at the world not only because their parents also
shared a set of views (which the kids are reacting to), but because
every new generation experiences a new set of events in a way unique
to them. They hear the same music, see the same events, are exposed
to the same books. Members of a generation share a collective
persona. There appear to be four distinct archetypal personae that
recur throughout American history. And throughout world history as
well, although that's a bit beyond what I hope to explore here.
It also seems, throughout history, that there are periodic crises.
About once every century, or about when each of the four
generational types has run its course, a cataclysmic event occurs.
It generally takes the form of a major war, and it generally
catalyzes a whole new epoch for society.
The four mature generations alive today each represent an archetype.
Let's review them from the oldest now living, to the youngest.
Hero
Archetype
The "GI" generation, born between 1901 and 1924, includes basically
all living people in their mid-70s and older. They grew up and came
of age in the midst of the most traumatic years in human history:
the 1930s and ‘40s. This was a time of catastrophic financial and
economic collapse, world war, political dictatorship, genocide, and
virulent ideology, among other unpleasant things; a period of
intense turmoil. The times required them to be civic minded,
optimistic, regular guys who could be counted on to do the right
thing, fit in, and see that everybody got a square deal. As a
consequence of what they've been through, they tend to be indulgent
parents. As kids they're "good"; as adults they're selfless,
constructive, and communitarian. Hero archetypes encounter a Crisis
environment in Young Adulthood; assuming they survive it, the odds
are the rest of their lives will be lived in growing economic
prosperity, leading to a leisurely retirement.
Artist Archetype
Meanwhile, another generation was being born at the height of the
Crisis – something that seems to occur roughly every 80-100 years –
from 1925-42. This generation, the "Silent," watched these titanic
events happen but were too young to take part in them. They were
relegated to being protected, while trying to be helpful in the
limited ways available to them. They're overprotected as children,
when they might be characterized as "placid"; they tend to
underprotect their own children as a reaction. As adults they're
sensitive, well-liked, sentimental, and caring.
Prophet Archetype
Next came the group we call the "Boomers," born from 1943 to 1960.
This was the first generation born after the Crisis was over, and
they grew up in an environment where their parents (mostly GIs and
early cohort Silents) felt obligated to protect them from all the
trauma of the preceding years and were desirous of giving them all
the things they never had. As kids they're seen as "spirited.''
Later in life, they tend to be narcissistic, presumptuous,
self-righteous, and ruthless. Born after a Crisis, their Childhood
years coincide with a rebirth of society, and their Elderhood
coincides with another Crisis. More on them below.
Nomad Archetype
The fourth generational type is represented by today's "Generation
X," born 1961-81, during what might be called an Awakening period
when the Boomers were in the limelight. As a consequence, they were
overlooked and a bit abandoned. Their reputation as kids can be
summed up as "bad." They're oriented toward survival, which is
partially a result of their being underprotected as children. When
they become parents, they react and become overprotective. They tend
to be savvy, practical, tough, and amoral.
The kids born between 1982 and perhaps 2002 should be another Hero
archetype. My own experience with them is that they're shaping up
that way. Represented by clean-cut, straight-arrow Power Rangers.
Quite a reaction to the sewer-dwelling Mutant Ninja Turtles that
were analogs for the previous generation. They're "'can do" kids,
programmed to do the right thing in a smoke-free, drug-free,
eco-sensitive, politically correct world. Like all Hero types, they
respect their elders, do what they're told without much questioning
authority. That's just the type of person you want to have fighting
a war for you, and that's probably just what they'll wind up doing.
Just like the last Hero types, the GIs. (Iraq was first. Iran
next? Or will it be Saudi Arabia?)
It's risky to characterize everyone born in a certain time frame as
sharing a persona; after all, people are individuals, not ants or
atoms, each like the other. But it's really no different than
characterizing people by the country they're from. There's no
question in my mind that people share characteristics by virtue of
the milieu in which they live, and that's true of time as well as
geography. Take a look at the people you know by age groups, and see
if they don't roughly fit the brief descriptions.
The interesting thing is that through about 400 years of American
history, it's possible to see these generational types repeating
themselves. It's not an accident. The characteristics of each type
shape the next generation, as well as current events. And events
leave a further imprint on all of them.
Making an Example of the Boomers
Just as every generation has its own persona, the character of each
generation evolves as it moves through life. The Boomers are perhaps
the most relevant example of this. First they were Mouseketeers and
Beaver Cleaver clones. Who could have guessed they would mutate into
Hippies and even Yippies as they reached Young Adulthood, reacting
against everything they'd grown up with, everything their parents
worked so hard to give them.
They came of age during a period that might be called an Awakening,
and it's recurred on schedule five times so far in American history.
Awakenings are times of religious and moral ferment, when the youth
tend to challenge prevailing cultural values pretty much across the
board. Young adults were into New Age things this time around, in
the 1960s and ‘70s. At the time it seemed utterly shocking and
completely new, but that was only because nobody then alive had seen
the previous Utopian Awakening in the 1830s and ‘40s, the Pietist
Awakening of the 1740s and ‘50s, the Puritan Awakening of the 1630s
and ‘40s, or the Protestant Reformation of the 1530s and ‘40s.
Like all the generations before them that grew up in similar times,
they eventually put away the things of their youth. But who guessed
that their next mutation would be into Yuppies, whose motto was not
"Peace and Love" or "Revolution for the Hell of It," but "Shop Till
You Drop" and "He Who Dies with the Most Toys Wins" as they moved
into midlife.
But even now the acquisitive mania that characterized the ‘80s is
ebbing, now that the first cohorts of Boomers are crossing over 50.
You can already see the signs of their next stage of evolution, in
the judgmental behavior of people like William Bennett (George
Bush) and Dan Quayle (Ann Coulter) on the
"right," and Al Gore and Hillary Clinton on the "left." They did
sex, drugs, and rock ‘n' roll in the ‘60s. They believe they've
fought the war of good against evil in both Vietnam and the
segregated lunch counters of the South. They know they were the
first generation to have traveled widely thanks to the jet, to have
been brought up by television, and had the telephone as a given.
They've been there, done that, and now that they're getting older,
they're going to make sure that everyone else benefits from their
wisdom – like it or not.
The Boomers are an archetypal Prophet generation, a type born after
a secular crisis, just in time to create another one. Get the image
of a grim elder, with a well-defined vision of what's right and
wrong, calling down wrath, and laying down the law for a troubled
nation in chaotic times. That's the type of person who tends to lead
countries into wars, as well as through them. Interestingly, the
Boomers in America have their counterparts abroad today, especially
in China, where they grew up during the Cultural Revolution. Two
ideologically driven, righteous groups running two such powerful and
alien cultures is almost a guaranteed formula for a millennial-sized
crisis. Which should appear, coincidentally, sometime shortly after
the millennium. (We're right on schedule.)
So
What's Next?
The real watersheds in history, crises that make or break a
civilization, occur roughly every 100 years. The most recent ones in
American history that will resonate without looking up the facts in
a reference book are the Revolution, circa 1782; the Civil War,
circa 1863; and WW II, circa 1943. We've had other wars, and they
were traumatic enough; that's the nature of war. But the War of
1812, Mexican, Spanish, World War I, Korean, and Vietnam wars had
nothing to do with the country's survival as an entity, as a
civilization. They were optional wars, sport fighting, if you will,
by comparison. Wars that occur at a secular Crisis, a "Fourth
Turning" to Strauss and Howe, when a Prophet generation is acting as
elder statesmen, with Nomads as operational commanders, and Heroes
as front line soldiers tend to be total wars that have an
ideological underpinning. They're life-and-death struggles not just
for the individual participants, but for the civilization as a
whole.
That major wars occur at such long remove from each other probably
isn't an accident. Really catastrophic wars, from at least the days
of Troy on down, have usually been the Great Events that resound
through living memory. The Great Event of a century forms the
thought and character of everyone alive when it happens, influencing
them relative to the stage of life they're in at the time. Perhaps
that's why a people will collectively do its best to avoid a repeat,
at least while there's anyone still alive who saw the last crisis.
(It's been said that war is a force that gives life meaning.
And I think that's true, although it's perverse that the most
destructive and idiotic activity that it's possible to engage in
would just have to be the most important. Maybe, after the orgy of
self-indulgence and conspicuous consumption that has characterized
the past couple decades, Americans collectively feel they need to
prove something. There has to be some rationale for the current war
hysteria other than pure stupidity...)
In any event, the way the current generations line up relative to
historical analogs, an excellent case can be made the U.S. is
approaching another time of secular crisis, a Fourth Turning, with
an expected due date of 2005 – seven years from now – plus or minus
a few years in either direction. The Stamp Acts catalyzed the
American Revolution, the election of Lincoln catalyzed the Civil
War, the Crash of ‘29 catalyzed the Depression/WW II era. What might
precipitate the elements now floating in solution? The answer is,
practically any random event that's sufficiently traumatic. Any of
the theses of current disaster/action novels and movies will do
nicely. Perhaps the accidental or intentional release of a super
plague vector. The crashing of an airliner into the Capitol during a
joint session. (Close, but not quite.) An all-out
assault on the IRS computers by an armed group – or perhaps the
computers just melting down due to the Year 2000 Problem. Perhaps a
financial disaster that cascades into the Greater Depression. In any
of these, or a hundred other scenarios, the federal government would
almost certainly act precipitously and with a heavy hand, which
would bring on a whole other set of consequences.
(In the historical context, 9/11 will be viewed as the opening
kick-off for the coming Crisis... and the messianic overreaction of
Bush and his cronies as the catalyst for turning things from bad to
worse. It may be that Hurricane Katrina, for instance, a completely
accidental event, may be blamed for providing a pin to burst the
financial bubble – which would be a pity, since the neocons could
then blame it, not themselves.)
There's no way of telling where the Crisis will lead, or how it will
end. That's going to depend not only on exactly who's in control,
but what they do, whom they're up against, and a hundred other
variables we can't even anticipate. One thing that seems certain is
that real crisis brings out strong (although not necessarily
wise) leadership. Because of its age and size, it will come
from the Boomer generation, and it will be in the mold of Roosevelt
or Lincoln – both very dangerous precedents. The Boomers in
Elderhood will be dogmatic, harsh, puritanical, and quite willing to
burn down the barn in order to destroy whatever rats they see. Admix
that attitude to a time resembling the Revolution, the Civil War, or
WW II, overlain with today's ethnic strife, urbanization, financial
overextension, and powerful, compact new weaponry in the hands of
foreign fanatics out to teach the Great Satan a lesson, and it's a
real witch's brew.
If things evolve over the next decade as they did in past analogs,
it will be a very un-mellow time indeed. That's assuming things end
well, and there's no guarantee they will, as many foreign countries
have discovered throughout history. We've been uniquely blessed.
What
to Do
Strauss and Howe aren't financial types, and their advice is
nebulous along those lines. To sum it up, their suggestion is to
learn to swim with the tide by not hoping the current good times
last forever; the chances of the good times are coming to an end
now. They'd also advise not sticking your head up above the crowd,
something that is always very risky when times are in turmoil;
remember what happened to Japanese-Americans during the last crisis.
They suggest that there will likely be a resurgence of nationalism,
much as was the case during past crises. It won't be a good time to
be a maverick in the U.S., a thought that makes places like
Argentina and New Zealand look even more appealing.
(I bought property in both places shortly after this was
written, and have been rewarded with a quadruple in both instances –
considerably better than would have been the case in the U.S.).
Strauss and Howe suggest you look to diversify in all things, so
everything won't go bad at once. Brace for the collapse of public
support mechanisms. Set your roots with your family, because people
you can rely on will be at a premium. Heed emerging community norms,
bond with like-minded people, and return to basic, classic virtues.
This is sound advice any time, but critical if you're rigging for
heavy weather.
Assuming you wanted to stay in the U.S., you'd rather be on some
land near a small town, and far away from a major city. You'd want
to be self-sufficient in as many ways as possible – freeze-dried
food. etc. Perhaps Howard Ruff will make a comeback with advice like
that, which seems quaint today. But then I'm nothing if not a
contrarian.
(In hindsight, the original article could have been a bit more
specific – other than the suggestions about Argentina and New
Zealand. Personally, I believe that unassailable wealth is the best
protection against global crisis. For it to be unassailable, your
wealth must be at once substantial, free from threat of
confiscation, divorced from the whims of the masses, and located in
a country or currency that has a good risk/reward profile.
Unfortunately, the U.S. doesn't make the cut.
In the first instance, the single best way to build wealth now,
while there is still time to do so, is in carefully selected gold
and other resource stocks. In order for it to be free from the
threat of confiscation, at least some part of your wealth needs to
reside in a country where you don't. To state the obvious, I would
be very cautious about traditional stocks and bonds until we see how
things shake out. Rather, get positioned in gold and silver stocks
now, ahead of the curve, then sell out for a big profit to the
panicking masses and move an increasing percentage of your wealth
into tangibles such as gold, silver, and maybe, as part of a
diversified portfolio, real estate in especially attractive areas –
but only after the bubble has decisively burst.)
A
Parting Parable
In case you have any doubts, I buy the theory outlined above and its
many ramifications that there isn't room to explore here. It really
is scary to think that we could again experience a real Crisis with
a capital C; I'm not talking about just a bear market in stocks. If
it happens, I promise you stocks and mutual funds will be about the
farthest things from most people's minds.
At the same time, there's no point in feeling terrorized. This stuff
has been going on since the dawn of history. So let me leave you
with a parable. I could appropriately quote Ecclesiastes (To every
thing there is a season, and a time to every purpose under heaven: a
time to be born, and a time to die, a time to plant, and a time to
pluck up that which is planted, etc., etc.). But everyone knows that
reference. Let me rather give you John O'Hara. At the beginning of
O'Hara's novel Appointment in Samara, he tells a brief
parable, which I'll summarize:
There was a merchant in Baghdad who went to the market with his
servant. There they saw Death, who stared at the servant in what
seemed a threatening way. Later the servant said "Master, lend me a
horse. I shall ride to Samara, and there Death will not find me."
The merchant did so, then returned to the market, where he again saw
Death, whom he approached and asked why he had stared at his servant
in such a threatening way. Death responded, "I wasn't threatening
him. I was just very surprised to see him here in Baghdad, since I
have an appointment with him in Samara later this afternoon."
(Strange, the location for the proverb, in that this was well
before the current war).
***
There is no doubt that we are now in the Crisis stage… which,
according to Strauss and Howe’s “Turnings” theory, may last another
decade or more. Is there any way to escape this economic tsunami
unscathed?
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