The conventional wisdom is that Millennials are a generation with unique needs and buying habits, but Neil Howe says that they are very similar to the Greatest Generation.
Howe, who coined the term “Millennial,” says that both generations are highly risk-averse, a characteristic brought on by their shared parenting environment.
In a talk last week, Howe explained how we can use generational patterns and historical economic trends to better understand the future of the global economy.
He also cautioned investors about the impact global aging trends will have on future economic development and financial market conditions.
Howe spoke on November 2 at a National Association for Business Economics luncheon in Boston.
He is an authority on social change in America, and an acclaimed bestselling author. He is also a leading researcher at Hedgeye Risk Management and a senior associate to the Center for Strategic and International Studies (CSIS) in Washington, D.C.
How aging populations will impact the fiscal future
Howe has spent his career researching demography within the context of economic history. But in his talk last week, he revealed that he recently shifted his focus to a new area of study.
“Political demography is a whole new budding field,” Howe said. “And it will never go away, not for the rest of our lifetimes.”
According to Howe, “Political demography is premised on the fact that in the next century, we are going to see a greater divergence of demographic trajectories, more than we’ve ever seen before in human history.”
This divergence is based on two global aging trends.
On the one hand, “there are places in the world today whose demographics are essentially the same as in pre-modern times,” Howe said. “These are high-mortality, high-fertility societies – I’m talking about a lot of South Asia and Sub-Saharan Africa.”
“And then you have other areas of the world with extreme low-fertility and low morality societies,” Howe explained.
“Look at South Korea,” Howe said. “According to the United Nations constant-fertility scenario, by the year 2035 there will be more people turning age 90 every year than being born every year.”
“We’ve never in human history seen this situation amongst different societies around the world,” according to Howe.
This divergence will undoubtedly drive significant changes in the future global economic landscape. “What are the implications for the direction of capital flows? What are the implications for labor productivity and competitiveness?” Howe asked.
He urged economists to consider societies whose working-age population is shrinking. “Every year their normal growth is declining faster than their normal productivity is growing,” he said. “Which means that even in a ‘normal’ non-recession year, they have negative GDP growth.”
“What’s the impact on investment, savings and competitiveness?” Howe asked rhetorically.
Howe theorized that one possible response to a decline in economic growth driven by shrinking population is for nations to become much more anti-competitive.
He predicted that nations “will actually move towards cartelizing market and carving them up, rather than competing.”
As a historical example of this sociological response to a loss in competitiveness, Howe pointed to the 1930s, “a decade of cartels and measures to keep productive institutions going.”
Howe highlighted one concern in particular – the future global standing of developed nations with demographic concerns.
“There’s a lot there, not just in terms of its impact on the economy, but demography’s impact on geopolitics,” Howe said.
“What happens to societies whose populations are declining every year versus those that are rising? Does this impact geopolitics and does it have to do with the rise and fall of empires?”
Circling back to the example of the 1930s, Howe highlighted that declines in the competitiveness of certain nations has marked historic global shifts. He explained that Britain, which had been a super-power on the international stage, experienced a dramatic shift in its economic and geopolitical standing culminating in World War II.
Part of Howe’s research has focused on measuring risk and publishing aging vulnerability indices. This tool can be used to consider “the affordability and sustainability of pension funds around the world,” according to Howe.
“In the late 1990s, one of our big stories was on Australia,” he said. “Australia always got ‘first place’ because it has the mandatory superannuation fund,” he explained, “a required defined-contribution plan, which is fueling tremendous savings in Australia.”
“Perhaps not coincidentally, Australia is the only country that has had no recession over the last 25 years,” Howe said with a smirk.
How generations impact economic development
Howe focused his presentation on how population growth rates will drive change in the global economy. However, he also spoke about another demographic factor that will significantly impact the future of international markets – generational shifts.
According to Howe, to consider the future of the global economy, we also need to understand “differences in how generations think and the strengths they bring to political power.”
Howe’s research has focused on the archetypal differences between generations, and what they bring to the table.
“What we found was that each generation looks at the world differently even though they experience many of the same events, because of course they had a different location in history.”
Howe used Boomers and their parents to explain this in a real-world context. “We had Woodstock, they had D-day,” Howe said.
Boomers prided themselves on how different they were from than parents. “They were building battleships, while we were discovering ourselves,” he added comically.
They prided themselves on having differing perspectives, but Boomers eventually went on to occupy the same societal roles as their parents, just at different points in history and with different views.
“Looking generationally at social change allows you to see into the future in a way that a lot of people don’t appreciate,” according to Howe.
“No one applies this perspective,” according to Howe.
“For instance, if I go into a consumer retail company that sells cosmetics to people in their forties and ask them about their future market,” Howe said, “They will tell me: ‘I know everything about 40-year olds, we know everything about them, we studied 40-year olds throughout history and we just extrapolate that forward’.”
But Howe argues this is the wrong approach. “I would look at today’s 20- and 30-year olds instead,” Howe said.
With this approach as a basis for his analysis, Howe went on to discuss the future of the American economy.
Howe explained that we can use the traits of generations to understand how they will lead when they occupy influential societal roles. According to Howe, we can understand the traits of Millennials as a generation by examining the impact their parents had on them during their formative years.
For instance, according to Howe, because Millennials were sheltered by their parents they are now very risk-averse.
Are Millennials like the G.I. Generation?
In his research, Howe found that there are predictable cycles when generational personalities oppose their immediate predecessors, but share significant traits with groups they may never meet.
That is, although both Millennials and Boomers don’t share traits with their parents, they do resemble other previous generations.
“When people ask me to draw parallels like ‘what decade does this last decade most resemble?’” Howe said, “I tell them the 30s.”
According to Howe, we can predict trends about the future of the Millennial generation by examining the G.I. generation (also known as The Greatest Generation), which is made up of people born between 1900 and the mid-1920s.
Both the Millennial and G.I. generations grew up with similar parenting and similar historical conditions, according to Howe.
In terms of social and cultural similarities, “One of the trends we saw in the 1930s was declining fertility, a rise in multi-generational households, a decline in home ownership and a decline in youth violence,” according to Howe.
He urged economists to compare that to today’s environment and Millennial behavior.
“I would argue that in the last 10 years we have seen a personal turning away in risk-taking,” Howe said. “If you look at 200 youth-risk indicators the CDC keeps, almost all of them are hugely down.”
According to Howe, this is because “their parents assured them from the time they were born they were special, that they’re precious to the world, and that they should take care of themselves.”
“This is why this generation does not take risks,” Howe argued, “Why they’re not starting business, why they think stocks are really dangerous things.”
He went on to explain how this risk-averse mentality emerged for both the G.I. and Millennial generations from an economic perspective.
“Both the current generation and the G.I. generation grew in the shadow of a massive financial crisis,” Howe explained.
“Both have been characterized by a disappointing employment of labor and capital, low standard of living gains, low productivity growth, negative real interest rates, the failure of monetary policy and competitive devaluation.”
Looking forward, Howe inferred, much like the G.I.’s, Millennials will have to deal with a great conflict, but theirs will be a culture war.
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