The Next 100 Years

part, it was a routine culmination of a business cycle. During an aggressive 
upsurge in an economy, interest rates are necessarily low. Conservative in­
vestors seek to increase yield without increasing risk. Financial institutions 
are first and foremost marketing organizations, designed to devise products 
satisfying demand. As the business cycle moves to climax, financial institu­
tions must become more aggressive in crafting these products, frequently in­
creasing the hidden risk in the product. At the end of the cycle, the weakness 
is revealed and the house comes crashing down. Consider the dot-com melt­
down at the turn of the century. 
When the devastation affects a financial sector, rather than a non-financial 
economic sector like dot-coms, the consequences are doubled. First, there 
are financial losses. Second, the ability of the financial sector to function, to 
provide liquidity to the economy, contracts. In the United States, the nor­
mal solution has been federal intervention. In the 1970s, the federal gov­
ernment intervened in a possible meltdown in municipal bonds by bailing 
out New York City—guaranteeing its bonds. In the 1980s, when third 
world countries began defaulting on debt because of declining commodity 
prices, the United States led an international bailout that essentially guaran­
teed the third world debt via the Brady Bond. In 1989, when a collapse in the 
commercial real estate market devastated the savings and loan industry, the 
federal government intervened through the Resolution Trust Corporation. 
The crisis of 2008 was triggered by the decline of housing prices, forcing the 
government to intervene to guarantee those loans and other functions of the 
financial system. 
Debt is measured against net worth. If you owe a thousand dollars and 
have a net worth that’s negative, you have problems if you lose your job. If 
you owe a million dollars but have a net worth of a billion dollars, you don’t 
have a problem. The U.S. economy has a net worth measured in hundreds 
of trillions of dollars. Therefore, a debt crisis measuring a few trillion cannot 

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destroy it. The problem is, how can this country’s net worth be used to 
cover the bad loans, since that net worth is in hundreds of millions of pri­
vate hands? Only the government can do that, and it does it by guarantee­
ing the debts, using the state’s sovereign taxing power, and utilizing the 
Federal Reserve’s ability to print money to bail out the system. 
In that sense, the 2008 crisis was not materially different from previous 
crises. While the underlying economy will go through a recession, recessions 
are normal and common parts of the business cycle. But at the same time, 
we are seeing an important harbinger of the more distant future. The decline 
in housing prices has many reasons, but lurking in back of it is a demo­
graphic reality. As global population growth declines, the historic assump­
tion that land and other real estate will always rise in price due to greater 
demand becomes suspect. The crisis of 2008 was not yet really a demo­
graphically driven crisis. But it showed a process that will reveal itself more 
fully over the next twenty years: an equity crisis driven by demographics. 
Declines in residential real estate prices are startling. They have not been 
drivers in the past. This one is hardly a defining moment. Think of it as a 
straw in the wind, a sign of things to come—from pressure on real estate to 
greater government control of the economy. 
When we talk of economic crisis, all fears turn immediately to the Great 
Depression. In fact, historically, the terminal crisis of a cycle has usually re­
sembled deep discomfort more than the profound agony of the Depression. 
The stagflation of the 1970s or the short, sharp crises of the 1870s are far 
more likely than the prolonged, systemic failure of the 1930s. As will be 
true for the crisis of the 2020s, we don’t have to be facing a Great Depres­
sion in order to be confronting a historical turning point. 
For the first century of the United States, the driving problem was the struc­
ture of land ownership. For the next 150 years, the primary issue was how to 
manage the relationship between capital formation and consumption. The 
solution swung between favoring capital formation and favoring consump­
tion, sometimes settling on balancing the two. But for 250 years of Ameri­
can history, labor was never an issue. The population always grew and the 
younger, working- age cohorts were more numerous than the older. 

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Underlying the crisis of 2030 is the fact that labor will no longer be the 
reliable component it has been up to that point. The surge in birthrate fol­
lowing World War II and the increase in life expectancy will create a large 
aging population, increasingly out of the workforce but continuing to con­
sume. And here’s a fact that should get you thinking: when Social Security 
set the retirement age at sixty- five, the average life expectancy for a male was 
sixty- one. It makes us realize how little Social Security was designed to pay 
out. The subsequent surge in life expectancy has changed the math of re­
tirement entirely. 
The decline in birthrates since the 1970s, coupled with later and later 
entry into the workforce, reduces the number of workers to each retiree. 
During the 2020s this trend will intensify. It is not so much that workers 
will be supporting retirees, although that will be a factor. The problem will 
be that retirees, drawing on equity in homes and retirement funds, will still 
be consuming at high rates. Therefore, workers will be needed to fill their 
demand. With a declining workforce, and steady demand for goods and ser­
vices, inflation will soar because the cost of labor will go through the roof. It 
will also accelerate the rate at which retirees exhaust their wealth. 
Retirees will divide into two groups. Those lucky or smart enough to 
have equity reserves in houses and 401(k)s will be forced to sell those assets. 
A second group of retirees will have few or no assets. Social Security, under 
the best of circumstances, leaves people in abject poverty. The pressure to 
maintain reasonable standards of living and health care for the baby boomers 
will be intense, and it will come from a group that will continue to retain 
disproportionate political power because of their numbers. Retirees vote 
disproportionately to other groups, and the baby boomer vote will be par­
ticularly huge. They will vote themselves benefits. 
Governments around the world—this won’t only be happening in the 
United States—will be forced to either increase taxes or borrow heavily. If 
the former, they will be taxing the very group that would be benefiting from 
the increased wages necessitated by the labor shortage. If there is increased 
borrowing, the government will be entering a shrinking capital market at 
the same time that boomers are withdrawing capital from that market, 
further driving up interest rates and, in a replay of the 1970s, increasing in­
flation due to a surging supply of money. Unemployment is the only thing 

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that won’t echo the 1970s. Whoever can work will have a job—at high 
wages—but those wages will be badly squeezed by taxes or inflation. 
Boomers will start retiring in about 2013. If we assume an average re­
tirement age of seventy (and health and financial need will push it there), 
the years after will see the start of a surging retired population. A significant 
drop- off won’t occur until well after 2025, and the economic repercussions 
will continue to echo well after that. Those born in 1980 will be coping 
with this problem from their mid- thirties to their mid- forties. For an im­
portant part of their working life, they will be living in an increasingly dys­
functional economy. From a broad historical point of view this is just a 
passing problem. For those born between 1970 and 1990 this not only will 
be painful but will define their generation. It may not be on the order of an­
other Great Depression, but those who remember the stagflation of the 
1970s will have a point of reference. 
Baby boomers came in with a generation gap. They will go out with a 
generation gap. 
Whoever is elected president in 2024 or 2028 will face a remarkable 
problem. Like Adams, Grant, Hoover, and Carter, this president will be us­
ing the last period’s solutions to solve the new problem. Just as Carter tried 
to use Roosevelt’s principles to solve stagflation, making the situation worse, 
the final president in this period will use Reagan’s solution, fielding a tax cut 
for the wealthy to generate investment. Tax cuts will increase investment at 
a time when labor shortages are most intense, further increasing the price of 
labor and exacerbating the cycle. 
Just as the problems leading to previous crises were unprecedented, so 
the problem emerging in the 2020s will be unprecedented. How can we in­
crease the amount of available labor? The labor shortage will have two solu­
tions. One is to increase productivity per worker, and the other is to 
introduce more workers. Given the magnitude and time frame of this 
problem, the only immediate solution will be to increase the number of 
workers—and to do that through increased immigration. From 2015 on­
ward, immigration will be rising, but not quickly enough to alleviate the 
problem. 
American political culture, ever since 1932, has been terrified of a labor 
surplus—of unemployment. The issue of immigration will have been re­

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garded for a century in terms of lowering wages. Immigration has been 
viewed through the prism of population explosion. The idea that it could 
resolve a problem—a shortage of labor—would have been as alien a concept 
as the idea in 1930 that unemployment was not the result of laziness. 
In the 2020s this concept will shift again, and by the election of either 
2028 or 2032 a sea change in American political thinking will have taken 
place. Some will argue that there are plenty of workers available, but that 
they don’t have the incentive to work because taxes are too high. The failing 
president will try to solve the problem with tax cuts to motivate nonexistent 
workers to join the workforce by stimulating investment. 
Rapid and dramatic increases in the workforce through immigration will 
be the real solution. The breakthrough will be the realization that the his­
torical view of labor scarcity does not work any longer. For the foreseeable 
future, the problem will be that there is simply not enough labor to be em­
ployed. And this will not be a uniquely American problem. Every advanced 
industrial country will be facing the same problem—and most of them will 
be in much greater trouble. Quite simply, they will be hungry for new work­
ers and taxpayers. In the meantime, the middle- tier countries that have been 
the source of immigration will have improved their economies substantially 
as their own populations stabilized. Any urgency to immigrate to other 
countries will be subsiding. 
It is hard to imagine now, in 2009, but by 2030 advanced countries will 
be competing for immigrants. Crafting immigrant policy will involve not 
finding ways to keep them out, but finding ways to induce them to come to 
the United States rather than Europe. The United States will still have ad­
vantages. It is easier now to be an immigrant in the United States than it is 
in France, and that will continue to be the case. Moreover, the United States 
has more long- term opportunities than European countries do, if for no 
other reason than that it has lower population density. But the fact is that 
the United States will have to do something it hasn’t done in a long time— 
create incentives to attract immigrants to come here. 
Retirees will favor the immigration solution for obvious reasons. But the 
workforce will be divided. Those who fear that their income will be reduced 
by competition will oppose it vehemently. Other workers, in less precarious 
positions, will support immigration, particularly in areas that will reduce 

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the cost of services they require. In the end, the politics will turn not so 
much on the principle of immigration as on identifying the areas in which 
immigration will be economically useful and the skills immigrants will 
need, and managing the settlement of immigrants so that they do not over­
whelm particular regions. 
Back to the incentives. The United States will have to offer immigrants a 
range of competitive benefits, from highly streamlined green- card processes 
to specialized visas catering to the needs and wishes of the immigrant work­
force and quite possibly to bonuses—paid directly through the government 
or through firms that are hiring them—along with guarantees of employ­
ment. And immigrants will certainly comparison shop. 
This process will result in a substantial increase in the power of the fed­
eral government. Since 1980 we have seen a steady erosion of government 
power. The immigration reform that will be needed around 2030 will re­
quire direct government management, however. If private businesses man­
age the process, the federal government at least will be enforcing guarantees 
to make certain immigrants are not defrauded and that the companies can 
deliver on their promises. Otherwise, unemployed immigrants will become 
a burden. Simply opening the borders will not be an option. The manage­
ment of the new labor force—the counterpart to the management of capital 
and credit markets—will dramatically enhance federal power, reversing the 
pattern of the Reagan period. 
Imported labor will be of two classes. One will consist of those able to 
support the aging population, such as physicians and housekeepers. The 
other will be those who can develop technologies that increase productivity 
in order to address the labor shortage over the longer term. Therefore, pro­
fessionals in the physical sciences, engineering, and health care, along with 
manual laborers of various sorts, will be the primary kinds of workers that 
are recruited. 
This influx of immigrants will not be on the order of the 1880–1920 
immigration but will certainly be more substantial than any immigration 
wave since. It will also change the cultural character of the United States. 
The very plasticity of American culture is its advantage, and this will be cru­
cial in helping it to attract immigrants. We should expect international fric­
tion from the process of recruiting immigrants as well. The United States 

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pursues its ends ruthlessly, and will outbid and outmaneuver other coun­
tries for scarce labor as well as drain educated workers from developing 
countries. This will, as we will see, affect the foreign policy of these coun­
tries. 
For the United States, on the other hand, it will be merely another fifty-
year cycle in its history successfully navigated and another wave of immi­
grants attracted and seduced by the land of opportunity. Whether they 
come from India or Brazil, their children will be as American in a genera­
tion as previous immigration cohorts were throughout America’s history. 
This applies to everyone except for one group—the Mexicans. The 
United States occupies land once claimed by Mexico, and its border with 
that nation is notoriously porous. Population movements between Mexico 
and the United States differ from the norm, particularly in the borderlands. 
This region will be the major pool from which manual labor is drawn in the 
2030s, and it will cause serious strategic problems for the United States later 
in the century. 
But around 2030 an inevitable step will be taken. A labor shortage that 
destabilizes the American economy will force the United States to formalize 
a process that will have been in place since around 2015 of intensifying im­
migration into the United States. Once this is done, the United States will 
resume the course of its economic development, accelerating in the 2040s as 
the boomers die and the population structure begins to resemble the normal 
pyramid once again, rather than a mushroom. The 2040s should see a surge 
in economic development similar to those of the 1950s or 1990s. And this 
period will set the stage for the crisis of 2080. But there is a lot of history to 
come between now and then. 

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