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f i f t h c yc l e : f ro m s e rv i c e s u bu r b s
to a pe r m a n e n t m i g r a n t c l a s s
Now we turn to the future.
If the fifty- year pattern holds—and a series of cycles that has lasted 220
years has a fairly reliable track record—we are now exactly in the middle of
the fifth cycle, the one ushered in by Ronald Reagan’s election in 1980. This
pattern indicates that the current structure of American society is in place
until approximately 2030, and that no president, regardless of ideology, can
alter the basic economic and social trends.
Dwight Eisenhower was elected in 1952, twenty years after Roosevelt,
but he was unable to change the basic patterns that had been established by
the New Deal. Teddy Roosevelt, the great progressive, couldn’t significantly
shift the course set by Rutherford Hayes. Lincoln affirmed the principles of
Jackson. Jefferson, far from breaking Washington’s system, acted to affirm
it. In every cycle, the opposition party wins elections, sometimes electing
great presidents. But the basic principles remain in place. Bill Clinton could
not change the basic realities that had been in place since 1980, nor will any
president from either party change them now. The patterns are too power
ful, too deeply rooted in fundamental forces.
But we are dealing with cycles, and every cycle ends. If the pattern holds,
we will see increasing economic and social tensions in the 2020s, followed
by a decisive shift in an election at some point around then, likely 2028 or
2032. The question now is this: What will the crisis of the 2020s be about
and what will the solution be? One thing we know: the solution to the last
cycle’s crisis will engender the problem of the next, and the next solution
will dramatically change the United States.
The U.S. economy is currently built on a system of readily available
credit for both consumer spending and business development—interest
rates are historically low. Much of the wealth comes from equities growth—
homes, 401(k)s, land—rather than traditional savings. The savings rate is
low, but the growth in wealth is high.
There is nothing artificial about this growth. The restructuring of the
1980s kicked off a massive productivity boom driven by entrepreneurial ac
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t h e n e x t 1 0 0 y e a r s
tivity. The introduction not only of new technologies but of new patterns of
doing business increased worker productivity dramatically and also increased
the real value of businesses. Think of Microsoft and Apple as examples of
1980s-style new industry. Where during the previous cycle corporations like
General Motors and U.S. Steel had dominated the economic landscape, in
this cycle growth in jobs was centered on more entrepreneurial, less capital
intensive companies.
Consumer demand and equity prices live in a delicate balance. If con
sumer demand falls for any reason, the value of things, from homes to busi
nesses, will decline. These values help drive the economy, from lines of
consumer credit to business loans. They define the net worth of an individ
ual or business. If equity declines, demand decreases, so a downward spiral is
created. Until now, the problem has been growing the economy as fast as the
population. Now the challenge is making sure the economy doesn’t decline
faster than the population. Ideally, it should continue to grow in spite of
population decline.
A little over a decade away from the likely commencement of the first
crisis of the twenty- first century, we should already be able to glimpse its be
ginnings. There are three storms on the horizon. The first is demographic.
In the late 2010s, the major wave of baby boomers will be entering their
seventies, cashing in equities and selling homes to live off the income. The
second storm is energy. Recent surges in the cost of oil may only be a cycli
cal upturn following twenty- five years of low energy prices. These surges
could also be the first harbingers, though, of the end of the hydrocarbon
economy.
Finally, productivity growth from the last generation of innovations is
peaking. Great entrepreneurial companies of the 1980s and 1990s like Mi
crosoft and Dell have become major corporations, with declining profit
margins reflecting declining productivity growth. In general, the innova
tions of the last quarter century are already factored into the price of equity.
Maintaining the thunderous pace of the past twenty years will be difficult.
All of this will put pressure on equity prices—real estate and stocks. The
economic tools for managing equity prices aren’t there. During the past
hundred years, tools for managing interest rates and money supply—con
trols of credit—have been created. But tools for managing equity prices are
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a m e r i c a n p o w e r a n d t h e c r i s i s o f 2 0 3 0
only now beginning to emerge, as the mortgage meltdown of 2008 showed.
There has been talk of a speculative bubble in housing and stocks already; it
is only beginning, and I suspect that we will not see it at its most intense for
another fifteen to twenty years or so. But when this cycle climaxes, the
United States will be smashed by demography, energy, and innovation crises.
It is worth pausing to consider the financial crisis in 2008. For the most
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