Boomers and the Coming Bust 

The global stock market mini-meltdown during the last week of February is an initial indication that a long expansionary phase of economic activity is coming to an end.

From a macro perspective, the markets have been trending higher since 1982, when the long-wave stagflationary contraction of the 1970s bottomed out. During the expansion of 1982-2007 there were the inevitable anomalous incidents and outliers: a brief panic in 1987, a plateau in 1994, a tech bubble-induced rise and fall during 1999-2002. Generally, though, the primary financial markets - stocks and bonds - have been strong for decades.

During the last five years investor exuberance has swelled; we’ve seen real estate and precious metals join the valuation surge; and market volatility has been constrained. All of these are typical signs of the approach of a long-wave top.

It won’t be straight down from here. In their short-term fluctuations the markets may register new highs temporarily or test their old highs a number of times before succumbing to the force of gravity. But succumb they will.

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One of the things, among others, that served to de-radicalize the Baby Boom generation was the fact that this expansionary financial and economic long-wave happened to correspond with their prime working and investing years.

Though never a majority, a fairly large segment of the Boomer generation had a critical perspective on the capitalist economy and “The System” in general during their youth. Again, the reasons for this were many and complex, but a contributing factor certainly was the dismal economic climate that the Boomers faced at the time they were leaving college and entering the work force.

The financial markets experience long waves of expansion and contraction because there is a momentum of sentiment that affects generations of investors. Hyper-exuberance characterized the climate of the 1920s, leading to a boom and then the inevitable bust of 1929. During the Great Depression stock investors were so burned over so long a time that a sentiment of fear and disdain became ingrained. The generation of investors that came of age during the forties was decidedly conservative, prone toward putting their money into bonds rather than stocks, and prone toward avoiding debt.

That kind of sentiment fosters a transition from a contractionary phase into a new expansion, for the following reason: When investors are in a conservative mood portfolios are underweight in stocks, stock prices are (therefore) low, debt levels are low, savings levels are high. With high levels of investable funds (savings) and low stock prices, the stock market is, at some point, bound to trend higher. Then, as the economy does surprisingly well for an extended period of time, investors lose their apprehensiveness regarding risky investments and debt. A self-reinforcing process is set in motion. Investors see that others are getting higher returns on stocks than on bonds. Most assets trend up in value. As the expansion builds steam, leverage and speculation are rewarded. During such a period it pays, for example, to tap the amassed equity in one’s home and use the funds to buy a second property for investment - because the odds are that both properties will appreciate at a rate that more than covers the cost of the second mortgage.

During an expansionary wave accelerating positive sentiment and speculation gradually push asset values higher than their true value. This happens over a long enough period that a whole generation of investors gets used to such valuations and doesn’t view them as “too high.” A crash becomes inevitable, and during the following contractionary wave sentiment gradually reverses. Asset values then tend to fall below their true value for an extended period of time.

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There are short-term ups and downs in the markets, of course, just as there are short business cycles between recessions. But the long waves of expansion and contraction encompass time periods that correspond to macro-level shifts in generational sentiment. The stock market hit a peak of about 380 (Dow Jones Industrial Average) in 1929, lost almost 90% of its value at the lowest point of the Depression in 1932, continued to struggle for another ten years beyond that, and did not surpass the 1929 high point again until 1954.

The boom of the fifties and early sixties culminated around 1966. In real terms (adjusted for inflation) financial investments then sank for about sixteen years, hitting a low in 1982. The unusually high inflation of the time masked the fact that there was an “invisible crash” during the 1970s which was just about as damaging to investors as was the Depression of the 1930s.

During long contractionary periods the capitalist system is plagued by high unemployment, problematic rates of inflation or deflation, currency crises, asset value depreciation, bankruptcies, and growing poverty levels. In the social arena there is resonance for a radical critique of the system. We saw that during both the 1930s and the 1970s. The latter was the period during which the Baby Boom generation came of age. But the members of this generation ultimately became fairly sanguine about the system as it rewarded a significant number of them materially during their prime working years circa 1985 to 2005.

Perhaps the Boomers will become re-radicalized as they approach retirement and the long wave of expansion peters out on them. The contractionary wave we now are facing figures to endure for quite some time.

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Greens recognize that an economic system characterized by the dominance of mega-corporations is fundamentally deficient ... whether it’s expanding or contracting. We point out that, although financial markets may do well for extended periods, the working and middle classes rarely benefit proportionately.

Nonetheless, it’s challenging to make the case for socio-economic change during long expansionary waves when a sizable number of the most influential citizens deem the economy to be “good,” or “good enough,” or, at least, “OK.”

We will soon be at a juncture where we will start to get more of a hearing when we critique the systemic economic deficiencies. The time may be ripe to induce the Baby Boomers to start thinking again with their hearts and marching again under the banner of “A Better World Is Possible.”

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