Evolution Shift
A Future Look at Today
October 15th, 2008

The Collapse of the Third Economic Wave

column here two weeks ago placed the financial crisis within a historical context. The financial meltdown is part of the disruptive transition from the Information Age to the Shift Age.  We are moving through a period of turmoil when the old order is being replaced by a new order.  The nation state economic model is being replaced by a new global model.  We are at a time when the old ways no longer seem to work and yet the new realignments are not yet clear.

In the United States there have been three great waves that have arced over our society during the last 30 years.  The incredible run up in residential real estate values since the late 1970s was the first arc.  Except for a short period in the early 1980s and then again in the 1990s, the value of residential real estate seemed to go ever upward.  This of course created a great sense of wealth for those that benefited.  In the early part of this decade millions of households took advantage of historically low interest rates to take out billions of dollars of equity to use for purchases.  This 30 year cycle obviously came to a crashing halt two years ago.

The second arc was the historic bull market in stocks that started in 1982 and, with a correction in 1987 and again in 2000, continued to its historic high in 2007.  This arc also created a great sense of wealth for millions of American consumers.  Investing became easy as the market seemed to go ever upward.  This led consumers to feel rich and to feel entitled to ever more material goods and even extravagance.   September and October 2008 put an end to that.

The collapse of the housing arc has had a stunning effect on the debt marketplace, which led to the collapse of global equity markets in the past few weeks.  The suddenness and historic speed of the collapse of equity markets around the world was felt viscerally by billions of people around the world.  In the United States there has been an evaporation of $2 trillion dollars of net worth in a matter of months.

The collapse of these two arcs is now going to bring about the collapse of the third arc that has defined the U.S. economy for the past 30 years. That arc is consumer spending.  Consumer spending makes up two thirds of the GNP of the country.  The past three decades has been a time of unparalleled consumption in the U.S.  The size of houses grew, the number of cars per household grew.  There was an explosion of electronic goodies that filled every room, pocket and briefcase.  Extravagance increased in household purchases, dining out and travel.  This arc has fueled the American economy since the recession of the early 1980s.  That arc is now going to lose its trajectory and a fundamental shift is about to occur.

Why do I say this?

The recent stock market collapse has left most people feeling suddenly poorer.   This crosses all generations.  Those that are retired now fear that the golden retirement will be a silver or bronze one at best and there is nothing to be done but to spend less.  The largest generation, the Baby Boom generation, now feels as though they may never be able to retire.  The greatest amount of personal wealth in America is controlled by those 50 and older and these people all feel suddenly poor and no longer have the secure faith in their financial future that the ever rising value of housing and stock provided.  The reaction is to stop buying stuff.  When the largest and most affluent part of the population decides that becoming thrifty is the one thing they can do in a world they no longer feel they can control it is going to have a profound effect on consumer spending.

To compound matters, the X and Y generations now see that if the baby boomers postpone retirement indefinitely, they may not move up the promotion ladder as fast as they had thought.  This means they realize they can no longer spend on the assumption of increasing family incomes.

The Millennials that are now entering the workplace see this mess and realize that they can not trust the social institutions that the older generations did.  They feel that they are being handed a bad deal, that the economy is not the booming one their parents showed them.  This means they realize that they will need to be self sufficient economically, which is why a higher number of college graduates than ever before are desiring to be entrepreneurs so they can at least attempt to control their own destiny.    Lavish spending is not in this picture.

So, from retirees to those just entering the work place, consumers all, will consume less – dramatically less.  A new social trend will begin.  Thrift will replace extravagance. As small is the new big, thrift will be the new behavior, the smart and cool thing to do.  In the next column we will take a look at how that might look and what might happen in the next 24 months.

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  • Jack Peppard

    david: Great post, but…

    …I’ve always felt and thought Thrift over Spend… That’s what boomerhood is all about. Don’t you agree?

  • smc

    Great column! In all the many words I’ve read the last two weeks, I haven’t heard anyone talk about how this affects the three different generations you mentioned.

    I’m noticing that young people seem to like Derrick Jensen’s eco-doomsterism. One thing I was thinking about yesterday was how our failure to confront global warming affects our collective mood.

    During the 80’s I could sense people shrinking into their cocoons as talk of nuclear winter increased. Christopher Lasch pointed out that a downside of anti-nuclear organizing was a psychic numbing in the general populace as we collectively said no (in Australia, New Zealand, Europe and North America) to omnicide.

    There was a brief opportunity to breathe easier in 1988 as the cold war rapidly and unexpectedly wound down. Then the announcement of global warming we started a twenty year game that was a combination of Chicken and “Who Wants to Bell the Cat?”.

    I can’t help but think that this common evasion of a problem is affecting our global family. It isn’t the case that a family ignoring an alcholic parent doesn’t know about it– to the contrary, a tremendous amount of energy is spent in the labor of Active Denial.

    What happens when all the tens of millions of people in the industrial world who DID mobilize to reduce the risk of nuclear war pretend that global warming isn’t a problem, even thought they were concerned and civic enough to create a successful anti-nuclear movement?

    I think there might be some interplay between your excellent post and my comments. I’d love to hear thoughts on this

  • German Vargas

    David:
    You are rigth, that is the key of the problem.

    From Colombia.

  • This analysis fits our data. But for most, the downsizing of consumption is, so far, not very painful.
    It is liberating time, spent at home often with family and children..all to the benefit of education, communal structures, and perhaps revitalization of family.
    The third arc of consumerism was in conflict with the Protestant or Puritan Ethic, but as we are beginning to
    now see did not extinguish it. Many Americans are able to return to a more thrifty life order…and some are
    enjoying it.

  • I couldn’t be happier with the notion that thrift will replace extravagance. It will be one of the best trends to come out of this economic implosion.

  • Recognizing that which is a product of arrogance and also shameful behavior.

    Our lexicon of business activities is being expanded daily, thanks to the “wonder boys” on Wall Street. We are learning about derivatives, collateralized debt obligations, credit default swaps, recapitalization, puts, short selling and so on. We are gaining a new vocabulary from the recent meltdown of the financial system and expected slowdown of the real economy worldwide.

    Where did this debacle begin? Well, it began in the center of human community’s banking and investment houses in the financial district of NYC. Supposedly, the “brightest and best” among us go to Wall Street, know what they are doing and do the right thing. Unfortunately, such assumptions turn out to be colossal mistakes.

    How did this calamity occur and why is the human family in such dire economic straits? It appears that grotesque greed and a culture of corruption have come to dominate significant operating systems of the global political economy.

    Powerful people in high offices within huge business institutions with access to great wealth are recklessly and deleteriously manipulating the unbridled expansion of the global economy in the small, finite planetary home God blesses us to inhabit.

    Self-proclaimed Masters of the Universe have surreptitiously “manufactured” a sub prime “asset bubble” and perversely fostered its uneconomic growth within the world economy. Not unexpectedly, this asset bubble did what bubbles do. The sub prime bubble burst and made a mess. Global credit markets have frozen, stock prices are tumbling and the value of the dollar is gyrating.

    Evidently organizers, managers and whiz kids overseeing the global economy, and the unraveling {ie, deleveraging} of the worldwide sub prime swindle, are running the artificially designed financial system of the global economy as a pyramid scheme. This is to say that the international financial system is being operated so that most of the wealth funneled pyramidally into the hands of a small minority of people at the top of the world economy where this wealth is accumulated and consolidated. Note that thirty percent of annual corporate profits end up in the accounts of a tiny number of people. At the same time, the vast majority of people on Earth, near the bottom of the global economic pyramid, are left with very little wealth. Does the economy of the family of humanity exist primarily to provide wealth to the already stupendously wealthy? The “bankstas” among us evidently think so.

    In the 1980s, this extremely inequitable method of distributing wealth and arranging business activities was called a “trickle down” economy. We have been repeatedly told how this ‘rational’ economic scheme is good because it “raises all ships.” And yet, from my limited scope of observation, the billion people living on resources valued at less than one dollar per day and the additional 2.7 billion people being sustained on two dollars per day of resources now appear to be stuck in squalid conditions. The ‘ships’ carrying these billions of less fortunate people {ie, more people than lived on Earth in the year of my birth} do not appear to be lifting them out of poverty.

    Steven Earl Salmony
    AWAREness Campaign on The Human Population, established 2001
    http://sustainabilitysoutheast.org/index.php

  • No bail-out from global warming………..

    http://www.oregonlive.com/commentary/oregonian/index.ssf?/base/editorial/1224199517206370.xml&coll=7

    There’s no bailout for the next crisis

    Monday, October 20, 2008 The Oregonian

    The recent haggling over how to solve the nation’s economic crisis seems to have done little to ease the anxieties of either Wall Street or Main Street. And with good reason: Intuitively, we know we haven’t seen the worst of it yet.

    Watching a lifetime of stock options head south? Worried about where you’ll find the money to pay for college or about the spiraling costs of health care? Certainly nothing could hurt worse than a foreclosure, could it? Well, maybe it could. If $700 billion sounds like a lot, try fathoming $9 trillion — roughly 13 times the cost of today’s hotly debated bailout. That’s the projected cost of letting global climate change go unaddressed within this decade.

    The thorough shakeup of today’s economic climate foreshadows an even more disastrous global crisis heading our way. The same belief in unlimited, unchecked growth (some would say outright greed) that fattened our economy on a diet of junk bonds and hollow lending is also strip-mining our planet’s environment of the currency that nature safely invested for us over millions of years, and upon which all life — including our own — depends.

    The concept of peak oil is not just some naysayers’ delusion. According to the U.S. Energy Department’s own findings, commonly called the Hirsch report and issued in 2005, it’s an unavoidable reality, one that is hurtling toward us faster than we know what to do about.

    But like the blind eye that was turned on the proliferation of high-risk, foolhardy mortgages in the midst of a slowing economy, we’ve bolstered our bravado in the face of such warnings while enthusing about drilling offshore and in the arctic.

    While we’ve been busy digging our fossil-fuel foundations out from under us with the same kind of naive bluster and faith in infinite growth that gutted the economy, we’ve also been busy ruining things at the top as our upper atmosphere becomes choked with carbon dioxide, leaving us in an environmental demise of our own doing.

    When it comes to the economy, a few sleights of hand and a heavy toll on taxpayers, all partisan bickering aside, can be called upon to help us avert disaster and restore faith in the unlimited expansion model. But when it comes to nature’s bank, cashing out is forever. No amount of midnight meetings, government-ordered buyouts or credit freezes can save a habitat laid fallow by years of unregulated dumping of chemical waste, nor can they lower our thermostats to an inhabitable temperature in the face of global warming.

    Sound policy and the pursuit of new technologies might ameliorate some of our excesses, helping to slow down the rate of climate change and postponing the date of disaster. But like the banking and credit crisis that arrived to the surprise of so many experts — despite the many warnings sounded years earlier — environmental failure is going to rear its ugly head someday.

    And when mother earth forecloses on us, there will be nowhere else to go.

    Lisa Weasel is an associate professor of biology at Portland State University and a board member of The Greenhouse Network.

    Steven Earl Salmony
    AWAREness Campaign on The Human Population,
    established 2001
    http://sustainabilityscience.org/content.html?contentid=1176

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