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  • [Economic Outlook]

    Trends Users Unlock Their Full Potential

    In today¡¯s world, there is a tendency to excessively compartmentalize, specialize, and summarize our understanding. Much like a fish in the sea who focuses on feeding and avoiding natural predators, most of us are oblivious to emerging game-changers, analogous to the arrival of boats with nets.

    Like the fish, most investors, policy makers and managers miss big opportunities and threats because they only consider localized, short-term cause-and-effect relationships and ignore the implications of trends playing out over decades.

    As demonstrated each day on CNBC, Bloomberg and Fox Business, people reflexively obsess over well-known distractions like market fluctuations, quarterly data, polling results and government announcements.

    Meanwhile, they equip themselves with a vague understanding of the business cycle as interpreted by competing spin-meisters.

    Not surprisingly, they are repeatedly blind-sided and routinely shocked by unforeseen chanllenges which, in hindsight, were plainly foretold by trends they missed.

    When we launched Trends in 2003, we had already spent nearly two decades identifying and analyzing trends for consulting clients in retail, finance, health care, information technology, and consumer products.

    Over-and-over again, we watched as highly sophisticated business leaders failed to see how forces outside their industry, region or functional specialty changed their customers, regulatory environment, and cost structure.

    And while these major corporations could spend six-to-seven-figures to have experts reveal the truths they couldn¡¯t see, individual investors, small business owners and consumers were left alone, drifting in a sea of conflicting signals.

    Over the past twenty years, our extraordinary network of experts and insiders has helped us to separate the strategically vital signal from the pervasive noise.

    In the process, we¡¯ve identified the intersecting trends shaping our economy, our lives, and our world.

    Trends, by definition, involve absolute and relative changes in measurable parameters over time, with a primary focus on rates of change.

    Inevitably, the trends which most strongly impact our lives, careers and society fall into three major categories: demography, technology, and human behavior. 

    And the predictive value of these trends emerges when we consider their intersections with each other, within the constraints imposed by the laws of nature.

    Unlike trends, the laws of physics, chemistry and biology, are unchanging and impose constraints on human potential.

    Technology represents human efforts to understand and harness the laws of nature to improve our quality of life.

    These discoveries build upon one another, ultimately making life better, faster and cheaper.

    There are many ways to understand technological progress and how it has transformed our world. Unlike demography and human behavior, technology advances at an ever-accelerating pace.

    At the most fundamental level, a dominant material has been associated with each technological age, including stone, bronze, iron, steel, and silicon.

    In his 1980 classic The Third Wave, futurist Alvin Toffler proposed a more useful framework, which divided technological history into three ¡°waves¡± or eras based on the dominant technology paradigm used to create value;

    these were the agrarian, industrial and digital waves. This was highly descriptive, but lacked the granularity needed to support decision-making.

    In the 1990s, Professor Carlotta Perez at Cambridge University proposed a model which the Trends Editors have found extremely useful and powerful in predicting the economic implications of technological progress.

    And when combined with identifiable patterns in demography and human behaviors, the so-called Theory of Techno-Economic Revolutions formulated by Perez has proven especially effective in forecasting economic threats and opportunities.

    This theory seeks to explain the pervasive correlation between economic well-being and technological innovation. History shows that until the end of the 18th century, affluence was based on agriculture, and it had remained at persistently low levels for thousands of years.

    Then, beginning around 1770, five successive waves of revolutionary technological change raised standards of living to an extent that was previously unimaginable. 

    Each of these revolutions was based on a transformational technological advance such as ¡°the steam engine,¡± ¡°electricity,¡± or ¡°the assembly line.¡±

    Each of these five techno-economic revolutions reliably consisted of three phases called ¡°the installation phase,¡± ¡°the transition phase¡± (or turning-point) and ¡°the deployment phase.¡±

    Each installation phase began with a ¡°technological big bang¡± in which a new general-purpose core technology suddenly appeared on the scene;

    for instance, the installation phase of the fifth techno-economic revolution began with the introduction of the Intel 4004 microprocessor in 1972.

    As applications of the revolutionary technology began to proliferate, each installation phase inevitably became a time of ¡°speculative frenzy.¡±

    In the case of the on-going Fifth Techno-Economic Revolution, this frenzy ended in the Dot-Com crash.

    Why does the installation phase of every techno-economic revolution inevitably end in a speculative crash?

    Because the reality of the technologies, business models, and underlying institutions which are currently available falls short of being able to cost-effectively deliver on the promises made to investors.

    At that point, the new techno-economic paradigm will not be ready to transform the economy for a long time. A great deal of fundamental innovation is still required.

    And that often means that a lot of painful creative-destruction is necessary; for instance, exponentially increasing the bandwidth of 90s-era fiber networks to enable today¡¯s gigabit streaming platforms.

    In 2000, search engines, smart phones, and speech recognition, all had to evolve from expensive concepts to high-performance, mass market solutions.

    For the most part, they did so during the transition phase. And as a result, both the supply and demand sides of the business equation are finally poised to enable radical change and explosive growth.

    That¡¯s the catalyst for the Golden Age now poised to unfold.

    The second category of trends governs demography. Demographic trends represent changes related to characteristics of the population.

    Metrics include the number of people, their age distribution, gender, education, race, income, wealth, physical location and more.

    These trends generally change slowly, even though demographic shocks occasionally occur over just a few years due to disease, famine, war and other disasters.

    However, technology has made sudden demographic disruptions less common in the 21st century.

    Since humans follow well-established biological patterns from birth to death, we can reliably predict economically meaningful demographic characteristics 20-to-60 years in advance.

    For example, once people are born, we know they will be dependent on their families and broader society for roughly 15-to-20 years.

    During that period, they need to be enculturated and educated so that they can become successful producers and consumers.

    Sometime between 16-and-25 most people join the workforce in some capacity and remain there until they are typically between 55-and-75.

    Finally, as technology has extended average lifespans, a greater share of the population has retired from work and become dependent on a combination of family, government, and accumulated wealth.

    Since economic output is the product of hours worked and productivity per hour, the number of working age people and their ability to be productive determines the wealth generating ability of a society.

    Furthermore, consumption varies by life-stage and income level, meaning that various industries will be impacted differently, depending on the age and income distribution of society.

    Given those fundamentals, it¡¯s important to recognize that the world has been undergoing an extraordinary demographic transformation, largely driven by technology.

    The agrarian economy which combined small-scale craft industries with animal-powered agriculture encouraged families to have lots of children.

    Limited agricultural productivity and high mortality rates kept the populations relatively young and small for millennia.

    However, beginning with the industrial revolution around 1770, people in Europe and North America began moving into towns in order to work in factories and offices.

    Over the next 200 years, this led to smaller families, while health care advances led to longer life spans and longer working lives.

    Charts in the printable issue clearly show that growth in working age populations around the world has declined precipitously since 2000.

    However, unlike most of the world¡¯s major economies, the United States will continue to grow its working age population through at least 2030.

    Nevertheless, we¡¯re seeing a sharp rise in the ¡°age dependency ratio.¡±

    In the United States and elsewhere around the world, this is caused by the number of retired workers, increasing at a far faster rate than the working age population.

    After reaching a minimum around 2010, America¡¯s dependency ratio is projected to explode as Baby Boomers continue moving into retirement.

    Making things worse, labor force growth has not kept up with the growth of the working age population for various reasons discussed in prior issues.

    Part of this is the generous welfare state. Other factors include a skills mismatch, the pernicious impact of substance abuse and crime, and a pervasive sense of global ¡°disappointment¡± among millennials.

    These factors have combined to create an unprecedented labor shortage that began in 2017 and is only likely to get worse.

    To put it simply, there are more job openings than there are people to fill them. As of April 2023, U.S. employers had roughly 10 million vacant positions.

    Even though that is nominally below the record 11.1 million from early in 2021, there is still an extraordinary 1.7 open jobs for every unemployed worker.

    Furthermore, data shows that America¡¯s long-term growth rate in per capita GDP has slowed along with the decelerating growth of the working age population.

    What are these demographic trends telling us?

    The world is going to experience a rising dependency ratio for the balance of the 21st century.

    That means fewer workers producing value to meet the needs of a larger dependent population.

    Conventional thinking assumes that this will inhibit the expansion of both output and consumption, limiting economic growth.

    That¡¯s because economic output is inherently tied to population while older people tend to consume less.

    But fortunately, the fifth techno-economic revolution seems poised to challenge that conventional wisdom.

    Given the brightening picture for technology and the darkening global demographic backdrop, it¡¯s important to recognize that our world is shaped by a third set of trends which determine how society identifies and responds to threats and opportunities.

    These behavioral trends are based on the values, perceptions and attitudes of the population.

    Monitoring those trends is especially important today because America¡¯s national consensus is stretched to the breaking point.

    Not since the Civil War have Americans been so divided. And it¡¯s the relevant trends in human behavior which will determine how society responds to the techno-economic and demographic trends we¡¯ve discussed.

    In the late 1980s, historians Neil Howe & William Strauss observed a demonstrable pattern of cohort and lifecycle characteristics which define various generations. 

    Like the Theory of Techno-Economic Revolutions, we¡¯ve found this Theory of Generational Cycles very useful in terms of identifying economic and political trends.

    For hardwired biological reasons, there are four generations active in the economy at any given time and these generations have reliably exhibited archetypal psychological features shaped by their environments.

    These generations assume new roles from stage-to-stage across their lifecycle as older generations die and new ones are born; however, each generation retains its distinctive cohort characteristics throughout life.

    As generations assume new roles, the character of society evolves through four stages which Howe & Strauss call ¡°turnings.¡±

    Over the past 500 years, each turning, has reliably identified a period of fundamental national psychology lasting just over 20 years, on average.

    The life-cycle aspect of the generational model simply confirms the well-known tendency for people to do and consume certain things at various predictable stages in their lives; these range from getting an education, to starting a career, to having children, to buying a home, to retiring.

    What Howe and Strauss distinctively documented in their landmark book, Generations, was a set of cohort psychological characteristics which have consistently repeated every fourth generation in Anglo-American history going back to at least the 1400s.

    Today, as the Silent Generation exits the stage, four and priorities.

    It¡®s this model which enabled Trends subscribers to anticipate the social and political crises America faces in the 2020s with a 20-year lead time.

    And most importantly, they know that unless things really are ¡°different this time,¡± the current period of bitter internal and external conflict will soon give way to new era of American Consensus and unprecedented opportunity.

    Like the eras following both the Great Depression & World War II, and the American Revolution, this new era might be a period of great unity and common purpose.

    On the other hand, it might more closely resemble the era after the Civil War when unresolved differences smoldered, even as unity was broadly proclaimed.

    In either case, after it has transformed our national consensus, today¡¯s acrimony will vanish.

    American generations define our current culture: the Baby Boomers (born 1946-to-1964), Generation X (born 1965-to-1982), the Millennials (born 1983-to-2001), and the Zoomers aka Generation Z (born 2002-to-2020).

    These generations generally conform to the psychographic archetypes Howe & Strauss call Prophets, Nomads, Heroes and Artists, respectively.

    Notably, social scientists and marketers seem to universally agree on the dates for Baby Boomers, while birthdates for the other generations are less solid.

    For instance, some experts argue that the oldest Zoomers were born in 1997.

    Fortunately, the precise dates are unimportant. The real value lies in appreciating the intergenerational interplay among cohorts with differing experiences

    Not since World War II has uncertainty and anxiety been this high.

    - The good news is that as the ¡°Golden Age¡± of the Digital Techno-Economic Revolution unfolds, productivity will surge; as a result, per capita GDP will reach extraordinary heights even as the world consumes fewer natural resources to produce each unit of wealth.

    - On the other hand, the world is entering what might be called a demographic ¡°ice age,¡± which means global populations will shrink and rapidly age, leading to labor shortages and soaring dependency ratios.

    - Meanwhile, the generational cycle has reached a predictable point of institutional upheaval. Just like the eras surrounding the American Revolution, the American Civil War and the Great Depression plus World War II, the current era of external conflict and internal acrimony will enable the ¡°creative destruction¡± needed to replace the failing governance institutions which we¡¯ve been tweaking since World War II.

    What¡¯s the bottom line?

    Now, more than at any moment in modern human history, it¡¯s critical to know ¡°what will happen, why it will happen, and how to profit from it.¡±

    Identifying and understanding major trends in technology, demography and human behavior is indispensable for long-term success.

    Whether we¡¯re talking management, investment, or geopolitics, the challenge is to look beyond your narrow specialty, industry or locale and understand the interdisciplinary drivers and constraints shaping the events around us.

    Otherwise, none of us is immune to knee-jerk reaction in the moment, which we¡¯ll regret in the years ahead.

    Revolutionary change is everywhere, and such change is scary.

    But for those armed with a clear understanding of truly consequential trends, it¡¯s far less frightening. In fact, for those of us who can see through the fog, the current era of crises and threats represents one of unprecedented opportunities.

    That¡¯s why trend followers can confidently ¡°be greedy when others are fearful, and fearful when others are greedy,¡± as per Warren Buffett¡¯s famous maxim.

    Given this trend, we offer the following forecasts for your consideration.

    First, much as technologies reliant on the assembly-line created an unprecedented era of economic growth and affluence from roughly 1950 to 1966, maturing digital technologies largely reliant on AI will create a vibrant new era of economic growth and affluence from the mid-2020s until sometime in the 2030s.

    As with prior general-purpose technologies the benefits will be huge and widespread, but there will be losers as well as winners.

    That new techno-economic reality will put an end to the Great Stagnation in productivity growth which dominated the past fifty years.

    For American workers, managers, and investors, this paradigm-shift promises a new era of prosperity and general happiness reminiscent of the 1950s.

    We identify some of the biggest implications in trend #2, this month.

    Second, rather than being a time of environmental collapse, the ¡°Golden Age¡± of the Digital Techno-Economic Revolution, will inaugurate a new era of happiness and prosperity as the OECD accelerates toward the so-called ¡°dematerialization frontier.¡±

    Unless thwarted by ¡°eco-Malthusian derangement,¡± new technologies will enable mankind to generate nearly inconceivable levels of affluence while consuming few, if any, non-renewable natural resources by 2100.

    The realities highlighted in trend #3 this month, reveal why the biggest thing mankind needs to fear is empowered ¡°merchants of fear.¡±

    Third, just as the ¡°cold War¡± between communism and capitalism dominated foreign policy during the Golden Age of the Mass Production era, a new cold war between authoritarians and democracies will dominate the Golden Age of the digital era.

    As the Trends editors predicted nearly a decade ago, a ¡°technological iron curtain¡± has descended between a China-centered alliance and the OECD.

    The new struggle, described in trend #4, will transform the trading and financing assumptions which have dominated the world since at least 1990, creating new winners and losers. And,

    Fourth, the American political, economic and social consensus which emerged after World War II will be replaced with a new consensus consistent with 21st century realities.

    As in the 1770s, 1860s and 1930s, the old social contract will be replaced by one that effectively addresses the new realities.

    As demonstrated in trend #5, the new consensus will impact fundamental institutional realities ranging from political alliances & federalism to criminal justice & national security to the welfare state & the civil service.

    Resource List
    1. Trends. July 2022. Trends Editors. Demography, AI and the Future of Economic Growth. 
    https://trends-magazine.com/demography-ai-and-the-future-of-economic-growth/

    2. Trends. January 2018. Trends Editors. The power of Generational Cycles. 
    https://trends-magazine.com/the-power-of-generational-cycles-2/

    3. AEIdeas.com. March 21, 2023. Nicholas Eberstadt & Peter Van Ness. The Geography of Work.
    https://www.aei.org/articles/the-geography-of-work/

    4. Trends. December 2022. Trends Editors. What¡¯s Happening to National Happiness?
    https://trends-magazine.com/whats-happening-to-national-happiness/