Friday, November 20, 2020

Preparing for the Roaring 20s

 One of my favorite quotes is from a philosopher named George Santayana.  He said that those who cannot learn from history are doomed to repeat it.  I think we are at the cusp of repeating the past, so it makes sense to review a similar episode in our past so we can better prepare for the emerging future.

A quick look back, about 100 years ago, would suggest that our populations and economies may be on the brink of repeating the Roaring 20s.  Only this time it won't be Gay Paree, flappers and jazz music celebrated by World War 1 veterans.  It will be an entirely new crop of veterans - young adults who have been locked down in COVID induced misery, who bear some economic and psychological scars, and who have lost time and loved ones to a deadly virus.

Mark Twain also had something to say about history.  He said history does not repeat itself, but it does rhyme.  I think he meant that many of the characteristics of the past recur in our present times, in similar fashions if not in exactly the same way.  What I am calling the Roaring 2020s may demonstrate that rhyming characteristic that Twain described.

Why the "Roaring 2020s"?

The original Roaring Twenties were a result of the end of the First World War, the end of the Spanish Flu pandemic and a reaction to an economic depression that followed the war.  Millions of veterans returned home to live new lives. Some experimented with new lives in new locations.  One of my favorite books - The Razor's Edge - describes a young man who was injured in the war and it changes his life and perspective forever, much to the dismay of his friends.

In those days, attitudes and perspectives were radically changed.  The old hierarchy was being challenged.  Governments and generals - entire generations of leadership - were being called into question.  People did not want to live the lives that had been originally set out for them. After living through the war, people threw off the old ideas and expectations and lived out loud.  It was a short boomlet in reaction to the previous conditions that ended in the Great Depression in the late 1920s.

I think we are primed for a new Roaring 20s, which will be ignited by the wide distribution of a COVID-19 vaccine.  Like many of the people in the 1920s, we will emerge from a long period of turmoil and lockdown, ready to get out from under the unrelenting pressure of the virus and the lockdowns it has created.   

What are the parallels?

The original Roaring 20s were sparked by young people who were ready to live an entirely new life, tired of war, disease and old ways of thinking.  They live life to the max, breaking with traditions and creating new music, new literature and new fashion.  At the time, many older adults felt the younger generation were living too fast and too loose, too ready to toss away convention.

I think by July or August, 2021, we'll see much the same thing occurring.  The Millennials and Gen Z feel, rightly or wrongly, frustrated by difficulty finding new jobs even in the relatively booming economy in the late Obama and early Trump administrations. Further, they and others have had opportunities denied to them by the COVID outbreak.  They (and frankly a lot of the rest of us) are anxious to get out, go out to eat, to go to a ball game, get together with friends, travel and explore.

As vaccines demonstrate their effectiveness, and travel bans are lifted, we may see an explosion in the consumer market.  The most obvious places to watch for this are airline and hotel bookings.  What's even more interesting is how attitudes and behaviors about work and careers may change.  There were already rumblings that the younger generations have a very different attitude about work/life balance than the Boomers and Gen Y.  Many have experienced the gig economy and working from home and may want to work to live, rather than live to work.

Some simple predictions

If we play out these ideas, several scenarios are possible.

First, the travel and tourism industry could explode in the second half of 2021.  Destinations could be less important than the simple desire to go somewhere, anywhere, and experience something new.

The workforce participation rate, already declining due primarily to the fact that women are leaving the workforce to care for children, may decline some more as people decide to live life and put college or careers on hold for a year or two in reaction to the pandemic.

More people decide to start their own companies, in order to have more control over their lives, to work where and when they want to, rather than working for a large bureaucratic company.

Consumption follows a forked path, with some people deciding to live a much simpler life, and others deciding to live and spend as much as possible, since the future may not be promised to them.  Our consumption-driven economy may experience some fits and starts as it adjusts to a barbell-shaped economy.

Fewer people decide to attend four year colleges.  The cost and eventual benefit of a four year education simply does not align for many people, who will pursue other opportunities.  Traditional college and the value of the experience of residential colleges has been questioned for years, and COVID demonstrated that some people can get as much value from attending virtually.  College costs will have to stop rising for more people to believe there is value.

Governments may need to rethink how they raise funds.  In the US, we have income taxes, sales taxes, capital gains taxes but few consumption taxes.  When people are more open to new work and new experiences, income taxes may not be the best way to maximize tax policy and revenue.  Instead it may make sense to alter our tax policies to consider consumption taxes, to encourage people to think about what and how they consume, rather than what or how they make their income.

Getting ready for the deluge

I can't tell you exactly when this will happen, but I feel fairly confident it will happen.  I moonlight as an adjunct professor in a graduate program, and I can tell you that my students are ready for change.  They are frustrated that they cannot control their lives, cannot travel and cannot find good jobs, and when the situation changes I expect they will want to celebrate, at least for some period of time - say a year or two.  We may not see an instantaneous change in the economy or in markets, but I think it will happen, and we'll really experience it by the beginning of 2022.

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posted by Jeffrey Phillips at 7:17 AM


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