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Growth and Inflation-Deflation During the Fourth Turnings

A "Turning," as defined by Neil Howe and the late William Strauss, is a generationally long period of about twenty years, each with its own socio-economic ethos. Growth occurs during two out of those four turnings, and inflation or deflation during the other two. Together, they define a whole 80-year "long cycle, which corresponds roughly to the life cycle of an Idealistic generation such as the Baby Boomers.

The first turning takes place after a major event such as a major war. (World War II served this purpose, World War I did not.) Society benefits from the technological innovations that took place during the war. In the United States, a major benefit was war time rationing, which led to a 25% savings rate during the three and half years of war. Americans finished the war with nearly ONE YEAR's wages saved in bank accounts or war bonds. War heroes came home and jump started the economy. The result was a broad based growth.

The second turning is characterized by inflation, as the post war growth gets long in the tooth. The national mood is one "is this all there is?" Bottlenecks creep up in the economy, bringing about cost -push pressures. Broadly and "fairly" distributed wealth make for wide demand-pull pressures. Together with an unexpected external shock (e.g. OPEC in 1973), this brings about inflation. But people could care less. This turning is less about efficiency than about "fairness."

The third turning is characterized by a renewal of growth, but of a NARROW-CASTED variety. While "engineering" was the rage in the first turning, "re-engineering" is the rage in the third. This is about cutting and elimination, of waste, cost, and ultimately of jobs. All in the name of creating "shareholder value" of higher value added companies. This is basically an elitist construct that benefits that knife-wielding tech-enabled top 20% (or less) of the population, at the expense of the remainder. Corporate margins and efficiency shoot to all time highs, at a great cost to the social fabric.

The fourth turning is characterized by deflation, which in turn stems from the excesses of the third turning. The endgame is "disintermediation," of companies "offshoring" work and firing American workers, and banks engaging in risky speculative activities that cause ordinary people to pull their money out of them. All this spells massive deflationary pressure in society. Even easy monetary policy can't seem to put "Humpty Dumpty back together again. The endgame could be another war (with China, perhaps), and a renewal of the cycle.