Saturday, July 29, 2023

How I came to the conclusion we were due for a great depression in the 2020's...



This is a funny meme I made, from a photo I shot, of a homeless guy sleeping in an alley in an alley in 2021.  I was making fun of the crazy high rent prices these days.  #steveemigphotos

This post is the follow-up to the previous post, "The Big Transition, The Phoenix Great Depression, The Tumultuous 2020's... My Big Picture look at the 2020's"  So read that one first.

How did I come to the conclusion that we would have a major recession, or a great depression, and a lot of chaos, in the 2020's?  Here's the story...

I've been blogging about "the coming next big recession or depression" since 2018.  Here's a blog post from December 20, 2018, talking the about recession I felt was coming, where I predicted that the Dow Jones Industrial Average would drop to 18,000.  I was wrong.  But the Dow did drop to 18,591 in spring of 2020, after topping out at an all time high (then) of over 25,000.  Stocks dropping don't mean we're in a recession, but that's a main economic index millions of people look at as a sign of how "the economy" is doing.  

Either I've been crying wolf about a big recession for five years now, or there were reasons I thought an extraordinary recession, or even a depression, was headed our way.  I first hinted at this recession  on January 2, 2018, in a blog post, just a week after President Trump's much hyped corporate tax bill was signed.  The business media was telling the world that we were about to launch into a "golden age" of prosperity, or something close to one.  I disagreed.  I felt we were close to a recession that would rival the Great Recession of 2007-2009.  

Why did I think that?  The answer goes back to December of 1989.  Visiting my parents back east for Christmas, I picked up a book, knowing I was going to be pretty bored that week.  The book was The Great Depression of 1990, by economist Ravi Batra.  Nothing like a little light, uplifting reading during the holiday season.  Being a geek with a taste for economic stuff, I found the book fascinating.  

In that book, Batra described a theory that the United States had a depression, or great depression, every 30 or 60 years, going back to colonial days.  The only time that trend broke down was during the 30 years after the Civil War.  That theory was part of why Batra thought we were in for a great depression beginning in 1990.  If there was no depression 30 years after the last one, there was usually a great depression at the 60 year mark.  The Great Depression of the 1930's began in late 1929, heading into 1930.  There was no depression in 1960.  So we were due for a major economic downturn in 1990, according to that theory.  No, we didn't have a great depression then, but we had a really long "double dip" recession, and the real estate market here in California tanked for about 6 - 6 1/2 years.  From my point of view, and that of most people I knew, living in Southern California, we had a 6 1/2 year recession.

There was another concept that Batra spent a chapter explaining.  It was an obscure theory from India, called The Law of Social Cycle.  That came from a really unusual character named P.R. Sarkar.  The theory said there were four basic mentalities in any human civilization.  One of these four mentalities dominates a society for a long period of time, shaping the whole country, often for hundreds of years.  Eventually the next mentality rises up, and takes over.  Over hundreds of years, these four mentalities rise and fall in particular order.  

I won't go into the details, it's a lot to explain.  Batra's take in 1989 was the the U.S. was nearing the end of the Acquisitor Age (where the businessman's mentality had been dominating since colonial days).  That age ends in a period of high corruption and excess, where the Laborers, everyday working people, are getting taken advantage of much more than usual.  Eventually, the Laborers get tired of low pay and a declining standard of living (sound familiar?), they rise up in populist movement, and toss the corrupt business people out of power.  Here's my detailed explanation of my understanding of the Law of Social Cycle.  

In any case, the theory made sense to me.  While we didn't have the full blown great depression that Ravi Batra predicted in that book, but most of what he predicted did actually happen, just not to the extent or depth he expected.  Inspired by that book, though I was not making much money, I started checking out the financial markets, week by week, and for a while, day by day.  Working odd jobs, and focused more on working through my shyness and personal issues, I never really had money to invest.  But the dynamics of the financial markets, trying to figure out the future trends and inflection points, fascinated me.  After a while, it was more about trying to understand the dynamics of the markets, to make sense of all the variables and interwoven trends, than just to profit from them.  

I've kept an eye on the markets ever since, trying to figure out what made them go up and down, day by day, week by week, year after year.  The 30/60 year depression theory, and the Law of Social Cycle were in the back of my head as well.  As you've probably figured out by now, 2020 was the next big year  in that theory, being 30 years after 1990.  

As for the Law of Social Cycle, if that theory was right, it meant there would be a major populist uprising in the U.S, somewhere down the road.  Since the early 1990's, I kept my eye out for signs of an emerging populist uprising.  In 2011, the wildfire spread of the Occupy Wall Street protests looked like the beginning of that populist uprising.  That protest, which gave us the idea of  "the 99%" and "the 1%", spread so fast because so many people were frustrated, struggling to make a decent living, and ready for some kind of change.  A couple years later, the unexpected rise of the two populist candidates in the 2016 presidential election, Bernie Sanders on the Left, and Donald Trump on the Right, looked like another wave of populism, growing in strength, and then subsiding some.  I think the populist sentiment is still rising, wave after wave, every two or three years.  

From my perspective, by about 2016, this weird theory from India, which played out over hundreds of years, looked like it would reach a major inflection point at some time in the 2020's.  We would come to a critical mass point, where the average working people have just had enough, and they'd rise up, and run the increasingly corrupt business people, and the politicians who enable them, out of the seats of power.  We still seem to be on that track.

From a book I read at the end of 1989, 25 years later, I had two reasons to believe we would see a major recession, and possibly a great depression, and a lot of social turbulence in the 2020's.  By 2018, nearing the end of a traditional 4-7 year business cycle since the Great Recession, it looked like another recession was near.  

Then, in late 2018, the recession tried to get going.  We had a major market stock market correction, hitting bottom, in December of 2018.  Why?  The Fed had been slowly raising interest rates from near zero, trying to get back to close to "normal" level.  The stock market, used to getting high on The Fed's supply (of cheap money), tanked.  In December 2018, stocks dipped into bear market territory, and then mostly rebounded in a couple of months.  Then the markets largely leveled off until September of  2019.  The potential recession got put on hold, as The Fed lowered interest rates, and later began to inject liquidity into the banking system ("Not QE"), in October of 2019, following the Repo Market Crisis in September.  Then the markets started rising again, fueled by the influx of continued billions of dollars from The Fed. That continued until the pandemic amplified stock crash of February and March of 2020. 

Back to the early 1990's.  I ran into another big theory around 1993 or 1994.  I forget which one I read first, but I discovered the work of futurist Alvin Toffler, in his books Powershift and War and Anti-War, around 1994 or so.  Working with his wife Heidi, they first brainstormed the future trends building in the 1960's.  In 1970, Alvin published his breakout book, Future Shock.  A decade later he published The Third Wave.  Again, I won't go into the details, you can follow the link for more explanation.  In The Third Wave, in 1980, Alvin Toffler introduced the idea that we were leaving the Industrial Age (the Second Wave of civilization), and moving into what we now call the Information Age (The Third Wave).  

I got the basic idea of The Third Wave in those first two books, which was that we were, in 1980, and still are, leaving the Industrial Age, and moving into an information-based society.  We are in transition.  We're in a long period of transition as huge and transformative as the shift from hunter/gatherer society to the agricultural society (The First Wave of civilization), or from an agricultural society to an industrial society (The Second Wave).  

As the Tofflers saw it, this is a big transition that would change the way every single person in society lives.  It would change how we work, communicate, shop, socialize, and pretty much every other aspect of daily life.  Alvin Toffler phrased it much more eloquently, but that is the basic idea.  This is not a transition period that any person or group started, it's an organic transformation created by one social change building upon another, and one new technology building upon another, creating a long period of high innovation and change, technologically and socially.  Social changes led to new technologies, and new technologies led to other social changes.  As time went on, the pace of these changes increased, and were near the critical mass point, where the remaining parts of society make the transition.

 To be clear, not everyone in every country is moving into a Third Wave world.  In some countries (China, for instance), there are still First Wave, subsistence,  peasant farmers in some areas, Second Wave industrial cities dominating in some areas, and high tech Third Wave cultures in still other areas.  But the leading parts of the advanced economies are heading into the Third Wave, Information Age-type of society.  

Toffler's last book Revolutionary Wealth (2006), goes into some depth on this. It also goes into the wars among the different people living in the different cultures these ages create.  A lot of the turmoil in the U.S. right now is older people who want to revert back to and Industrial Age society as the Third Wave world expands.  This is "wave warfare," and is the root of much of the culture wars happening now.   

There's nothing wrong with manufacturing physical items, if it's economically viable.  But today's factories have far more robots and high tech, and far fewer humans involved in the actual manufacturing process.  The days of a steel mill employing 10,000 people and paying them really high wages, and then providing them with retirement pensions, are long gone, and they're not coming back.

In 2009 or 2010, I discovered Alvin Toffler's final book, Revolutionary Wealth, which was published in 2006.  His insights into the changes our world was undergoing were, and still are, incredible.  He was writing at an amazing depth about the single biggest change happening in society, and these ideas were not a part of the national consciousness, though many leaders knew of them.  The huge influx of changes he had been writing about for over 35 years were still growing and evolving, in 2006.  They're still playing out today, 17 years after his last book, and seven years after his death in 2016.

That elemental aspect of The Third Wave, the simple idea that we are still in the process of leaving the Industrial Age and moving into the emerging Information Age, The Big Transition, as I call it, got lost.  It got lost in the noise of 1,000 channels of cable, a billion websites on the internet, and the endless parade of cat videos.  In addition, a lot of change has taken place in the 17 years since Toffler's Revolutionary Wealth was published in 2006.  The iPhone and the Android had not come out yet.  As we all know, smartphones have become the norm since 2006.  YouTube was a year old, and not widely used, in 2006.  Now it's the #1 streaming service, and over 50% of all big screen TV watching is of YouTube content.  Social media platforms and apps were just getting going in 2006, and have exploded in popularity since, becoming a primary form of communication.  You get the idea.  In all of that, the fact that we're in The Big Transition, between the fading Industrial Age and the still emerging Information Age, got lost in a sea of other content and ideas.

The ideas of the Third Wave, and Alvin and Heidi Toffler's thinking since, really connected with me.  I read Revolutionary Wealth a second time (and recently a 3rd time), watched all of the YouTube videos featuring him, and read his short, 1983 book, Previews and Premises. Nothing I read or saw anywhere else described the increasingly chaotic level of change in society better than Toffler's Third Wave idea.  While I got a good description of the Third Wave concept from his other books, and talks and interviews online, I didn't actually read The Third Wave until last month, June 2023.  I figured the book was mostly anecdotes from the world of 1980, so I never did go back and read it.  I already had the basic idea.  When I finally did read it, last month, it blew my mind.  It has all of the foundational thinking leading up to, and supporting, The Third Wave concept, because the idea was so radical back in 1980.  Nobody expected most of the U.S. factories to go out of business at that time, let alone all the other change that has come since.  

Around 2010, I began to see the string of huge changes in society that fit The Third Wave idea.  In the 1970's, telecommunications began a massive change, from the rotary dial phones that us Gen Xers and Baby Boomers grew up with.  Touchtone phones came out, beginning the evolution towards today's smartphones.  Cable TV entered the picture, and added 15 cable channels to the three lame channels on broadcast TV in the 1970's.  Pong debuted, the really simple beginning to all that is video games now.  

Personal computers were born in the 1970's, but really hit society in the 1980's, transforming business and then personal life, most notably with the Apple Macintosh, in 1984.  Car phones made their appearance in the 1980's.  VHS videos gave us more options to watch, and the ability to record TV shows, and "timeshift" our TV watching, as it was once called.   Then video cameras for everyday people came onto the scene, they were far more consumer friendly and immediate that the old Super 8 film movie cameras.  Factories began to shut down all over the U.S., as human jobs were replaced by new technology and industrial robots, and millions more jobs were outsourced to countries with cheaper labor.  Music went from "vinyl' records and 8 track tapes to cassettes, and the Walkman came out, so we could take out music everywhere, and ignore everyone around us.  

In the 1990's the personal computers all got together for a party and formed the internet, and the world wide web, taking communications to an entirely new level.  The internet was the first huge media platform not created with advertising in mind.  Music went digital, too, from cassettes to CD's.  Video moved towards DVD's.  The DotCom craze exploded in the late 1990's.  After a long recession early in the decade, start-up businesses popped up all over as people tried to figure out what could be done with the rapidly improving computers and the internet.  Those were the days when little Amazon.com got made fun of, for trying to sell books on the internet, by the mainstream media (check the quote at 10:55 in that clip).  "People will never put their credit card numbers into a computer," critics scoffed.  Cell phones hit widespread adoption by the end of the decade.  

Then, with one click of a mouse, a geek none of us had heard of, Shawn Fanning, uploaded Napster to the web in 1999.  He killed the entire music industry with that mouse click.  He made music file sharing possible for millions of people.  MP3's and the iPod soon followed, with Apple's iTunes following soon after.  Music on phones and streaming music services came later.  The entire music industry changed in the 2000's.  

The publishing industry, from newspapers to magazines to books, got hammered, too.  The internet and digital technology changed the game.  Publishing went through a transformation, and many newspapers and magazines died off.  Ebooks, like Kindle and other formats, took a small share of the print book market.  Also in the 2000's, we saw the rise of social media, where gossip met the digital age.  That's a match made in heaven if there ever was one.  Or is it hell?  It depends who you ask, these days.  The world of video, TV, movies, and DVD's, got hit by new tech as well, and the industry moved towards streaming, wrecking everything, and leading to the world of binge watching and "Netflix and chill," Somehow, a lot more really good TV series came out of the whole chaotic transition.

I rediscovered the work of Alvin Toffler around 2010, and started thinking a lot more about his Third Wave concept in the years since.  Around 2015-2016, the department store and discount store giants, Sears, J.C. Penny, and Kmart, were on the ropes, getting pummeled by the increasing rise in online sales, and slowing foot traffic in malls.  Huge chain stores began to disappear.  Radio Shack was gone, Toys-R-Us died, as did dozens of other once iconic brands.  

It was around that time, late 2016, that I first heard the term, "Retail Apocalypse" to describe the closing of thousands of retail stores.  I realized the the Retail Apocalypse was the Industrial Age, bricks and mortar goods distribution system, dying off.  The Information Age retail business model was replacing it to a great extent.  Not all stores were dying, but thousands of them were.  It wasn't just Amazon killing them, now a huge mega corporation.  It was Craigslist, eBay, Etsy, and thousands of small business websites, and Shopify-type online stores.  Walmart and Target figured out the "shop online and pick-up up at a nearby store" model, just in time to keep them viable, as millions of shoppers made the transition into the Information Age world.  

With that insight about the Retail Apocalypse, tied to Toffler's Third Wave idea, I looked back in time.  At that point, around late 2016, and early 2017, we had seen a string of industries go through phoenix-like, death and rebirth scenarios.  Telecommunication, typing (typewriters to word processing PC's), drafting and graphic design, marketing and advertising, music, publishing, movies, TV and video.  They had all largely made the transition from the old, Industrial Age business model, to a new, Information Age business model.  There would be more change to come, but those industries had moved, by and large, to Information Age models.

That's when I asked myself, "Is there ANY business or institution that will not have to make the transition from the Industrial Age to the Information Age?  I spent months trying to find one.  I couldn't.  I thought about a basic item, something we all use, that was unlikely to change much in design, like a toilet.  I know, it seems like an odd item to focus on.  But in all likelihood, it will pretty much stay the same for many years to come.  But the whole business around it will change.  The design, materials sourcing, manufacturing location, marketing, sales, and distribution will all be transformed by new technology.  A toilet we use today has not changed that much in 80 or 100 years.  It probably won't change much in another 30 to 50 years.  But the whole business of making them and selling them will change.  Even industries like that have to make the transition to an Information Age model.  Later on, I came up with other examples.  A trumpet or guitar today is about the same as one made 50 years ago. They will be pretty much the same 50 years from now.  But the whole business of making and selling them will change to an information age model. 

I finally came to the conclusion that EVERY business, industry, and institution will have to make the transition from an Industrial Age model to an Information Age model, to survive.  The Big Transition is a period of time when this huge process of change will take place.  It will happen in every business,  industry, and institution; like colleges, churches, non-profit organizations, political and organizations.  

A lot of industries and organizations have already made the transition, though there will still be some level of change.  But many parts of our society have not made the full transition yet.  As I write this, the whole banking system is in question.  That's because, while banks use a lot of high technology, the basic, underlying system dates back to the Medici's, around 600 years ago.  The banking system will change, and I don't mean into the globalists/New World Order wet dream of CBDC's and total control.  That will fail, people are already figuring out workarounds to that crazy nonsense. But the banking system will morph into something that actually functions in the Information Age world.  

The college and K-12 education system will morph into something that works in the Information Age world.  Law, voting, government, democracy, money, investing, child care, healthcare, housing, local small businesses, transportation, airlines, labor unions, bars and restaurants, and everything else, they will all make the transition.  These industries and institutions will all go through The Big Transition into a new model.  All of these things, and many more, will see the old versions die off, and new versions, 21st century, functional Information Age versions, emerge.  Or civilization as we know it will collapse.  And we really don't want that.  OK, a few people want that, but not really that many.  

To be completely clear, I'm all for manufacturing anything in America that can, viably, be manufactured here.  I know several people personally who do manufacture products in the U.S..  But the types of factories us older people knew in the 1970's, and before, are not coming back.  They are not viable in today's world.  Look up today's factories online, there are far fewer people in the factories than there were 50 years ago.  We need to find new, good paying, meaningful work for millions of people currently out of work in the U.S., and the millions more who recently have, and soon will, lose their jobs.  But it's not going to happen by trying to go backwards to the Industrial Age of 50 or 80 years ago.  A huge part of The Big Transition is finding the ways for large numbers of people to earn a living, and have have affordable, good housing, that works now, in the century we're actually living in.  

We have small towns, and small and mid sized cities, dying on the vine across the U.S..  Those cities are dying because of who is running them.  It's not that these are bad or corrupt civic leaders (most of the time), it's that they're stuck in a mindset, a business or social model, from the old paradigm, the Industrial Age.  Alvin Toffler referred to this as "obsoledge," obsolete knowledge, something we all have in these rapidly changing times.  The mindset of the leaders is what's holding back many cities across the U.S..  I'm speaking from experience, I got stuck in a few of those towns and cities on the eastern seaboard from 2008 to 2019.  A lot of my thinking that you're reading now comes from not being able to get my own business up and running, while in those towns and cities, because so many people are still mentally anchored to the world they grew up in.  But that world is fading away, and we're trying to build a new one that works for everyone in today's world. 

This is why I was really sure that we were headed for a huge economic downturn about 5 years ago.  So much change HAS to happen, that there's no way a typical 12-18 month recession would be enough to shake out all the unneeded parts of our world, and help new ones rise up.  Things are going to be really crazy for quite a while.  We need lots of new ideas in virtually every part of society.  And then we need to bring the best ideas into action to build actual businesses, organizations, and institutions.  Like it or not, The Tumultuous 2020's is the decade where we get to re-invent most of the world.  That's a lot of work.  

But we have models.  We've seen phones, music, computers, publishing, video and TV, and the retail world, go through this transition.  We can learn from what did and didn't work in those transitions.  Hopefully, we can all dig in to some little piece of our world, and morph it into a version that actually works, for the future.  That's the Big Picture that I see looking forward.  Welcome to the Tumultuous 2020.

I know this all sounds pretty depressing.  Most people today have a really hard time with the idea of tough times ahead.  But that's just where we are.  These tough times, this period of incredible change, is also when the most innovation happens.  This is one of the best times to get new ideas, and new businesses, off the ground.  

Recessions and depressions are when the whole world goes on sale, and almost no one wants to buy

This crazy decade is unnerving to look at, but there will be more opportunities in the 2020's, than in any other time in most of our lives.  That's the upside.  Change creates opportunity.  What needs to happen in your world?  What needs to happen in your town, city, or region?  Get on it.  Get busy.  Make it happen!


I'm doing a lot of my writing on Substack these days, check it out:

Steve Emig The White Bear's Substack



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