Food for Thought

THE GREATEST GENERATIONAL CHANGE IN HISTORY HAS BEGUN

The United States, and many countries in the world, are about to experience the greatest transfer of generational influence, power and absolute number of people in history.

The Millennial and Digital Native/Gen Z generations, those born since 1981, will become the majority of the U.S. population in 2020. Each of these generations are now bigger than the Baby Boom generation.  This will trigger massive change for all businesses.

I use the name Digital Natives as it more clearly defines the generation than the moniker Generation Z [I have never understood this alphabet thing.  What happens next, another run through the alphabet starting with A?]  They are the first generation born into the digital age.  They were born into information overload, but to them it is simply reality.  Studies have shown that they have more synaptic activity going on in their brains than we do as a result.  The Digital Native generation is truly different in thinking, awareness and consciousness.  They will be the first fully formed generation of the 21st century.

Today we live in a country – and a world- that was largely shaped by the Great Generation [born prior to 1928], the Silent Generation [born 1929- 1946] and the Baby Boomer Generation [ 1946-1965].  Our mind set, social norms, workplace values and structures were put in place by these three generations. This is what Boomers and GenX [1966-1980] people in business consider “reality”.  That reality will be transformed in the next 10 years.

Here are several ways to think about this as you look into the future of your business:

-These two generations, particularly the Digital Natives, the first generation of the 21st century, do not value, trust, or even respect the institutions of their elders.  The don’t see the government working well, they don’t trust big financial institutions, they are the first generations to come of age with both war and less than a prosperous economy being all they know.

-These young generations are less materialist and more experiential than prior generations.  They would rather take an adventure trip with their friends than buy an expensive thing.

-They want meaning in their lives and want to feel they are both contributing and making a difference.  Sure, they want to make money, but they are not as materially focused as their parent’s generations.

-The Millennials and Digital Natives will soon be the potential majority of both your customers and your employees.

What all this means is that workplace and marketplace realities will change substantially by 2025.

Relative to the workplace, complete equality of the sexes will be expected, more vacation time might be more important that a raise, flexibility of dress code, work hours and what purpose or social good your company stands for will be of importance.

In the marketplace, the sharing economy, the more collective social aspect of these young generations, the complete comfort and reliance on technology, the desire to have access to things rather than owning them will alter the economy.

Look at your children or grandchildren, recognize how different they are than you.  Then prepare for a changing economy and ways of doing business that reflect those differences.

Current Millennial Leaders

 I have had conversations with numerous Millennial CEOs – yes, there are already a lot of them- and they voice common thoughts:

-They feel they need to alter or buck the management theories and practices of the Boomers and GenXers. They question current processes and practices.

-They express impatience with the slow pace of business and are always trying to find ways to get their companies to move faster and to be able to change course quickly if needed.  Flexibility and speed are two words I have heard Millennial CEOs say a lot.

-They consider themselves to be a bridge generation between the prior generations and the Digital Natives born since the late 1990s. They see how different this 21st century generation is from them.  I have heard several 30 and under CEOs tell me that they feel their responsibility is to be the bridge from past/current ways of doing business to the future ways business will be done by the Digital Natives.

-They are deeply into technology.  They view it not as tools, but the core of any business.

-They are not at all afraid to fail.  This makes them almost supremely confident.

-They want to make an impact.  Yes, they want to make money, but making a difference, changing the way people think, altering how people work and aligning work with values or the common good are topics they often express

Timeline

This unprecedented generational shift is already underway.  By 2025 it will be clearly seen and felt in the United States in most business sectors.  The new generational attitudes, sensibilities and outlook on life will affect American  culture and society before they transform the business sector.

We will be living in the new world of Millennials and Digital Natives in a few years.  Be open to it as they are leading us into the developing reality of the 21st century.

Oh, one last fact: only 20% of Millennials have ever had a Big Mac. Change is coming!

10 TRENDS FROM THE TRENCHES 2019: CHANGE ISN’T COMING, IT’S HERE. ARE YOU READY?

BY ANDREA (ANDI) SIMON, PH.D. CORPORATE ANTHROPOLOGIST | CEO SIMON ASSOCIATES MANAGEMENT CONSULTANTS

 

After a busy 2018 of Vistage workshops, keynotes and client engagements across the country and around the world, I thought this was a good time to reflect on the Trends from the Trenches I’ve been hearing and seeing from CEOs and their key executives—and from their clients, college students and customers. What are they seeing? What are the major trends they are confronting as they wrap up 2018 and begin to plan for the new year? Well, some are rather disturbing. Others are very encouraging. Here are ten that are worth sharing. But please, don’t get change fatigue. The pace and path of change are not slowing down. I invite you to enjoy the journey and learn how to “see, feel and think” in new ways. Here we go…

Pay Attention to these Top 10 Trends

Our fundamental attribution error

When someone else screws up, it’s because of who they are, their race, their upbringing… a glimpse into their true character.

When we do something, it’s because the situation we’re in caused it to happen.

The fundamental attribution error is based on a glitch in the way we understand causation and statistics, and it’s fueled by our unique view of ourselves. Because I’m the only person who can hear the story in my head.

It’s obvious that gender and other easily visible traits are not completely correlated with behavior. And yet we act as if they are, writing off countless individuals instead of embracing the contribution they can offer.

George Washington vs. Workplace Drama

10 Ways to Dial It Down from America’s Founding CEO

When George Washington was a teenager, he both copied out by hand and tweaked 110 “rules of civility and decent behavior.” These rules had been compiled by Jesuits in late 16th century France and made the voyage across the Atlantic Ocean.

Manners were up in the air in this new world when Washington put quill to paper. You see, manners were designed for men of high standing, determined by birth. “Court”-liness literally referred to a king or nobleman’s court and how one should act in that context.

What was expected of most commoners was not really manners but deference. You can see this in some of the rules that Washington copied out.

For instance, rule 26 began, “In pulling off your hat to persons of distinction, as noblemen, justices, churchmen, and company, make a reverence bowing more or less according to the custom of the better bred…”

Manners for everyone

But you can also see a break from hard caste in the very next sentence with “but among your equals…” Washington would oversee the rise of a new nation in which most men were equals (with the unforgettable exception of slaves).

These new people believed that the democratization of power called for not less but more widespread observance of manners. Washington sought to model these manners in his life, on the battlefield, as a farmer-businessman, and as president.

10 rules plus one more

Many of Washington’s rules are still relevant today. For this issue on how to motivate your team in the workplace, I offer a curated list of 10 rules on how to behave that will help today’s leaders to command respect, capped off with a bonus rule that we all would do well to head.

  1. Every action done in company ought to be with some sign of respect to those that are present.
  2. Show not yourself glad at the misfortune of another though he were your enemy.
  3. Let your discourse with men of business be short and comprehensive.
  4. When a man does all he can, though it succeed not well, blame not him that did it.
  5. Be not hasty to believe flying reports to the disparagement of any.
  6. Speak not injurious words neither in jest nor earnest; scoff at none although they give occasion.
  7. Be not forward but friendly and courteous, the first to salute, hear, and answer; and be not pensive when it’s a time to converse.
  8. Detract not from others, neither be excessive in commanding.
  9. When your superiors talk to anybody neither speak nor laugh.
  10. Speak not evil of the absent, for it is unjust.

Bonus: Labor to keep alive in your breast that little spark of celestial fire called conscience.

THE TRANSITION FROM AN OWNERSHIP TO A RENTAL/ACCESS ECONOMY

The developed countries of the world are in transition from economies based upon ownership to ones increasingly based upon rental or access.  As much as any other trend, this will transform economics, consumption and how we live.  The concept of ownership is deeply embedded in economic thought, policy and practice and has been for centuries.

This trend first became clear to me some nine years ago in the area of real estate. It was clear that housing starts had dramatically moved from single family homes to multi-unit rentals. The all-time high mark of home ownership in the U.S. was 69.2% in 2004 and was at 68% when the mortgage crisis hit in 2008.  The current level of home ownership is 64.3%.  It will never again reach the 2004 level.

In the European Union, where the history of ownership is much older, the high level of home ownership was 73.2 in 2008 and is now at 69.2.  Again, I think that the old high-water mark will not be met again.

Since the Great Recession, there has been an explosion in rental, subscription or access models across the developed countries of the world.  Think first about content.  We have moved from purchasing CDs to MP3 files to streaming services such as Spotify.  We have moved from purchasing DVDs to monthly streaming subscriptions.  Streaming TV services are growing dramatically.  It is expected that by 2020 Netflix will have 140 million individual users, Amazon Prime 96.5 million and Hulu 35.8 million.  All of these are paid. YouTube still leads overall with 198.7 million users projected by 2020.

The area of personal transportation is where there is a true move from ownership to rental.  The average American uses their car 4% of the time.  The remaining 96% of the time the owned car is just sitting, depreciating.  There are numerous car- sharing services such as Zipcar that allows members to use cars by the minute, hour or day, picking up and dropping off at ever more designated locations.  There are emerging platforms that are combining used car dealerships so that used cars can be rented on a monthly basis for $200.  A year’s rental of $2,400 is, in most cases, less than the annual depreciation of a new car.

Ever more cities have rental bikes, electric bikes and scooters that allow to pick up at one location and drop off at another.  This will move to small cars in many cities.

There are higher end concierge services where one can pay $800-1,000 per month and switch out cars as often as one wants.  One can leave a Mercedes at a valet car park, have dinner and come out to get the keys to a pick-up truck.  Even top tier car companies such as Mercedes, Cadillac and BMW that sell new cars, are experimenting with subscription models for new cars, with much less contractual restrictions as leasing.

Relative to the sharing economy, people can now rent out their own cars, creating a revenue stream for the 96% of the time they are not driving.  An Airbnb for cars.

The next step in driving down individual ownership of autos is the coming age of the autonomous – driverless- vehicles.  These will dramatically drive down both the number of cars on the road and the percentage of cars on the road that are owned by individuals.  I live is a development that has some 60 houses. This translates to approximately 150 people and the same number of vehicles.  In the coming age of autonomous vehicles this sized community could be served by perhaps 20-30 driverless cars, going 24 hours a day when not getting recharged at charging stations.  Think of always available driverless Uber cars.  In fact Uber and other ride share companies are actively developing the fleet concept of such vehicles.

In the developed world, research consistently shows that the Millennials, born 1981-1997, and Digital Natives, born since 1998 are much less materialistic and much more experiential than their parents’ generations.  They are the first generations to grow up with a developed sharing economy, where ownership seems odd and sharing and access makes a lot more sense. To these ascendant generations, ownership feels burdensome.  The ability to move freely without ownership of “stuff” seems much more prevalent than prior generations.  “Keeping up with the Jones” ownership model of post-WWII America is moving more toward bucket lists of experiences.

An entirely other dynamic that is driving this move to access is the growing understanding that the consumption economy is one of the causes of climate change.  Every time something is manufactured, some natural resource is used.  So, the sharing of things, the using of things to create revenue, the buying of used items rather than new all point to more of a circular economy than a pure growth economy.

Now, take a big step back and view this new access/rental/sharing economic model versus the older ownership model.  What one sees is a major disruption of one of the foundational structures of global economies – producing for mass ownership.  More people accessing fewer things produced.  More people desiring access than constant ownership. This is a huge structural change that will disrupt, distort economies and ultimately could drive GDP numbers globally to contract.

How to Crush Your Habits in the New Year With the Help of Science

It’s the shiniest time of year: that hopeful period when we imagine how remarkable — how fit and kind, how fiscally responsible — our future selves could be. And while you may think “new year, new you” is nothing more than a cringey, magazine-cover trope, research supports its legitimacy.

“It’s not like there’s something magical about Dec. 31,” explained Charles Duhigg, the author of “The Power of Habit.” “What is magical is our mind’s capacity to create new narratives for ourselves, and to look for events as an opportunity to change the narrative.”

One such opportunity? January. Since most of us consider it a fresh start, Mr. Duhigg said New Year’s resolutions can be “very, very powerful” — as long as they’re backed by science, patience and planning.

At the core of every resolution are habits: good ones, bad ones, stop-biting-your-nails ones. So if you want to change yourself, that’s where you need to start. Here are seven science-based strategies for making sure your new habits endure.

Imagine it’s the next New Year’s Eve. What change are you going to be most grateful you made?

Kelly McGonigal, a health psychologist and author of “The Willpower Instinct,” suggested asking yourself this question before making any resolutions. “It’s crazy to me how often people work from the opposite,” she said. “They pick some behavior they’ve heard is good for them, and then they try to force it on themselves and hope it will lead to greater health or happiness.”

Sounds familiar, right? To avoid that trap, Dr. McGonigal recommended reflecting on what changes would make you happiest, then picking a “theme” for your year. That way, even if a particular habit doesn’t stick, your overarching intention will.

Take the theme of reducing stress, for example. You might try meditating and hate it. But, since your goal wasn’t “meditate 10 minutes a day,” you don’t have to abandon the resolution completely. Maybe you try yoga next.

Electing a unifying theme will also stimulate your brain to look for additional opportunities to advance your goal, said Dr. McGonigal, whereas narrowing yourself to a single behavior will cause your brain to “shut off once you check it off the list.”

According to Mr. Duhigg, research shows that rather than “breaking” bad habits, you should attempt to transform them into better ones. To do so, you need to determine your habit’s trigger (cue) and reward, and then find a new behavior that satisfies both.

While Mr. Duhigg said cues usually fall into one of five categories — time, location, people, emotion or ritual — rewards are more difficult to ascertain. Do you always get an afternoon snack because you’re hungry? Because you’re bored? Or is it because you’re starved for office gossip? To determine an effective replacement habit, it’s vital to understand what reward you crave.

“Any habit can be diagnosed and shifted,” Mr. Duhigg said. “You need to give yourself time to really figure out the cues and rewards that are driving that behavior — and oftentimes the only way … is through a process of experimentation.”

You may have heard the key to habit formation is starting small. But you’ve likely never considered starting as small as James Clear suggests in his new book “Atomic Habits.”

His “two-minute rule” prescribes only completing the outset of any new habit. So if you want to read a book a month, you read a page a day. If you want to play the piano, you sit at the bench and open your songbook.

Although he admitted it might sound frivolous, Mr. Clear said mastering “the art of showing up” helps put a behavior on autopilot. He shared the story of one man who drove to the gym every day, then exercised for a few minutes before going home. By performing that seemingly futile action for six weeks, Mr. Clear said the man slowly became “the type of person who works out every day.”

For a habit to abide, it must have immediate rewards. But before you go buying a smoothie after every workout, note that, according to Dr. McGonigal, the most effective rewards are intrinsic, or the ones you feel, not the ones you procure.

So maybe, instead of that frozen strawberry-kale-hemp delight, you simply notice the renewed energy you have after lifting weights. Or the pride you feel when you don’t smoke cigarettes. Naming the payoff, she said, helps your brain build positive associations with the activity.

If you can’t find an intrinsic reward, it might not be the right habit. You shouldn’t, obviously, volunteer to build trails if you dislike being outside. If your goal is to give back to your community, volunteer with animals or at a homeless shelter instead. “Choose the form of the habit that brings you joy in the moment,” Mr. Clear added. “Because if it has some immediate satisfaction, you’ll be much more likely to repeat it in the future.”

We humans are weak. Which means environment design is our “best lever” for improving habits, according to Mr. Clear.

“The people who exhibit the most self-control are not actually those who have superhuman willpower,” he explained. “They’re the people who are tempted the least.” If you want to save more money, unfollow retailers’ social media accounts. If you want to watch less mindless television, unplug your TV. Dr. McGonigal also recommended displaying physical reminders of your goals — yes, that includes motivational Post-its.

Your environment encompasses the people around you, too. Mr. Clear suggested finding a group “where your desired behavior is the normal behavior,” and then forging friendships with its members (which will really get the habit to stick).

Despite your best intentions, chances are you’ll fail at some point along your new-year-new-you journey.

“The question isn’t ‘Are you going to be able to avoid that?’” said Mr. Duhigg. “The question is ‘What are you going to do next?’” If you have a recovery plan, or if you can learn from your failure, he said you’re “much more likely to succeed” in your goal.

So write down the obstacles you foresee and how you’ll surmount them. If you’re trying to drink less wine, for example, you should probably outline a plan for after your mother-in-law’s next visit.

Also effective, said Dr. McGonigal, is sharing your goals with other people, and then telling them how best to support you. By “outsourcing your willpower,” she explained, others can “hold your intention” for you, “even when you’re exhausted or you’re feeling really stressed out.”

Cake might only be for special occasions, but celebrations are for every day. Science says so.

“Celebration is one of the emotions that propel people further on the path of positive habits,” said Dr. McGonigal. Celebrating tells your brain a behavior is beneficial, and that it should look for more opportunities to engage in it.

The celebrations don’t have to be grand. If you finally study for your licensing exam, tell your co-worker. If you survive a tough workout, take a sweaty selfie. Dr. McGonigal said celebrations can actually change your memory of a particular experience, making it more positive than it was. “And that makes you more likely to choose to do it again in the future,” she added. Taking it a step further, you can send yourself a thank-you letter or FutureMe email expressing gratitude for your new habit.

That gratitude and that authentic pride, along with hope, social connection and compassion, are the most effective emotions for promoting long-lasting behavior change, according to Dr. McGonigal. The least effective are shame, guilt and fear.

So even if you stumble when forming your new habit — which research says you probably will — be kind to yourself. Although big, long-term change isn’t easy, it is possible. “Habits are not a finish line to be crossed,” said Mr. Clear. “They’re a lifestyle to be lived.”

by Susan Shain

773 Million Passwords Exposed – Were You Exposed?

Today Troy Hunt announced that a collection of 773 million usernames and passwords were released. This release of passwords, dubbed Collection #1, contains usernames and passwords that have shown up on the dark web over the past two or three years. Think of Collection #1 as being a value pack of bundled old password lists.

If you want to find out if your passwords were released, visit his site called https://haveibeenpwned.com. If you elect to enter your email address, this will tell you if it is in the collection and give you more details.

What do you do if you are on the list? Reset your passwords. Use a password manager that will remember your passwords for you to make your life easier when you use a different password at each website from now on.

Now is a great time to enable two-step verification. A basic form of two-step verification is when you enter a username and password, and you receive a text message code to type in. Enable two-step verification on PayPal, LinkedIn, Dropbox, Facebook and every other web service you use. On each website, look for Settings > Security. You may need to dig down, but more reputable sites now support two-step verification, but you must enable the feature.

Some bad news is that, about a week ago, a tool called Modlishka shows how to break two-step verification so it isn’t that secure, but two-step verification is still more secure than a simple username password combination. If it allows, have a website use some other method than texting you a password. Using an app on your phone or calling you via a voice call are options that are often more secure than the text message. Microsoft, Google, and a service called Duo offer these options and more. Having a hardware key is even better unless your laptop users leave the key stored in the laptop case, and their password written on the bottom of the laptop.

Posted by Mike Foster

THE TRANSITION FROM AN OWNERSHIP TO A RENTAL/ACCESS ECONOMY

The developed countries of the world are in transition from economies based upon ownership to ones increasingly based upon rental or access.  As much as any other trend, this will transform economics, consumption and how we live.  The concept of ownership is deeply embedded in economic thought, policy and practice and has been for centuries.

This trend first became clear to me some nine years ago in the area of real estate. It was clear that housing starts had dramatically moved from single family homes to multi-unit rentals. The all-time high mark of home ownership in the U.S. was 69.2% in 2004 and was at 68% when the mortgage crisis hit in 2008.  The current level of home ownership is 64.3%.  It will never again reach the 2004 level.

In the European Union, where the history of ownership is much older, the high level of home ownership was 73.2 in 2008 and is now at 69.2.  Again, I think that the old high-water mark will not be met again.

Since the Great Recession, there has been an explosion in rental, subscription or access models across the developed countries of the world.  Think first about content.  We have moved from purchasing CDs to MP3 files to streaming services such as Spotify.  We have moved from purchasing DVDs to monthly streaming subscriptions.  Streaming TV services are growing dramatically.  It is expected that by 2020 Netflix will have 140 million individual users, Amazon Prime 96.5 million and Hulu 35.8 million.  All of these are paid. YouTube still leads overall with 198.7 million users projected by 2020.

The area of personal transportation is where there is a true move from ownership to rental.  The average American uses their car 4% of the time.  The remaining 96% of the time the owned car is just sitting, depreciating.  There are numerous car- sharing services such as Zipcar that allows members to use cars by the minute, hour or day, picking up and dropping off at ever more designated locations.  There are emerging platforms that are combining used car dealerships so that used cars can be rented on a monthly basis for $200.  A year’s rental of $2,400 is, in most cases, less than the annual depreciation of a new car.

Ever more cities have rental bikes, electric bikes and scooters that allow to pick up at one location and drop off at another.  This will move to small cars in many cities.

There are higher end concierge services where one can pay $800-1,000 per month and switch out cars as often as one wants.  One can leave a Mercedes at a valet car park, have dinner and come out to get the keys to a pick-up truck.  Even top tier car companies such as Mercedes, Cadillac and BMW that sell new cars, are experimenting with subscription models for new cars, with much less contractual restrictions as leasing.

Relative to the sharing economy, people can now rent out their own cars, creating a revenue stream for the 96% of the time they are not driving.  An Airbnb for cars.

The next step in driving down individual ownership of autos is the coming age of the autonomous – driverless- vehicles.  These will dramatically drive down both the number of cars on the road and the percentage of cars on the road that are owned by individuals.  I live is a development that has some 60 houses. This translates to approximately150 people and the same number of vehicles.  In the coming age of autonomous vehicles this sized community could be served by perhaps 20-30 driverless cars, going 24 hours a day when not getting recharged at charging stations.  Think of always available driverless Uber cars.  In fact Uber and other ride share companies are actively developing the fleet concept of such vehicles.

In the developed world, research consistently shows that the Millennials, born 1981-1997, and Digital Natives, born since 1998 are much less materialistic and much more experiential than their parents’ generations.  They are the first generations to grow up with a developed sharing economy, where ownership seems odd and sharing and access makes a lot more sense. To these ascendant generations, ownership feels burdensome.  The ability to move freely without ownership of “stuff” seems much more prevalent than prior generations.  “Keeping up with the Jones” ownership model of post-WWII America is moving more toward bucket lists of experiences.

An entirely other dynamic that is driving this move to access is the growing understanding that the consumption economy is one of the causes of climate change.  Every time something is manufactured, some natural resource is used.  So, the sharing of things, the using of things to create revenue, the buying of used items rather than new all point to more of a circular economy than a pure growth economy.

Now, take a big step back and view this new access/rental/sharing economic model versus the older ownership model.  What one sees is a major disruption of one of the foundational structures of global economies – producing for mass ownership.  More people accessing fewer things produced.  More people desiring access than constant ownership. This is a huge structural change that will disrupt, distort economies and ultimately could drive GDP numbers globally to contract.

This is a short story about what happened to the U.S. economy since the end of World War II.

That’s a lot to unpack in 5,000 words, but the short story of what happened over the last 73 years is simple: Things were very uncertain, then they were very good, then pretty bad, then really good, then really bad, and now here we are. And there is, I think, a narrative that links all those events together. Not a detailed account. But a story of how the details fit together.

Since this is an attempt to link the big events together, it leaves out all kinds of detail of what happened during this period. I’m likely to agree with anyone who points out what I’ve missed. My goal isn’t to describe every play; it’s to look at how one game influenced the next.

If you fell asleep in 1945 and woke up in 2018 you would not recognize the world around you. The amount of growth that took place during that period is virtually unprecedented. If you learned that there have been no nuclear attacks since 1945, you’d be shocked. If you saw the level of wealth in New York and San Francisco, you’d be shocked. If you compared it to the poverty of Detroit, you’d be shocked. If you saw the price of homes, college tuition, and health care, you’d be shocked. Our politics would blow your mind. And if you tried to think of a reasonable narrative of how it all happened, my guess is you’d be totally wrong. Because it isn’t intuitive, and it wasn’t foreseeable 73 years ago.

Here’s how this all happened.

1. August, 1945. World War II ends.

pasted image 0.png

Japan surrendering was “The Happiest Day in American History,” the New York Times wrote.

But there’s the saying, “History is just one damn thing after another.”

The joy of the war ending was quickly met with the question, “What happens now?”

Sixteen million Americans – 11% of the population – served in the war. About eight million were overseas at the end. Their average age was 23. Within 18 months all but 1.5 million of them would be home and out of uniform.

And then what?

What were they going to do next?

Where were they going to work?

Where were they going to live?

Those were the most important questions of the day, for two reasons. One, no one knew the answers. Two, if it couldn’t be answered quickly, the most likely scenario – in the eyes of many economists – was that the economy would slip back into the depths of the Great Depression.

Three forces had built up during the war:

  • Housing construction ground to a halt, as virtually all production capacity was shifted to building war supplies. Fewer than 12,000 homes per month were built in 1943, equivalent to less than one new home per American city. Returning soldiers faced a severe housing shortage.
  • The specific jobs created during the war – building ships, tanks, bullets, planes – were very suddenly not necessary after it, stopping with a speed and magnitude rarely seen in private business. It was unclear where soldiers could work.
  • The marriage rate spiked during and immediately after the war. Soldiers didn’t want to return to their mother’s basement. They wanted to start a family, in their own home, with a good job, right away.

This worried policymakers, especially since the Great Depression was still a recent memory, having ended just five years prior.

In 1946 the Council of Economic Advisors delivered a report to President Truman warning of “a full-scale depression some time in the next one to four years.”

They wrote in a separate 1947 memo, summarizing a meeting with Truman:

We might be in some sort of recession period where we should have to be very sure of our ground as to whether recessionary forces might be in danger of getting out of hand … There is a substantial prospect which should not be overlooked that a further decline may increase the danger of a downward spiral into depression conditions.

This fear was exacerbated by the fact that exports couldn’t be immediately relied upon for growth, as two of the largest economies – Europe and Japan – sat in ruins dealing with humanitarian crises. And America itself was buried in more debt than ever before, limiting direct government stimulus.

2. So we did something about it: Low interest rates and the intentional birth of the American consumer.

american-dream-post-war-abundance-swscan00536-copy.jpg

The first thing we did to keep the economy afloat after the war was keep interest rates low. This wasn’t an easy decision, because a burst of inflation when soldiers came home to a shortage of everything from clothes to cars temporarily sent inflation into double digits:

Screen Shot 2018-11-13 at 1.03.37 PM.png

The Federal Reserve was not politically independent before 1951. The president and the Fed could coordinate policy. In 1942 the Fed announced it would keep short-term rates at 0.38% to help finance the war. Rates didn’t budge a single basis point for the next seven years. Three-month Treasury yields stayed below 2% until the mid-1950s.

The explicit reason for keeping rates down was to keep the cost of financing the equivalent of the $6 trillion we spent on the war low.

But low rates also did something else for all the returning GIs. It made borrowing to buy homes, cars, gadgets, and toys really cheap.

Which, from a paranoid policymakers’ perspective, was great. Consumption became an explicit economic strategy in the years after World War II.

An era of encouraging thrift and saving to fund the war quickly turned into an era of actively promoting spending. Princeton historian Sheldon Garon writes:

After 1945, America again diverged from patterns of savings promotion in Europe and East Asia … Politicians, businessmen and labor leaders all encouraged Americans to spend to foster economic growth.

Two things fueled this push.

One was the GI Bill, which offered unprecedented mortgage opportunities. Sixteen million veterans could buy a home often with no money down, no interest in the first year, and fixed rates so low that monthly mortgage payments could be lower than a rental.

The second was an explosion of consumer credit, enabled by the loosening of Depression-era regulations. The first credit card was introduced in 1950. Store credit, installment credit, personal loans, payday loans – everything took off. And interest on all debt, including credit cards, was tax deductible at the time.

It tasted delicious. So we ate a lot of it. A simple story in a simple table:

Screen Shot 2018-11-13 at 3.07.46 PM.png

Household debt in the 1950s grew 1.5 times faster than it did during the 2000s debt splurge.

3. Pent-up demand for stuff fed by a credit boom and a hidden 1930s productivity boom led to an economic boom.

The 1930s were the hardest economic decade in American history. But there was a silver lining that took two decades to notice: By necessity, the Great Depression had supercharged resourcefulness, productivity, and innovation.

We didn’t pay that much attention to the productivity boom in the ‘30s, because everyone was focused on how bad the economy was. We didn’t pay attention to it in the ‘40s, because everyone was focused on the war.

Then the 1950s came around and we suddenly realized, “Wow, we have some amazing new inventions. And we’re really good at making them.”

Appliances, cars, phones, air conditioning, electricity.

It was nearly impossible to buy many household goods during the war, because factories were converted to make guns and ships. That created pent-up demand from GIs for stuff after the war ended. Married, eager to get on with life, and emboldened with new cheap consumer credit, they went on a buying spree like the country had never seen.

Frederick Lewis Allan writes in his book The Big Change:

During these postwar years the farmer bought a new tractor, a corn picker, an electric milking machine; in fact he and his neighbors, between them, assembled a formidable array of farm machinery for their joint use. The farmer’s wife got the shining white electric refrigerator she had always longed for and never during the Great Depression had been able to afford, and an up-to-date washing machine, and a deep-freeze unit. The suburban family installed a dishwashing machine and invested in a power lawnmower. The city family became customers of a laundromat and acquired a television set for the living room. The husband’s office was air-conditioned. And so on endlessly.

It’s hard to overstate how big this surge was.

Commercial car and truck manufacturing virtually ceased from 1942 to 1945. Then 21.4 million cars were sold from 1945 to 1949. Another 37 million were sold by 1955.

1.9 million homes were built from 1940 to 1945. Then 7 million were built from 1945 to 1950. Another 8 million were built by 1955.

Pent-up demand for stuff, and our newfound ability to make stuff, created the jobs that put returning GIs back to work. And they were good jobs, too. Mix that with consumer credit, and America’s capacity for spending exploded.

The Federal Reserve wrote to President Truman in 1951: “By 1950, total consumer expenditures, together with residential construction, amounted to about 203 billion dollars, or in the neighborhood of 40 percent above the 1944 level.”

The answer to the question, “What are all these GIs going to do after the war?” was now obvious. They were going to buy stuff, with money earned from their jobs making new stuff, helped by cheap borrowed money to buy even more stuff.

4. Gains are shared more equally than ever before.

life.png

The defining characteristic of economics in the 1950s is that the country got rich by making the poor less poor.

Average wages doubled from 1940 to 1948, then doubled again by 1963.

And those gains focused on those who had been left behind for decades before. The gap between rich and poor narrowed by an extraordinary amount.

Lewis Allan wrote in 1955:

The enormous lead of the well-to-do in the economic race has been considerably reduced.

It is the industrial workers who as a group have done best – people such as a steelworker’s family who used to live on $2,500 and now are getting $4,500, or the highly skilled machine-tool operator’s family who used to have $3,000 and now can spend an annual $5,500 or more.

As for the top one percent, the really well-to-do and the rich, whom we might classify very roughly indeed as the $16,000-and-over group, their share of the total national income, after taxes, had come down by 1945 from 13 percent to 7 percent.

This was not a short-term trend. Real income for the bottom 20% of wage-earners grew by a nearly identical amount as the top 5% from 1950 to 1980.

The equality went beyond wages.

Women held jobs outside the home in record numbers. Their labor force participation rate went from 31% after the war to 37% by 1955, and to 40% by 1965.

Minorities gained, too. After the 1945 inauguration Eleanor Roosevelt wrote about an African American reporter who told her:

Do you realize what twelve years have done? If at the 1933 reception a number of colored people had gone down the line and mixed with everyone else in the way they did today, every paper in the country would have reported it. We do not even think it is news and none of us will mention it.

Women and minority rights were still a fraction of what they are today. But the progress toward equality in the late ‘40s and ‘50s was extraordinary.

The leveling out of classes meant a leveling out of lifestyles. Normal people drove Chevys. Rich people drove Cadillacs. TV and radio equalized the entertainment and culture people enjoyed regardless of class. Mail-order catalogs equalized the clothes people wore and the goods they bought regardless of where they lived. Harper’s Magazine noted in 1957:

The rich man smokes the same sort of cigarettes as the poor man, shaves with the same sort of razor, uses the same sort of telephone, vacuum cleaner, radio, and TV set, has the same sort of lighting and heating equipment in his house, and so on indefinitely. The differences between his automobile and the poor man’s are minor. Essentially they have similar engines, similar fittings. In the early years of the century there was a hierarchy of automobiles.

Paul Graham wrote in 2016 about what something as simple as there only being three TV stations did to equalize culture:

It’s difficult to imagine now, but every night tens of millions of families would sit down together in front of their TV set watching the same show, at the same time, as their next door neighbors. What happens now with the Super Bowl used to happen every night. We were literally in sync.

This was important. People measure their well being against their peers. And for most of the 1945-1980 period, people had a lot of what looked like peers to compare themselves to. Many people – most people – lived lives that were either equal or at least fathomable to those around them. The idea that people’s lives equalized as much as their incomes is an important point of this story we’ll come back to.

5. Debt rose tremendously. But so did incomes, so the impact wasn’t a big deal.

Household debt increased 5-fold from 1947 to 1957 due to the combination of the new consumption culture, new debt products, and interest rates subsidized by government programs and held low by the Federal Reserve.

But income growth was so strong during this period that the impact on households wasn’t severe. And household debt was so low to begin with after the war. The Great Depression wiped out a lot of it, and household spending was so curtailed during the war that debt accumulation was restricted – that the growth in household debt-to-income was manageable.

Household debt to income today is just over 100%. Even after rising in the 1950s, 1960s, and 1970s, it stayed below 60%:

Screen Shot 2018-11-13 at 1.02.42 PM.png

Driving a lot of this debt boom was a surge in home ownership.

The homeownership rate in 1900 was 46.5%. It stayed right about there for the next four decades. Then it took off, hitting 53% by 1945 and 62% by 1970. A substantial portion of the population was now in debt that, in previous generations, would not – could not – use it. And they were mostly OK with it.

David Halberstam writes in his book The Fifties:

They were confident in themselves and their futures in a way that [those] growing up in harder times found striking. They did not fear debt as their parents had … They differed from their parents not just in how much they made and what they owned but in their belief that the future had already arrived. As the first homeowners in their families, they brought a new excitement and pride with them to the store as they bought furniture or appliances — in other times young couples might have exhibited such feelings as they bought clothes for their first baby. It was as if the very accomplishment of owning a home reflected such an immense breakthrough that nothing was too good to buy for it.

Now’s a good time to connect a few things, as they’ll become increasingly important:

  • America is booming.
  • It’s booming together like never before.
  • It’s booming with debt that isn’t a big deal at the time because it’s still low relative to income and there’s a cultural acceptance that debt isn’t a scary thing.

6. Things start cracking.

1973 was the first year where it became clear the economy was walking down a new path.

The recession that began that year brought unemployment to the highest it had been since the 1930s

Inflation surged. But unlike the post-war spikes, it stayed high.

Short-term interest rates hit 8% in 1973, up from 2.5% a decade earlier.

And you have to put all of that in the context of how much fear there was between Vietnam, riots, and the assassinations of Martin Luther King, John and Bobby Kennedy.

It got bleak.

America dominated the world economy in the two decades after the war. Many of the largest countries had their manufacturing capacity bombed into rubble. But as the 1970s emerged, that changed. Japan was booming. China’s economy was opening up. The Middle East was flexing its oil muscles.

A combination of lucky economic advantages and a culture shared by the Greatest Generation shared – hardened by the Depression and anchored in systematic cooperation from the war – shifted when Baby Boomers began coming of age. A new generation that had a different view of what’s normal and expected hit at the same time a lot of the economic tailwinds of the previous two decades ended.

Everything in finance is data within the context of expectations. One of the biggest shifts of the last century happened when the economic winds began blowing in a different, uneven direction, but people’s expectations were still rooted in a post-war culture of equality. Not necessarily equality of income, although there was that. But equality in lifestyle and consumption expectations; the idea that someone earning a 50th percentile income shouldn’t live a life dramatically different than someone in the 80th or 90th percentile. And that someone in the 99th percentile lived a better life, but still a life that someone in the 50th percentile could comprehend. That’s how America worked for most of the 1945-1980 period. It doesn’t matter whether you think that’s morally right or wrong. It just matters that it happened.

Expectations always move slower than facts. And the economic facts of the years between the early 1970s through the early 2000s were that growth continued, but became more uneven, yet people’s expectations of how their lifestyle should compare to their peers did not change.

7. The boom resumes, but it’s different than before.

green.png

Ronald Reagan’s 1984 Morning in America ad declared:

It’s morning again in America. Today more men and women will go to work than ever before in our country’s history. With interest rates at about half the record highs of 1980, nearly 2,000 families today will buy new homes, more than at any time in the past four years. This afternoon 6,500 young men and women will be married, and with inflation at less than half of what it was just four years ago, they can look forward with confidence to the future.

That wasn’t hyperbole. GDP growth was the highest it had been since the 1950s. By 1989 there were 6 million fewer unemployed Americans than there were seven years before. The S&P 500 rose almost four-fold between 1982 and 1990. Total real GDP growth in the 1990s was roughly equal to that of the 1950s – 40% vs. 42%.

President Clinton boasted in his 2000 State of the Union speech:

We begin the new century with over 20 million new jobs; the fastest economic growth in more than 30 years; the lowest unemployment rates in 30 years; the lowest poverty rates in 20 years; the lowest African-American and Hispanic unemployment rates on record; the first back-to-back surpluses in 42 years; and next month, America will achieve the longest period of economic growth in our entire history. We have built a new economy.

His last sentence was important. It was a new economy. The biggest difference between the economy of the 1945-1973 period and that of the 1982-2000 period was that the same amount of growth found its way into totally different pockets.

You’ve probably heard these numbers but they’re worth rehashing. The Atlantic writes:

Between 1993 and 2012, the top 1 percent saw their incomes grow 86.1 percent, while the bottom 99 percent saw just 6.6 percent growth.

Joseph Stiglitz in 2011:

While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone.

It was nearly the opposite of the flattening that occurred after that war.

Why this happened is one of the nastiest debates in economics, topped only by the debate over what we should do about it. Lucky for this article neither matters.

All that matters is that sharp inequality became a force over the last 35 years, and it happened during a period where, culturally, Americans held onto two ideas rooted in the post-WW2 economy: That you should live a lifestyle similar to most other Americans, and that taking on debt to finance that lifestyle is acceptable.

8. The Big Stretch

Rising incomes among a small group of Americans led to that group breaking away in lifestyle.

They bought bigger homes, nicer cars, went to expensive schools, and took fancy vacations.

And everyone else was watching – fueled by Madison Avenue in the ‘80s and ‘90s, and the internet after that.

The lifestyles of a small portion of legitimately rich Americans inflated the aspirations of the majority of Americans, whose incomes weren’t rising.

A culture of equality and Togetherness that came out of the 1950s-1970s innocently morphs into a Keeping Up With The Joneses effect.

Now you can see the problem.

Joe, an investment banker making $900,000 a year, buys a 4,000 square foot house with two Mercedes and sends three of his kids to Pepperdine. He can afford it.

Peter, a bank branch manager making $80,000 a year, sees Joe and feels a subconscious sense of entitlement to live a similar lifestyle, because Peter’s parents believed – and instilled in him – that Americans’ lifestyles weren’t that different even if they had different jobs. His parents were right during their era, because incomes fell into a tight distribution. But that was then. Peter lives in a different world. But his expectations haven’t changed much from his parents, even if the facts have.

So what does Peter do?

He takes out a huge mortgage. He has $45,000 of credit card debt. He leases two cars. His kids will graduate with heavy student loans. He can’t afford the stuff Joe can, but he’s pushed to stretch for the same lifestyle. It is a big stretch.

This would have seemed preposterous to someone in the 1930s. But we’ve spent a half-century since the end of the war fostering a cultural acceptance of household debt.

During a time when median wages were flat, the median new American home grew 50% larger:

Screen Shot 2018-11-13 at 1.01.45 PM.png

The average new American home now has more bathrooms than occupants. Nearly half have four or more bedrooms, up from 18% in 1983.

The average car loan adjusted for inflation more than doubled between 1975 and 2003, from $12,300 to $27,900.

And you know what happened to college costs and student loans.

Household debt-to-income stayed about flat from 1963 to 1973. Then it climbed, and climbed, and climbed:

Screen Shot 2018-11-13 at 1.02.08 PM.png

Even as interest rates plunged, the percentage of income going to debt service payments rose. And it skewed toward lower-income groups. The share of income going toward debt and lease payments is just over 8% for the highest income groups – those with the biggest income gains – but over 21% for those below the 50th percentile.

The difference between this climb and the debt increase that took place during the 1950s and ‘60s is that the recent jump started from a high base.

Economist Hyman Minsky described the beginning of debt crises: The moment when people take on more debt than they can service. It’s an ugly, painful moment. It’s like Wile E. Coyote looking down, realizing he’s screwed, and falling precipitously.

Which, of course, is what happened in 2008.

9. Once a paradigm is in place it is very hard to turn it around.

A lot of debt was shed after 2008. And then interest rates plunged. Household debt payments as a percentage of income are now at the lowest levels in 35 years.

But the response to 2008, necessary as it may have been, perpetuated some of the trends that got us here.

Quantitative easing both prevented economic collapse and boosted asset prices, a boon for those who owned them – mostly rich people.

The Fed backstopped corporate debt in 2008. That helped those who owned their debt – mostly rich people.

Tax cuts over the last 20 years have predominantly gone to those with higher incomes. People with higher incomes send their kids to the best colleges. Those kids can go on to earn higher incomes and invest in corporate debt that will be backstopped by the Fed, own stocks that will be supported by various government policies, and so on. Economist Bhashkar Mazumder has shown that incomes among brothers are more correlated than height or weight. If you are rich and tall, your brother is more likely to also be rich than he is tall.

None of these things are problems in and of themselves, which is why they stay in place.

But they’re symptomatic of the bigger thing that’s happened since the early 1980s: The economy works better for some people than others. Success isn’t as meritocratic as it used to be and, when success is granted, is rewarded with higher gains than in previous eras.

You don’t have to think that’s morally right or wrong.

And, again, in this story it doesn’t matter why it happened.

It just matters that it did happen, and it caused the economy to shift away from people’s expectations that were set after the war: That there’s a broad middle class without systematic inequality, where your neighbors next door and a few miles down the road live a life that’s pretty similar to yours.

Part of the reason these expectations have stuck around for 35 years after they shifted away from reality is because they felt so good for so many people when they were valid. Something that good – or at least the impression that it was that good – isn’t easy to let go of.

So people haven’t let go of it. They want it back.

10. The Tea Party, Occupy Wall Street, Brexit, and the rise of Donald Trump each represents a group shouting, “Stop the ride, I want off.”

The details of their shouting are different, but they’re all shouting – at least in part – because stuff isn’t working for them within the context of the post-war expectation that stuff should work roughly the same for roughly everyone.

You can scoff at linking the rise of Trump to income inequality alone. And you should. These things are always layers of complexity deep. But it’s a key part of what drives people to think, “I don’t live in the world I expected. That pisses me off. So screw this. And screw you! I’m going to fight for something totally different, because this – whatever it is – isn’t working.”

Take that mentality and raise it to the power of Facebook, Instagram, and cable news – where people are more keenly aware of how other people live than ever before. It’s gasoline on a flame. Benedict Evans says, “The more the Internet exposes people to new points of view, the angrier people get that different views exist.” That’s a big shift from the post-war economy where the range of economic opinions were smaller, both because the actual range of outcomes was lower and because it wasn’t as easy to see and learn what other people thought and how they lived.

I’m not pessimistic. Economics is the story of cycles. Things come, things go.

The unemployment rate is now the lowest it’s been in decades. Wages are now actually growing faster for low-income workers than the rich. College costs by and large stopped growing once grants are factored in. If everyone studied advances in healthcare, communication, transportation, and civil rights since the Glorious 1950s, my guess is most wouldn’t want to go back.

But a central theme of this story is that expectations move slower than reality on the ground. That was true when people clung to 1950s expectations as the economy changed over the next 35 years. And even if a middle-class boom began today, expectations that the odds are stacked against everyone but those at the top may stick around.

So the era of “This isnt working” may stick around.

And the era of “We need something radically new, right now, whatever it is” may stick around.

Which, in a way, is part of what starts events that led to things like World War II, where this story began.

History is just one damn thing after another.

by Morgan Housel