Friday, May 22, 2015

Will 2020 Be a Major Turning Point?

I keep thinking about Peter Turchin's cliodynamics approach to the study of history and his discovery of two cycles in history, the shorter of which occurs on a 50-year cycle. This shorter cycle is one of political violence, with the last occurring around 1970, and the one before that around 1920. We forget the political violence of 1920 (and 1870, after the Civil War), but the political violence of 1970 is fresher. However, we now have a generation for whom this is ancient history -- if they know of it at all -- meaning they are ignorant enough to repeat history.

History is due for repeating in 2020. And the conditions are here. Turchin argues that political violence arises when there is an overproduction of elites. The problem isn't necessarily that these elites cannot get jobs. Those with college or especially grad school have lower levels of unemployment than do those with only a high school education. However, what unemployment figures don't show are those who graduate from college and attend grad school because they cannot find a job, and they do not show the misallocation of human resources that occurs when a person with a degree in X cannot find a job doing X. Sometimes the thing they do is much more valuable than what they went to school for, but more often that is not the case.

What is worse is more and more jobs require college degrees -- not because anyone needs a college degree to do the job, but because having a college degree allows the employers to discriminate based on intelligence and general abilities. This means that fewer without college degrees can get jobs. Increases in the minimum wage only exacerbate the problem, cutting off the bottom rung of the ladder of success. The only way you can reach the new bottom rungs is if you spend a ton of money getting training (college). Thus, you end up standing on a pile of debt to reach the bottom rung to get employed. You end up worse off, because you have to pay that debt back, and that ends up being a reduction in your income for all practical purposes.

So you have a bunch of people who have college degrees doing things that they know should not require college degrees. This creates resentment among the college educated. And those same people have the education to fully understand what they feel, and they have some sense of who to blame (given how far left the universities lean, guess who that may be?). At the same time, there are more and more doing well -- which seems like a good thing, except that people who are very wealthy tend to get into politics with that money. Thus there is more and more competition for the same number of seats. Even though there is almost no differences in ideology, you get deeper divisions in rhetoric, increased tribalism between the major parties.

The kinds of violence we have seen in the past have been things like terrorist bombings and mass shootings (one or few against many) -- things we have in fact seen on the rise. Prior to the 1970s, there were also lynchings (many against one or a few) -- which we can be thankful are on the wane, and which we can hope remains there. We may also see more riots (many against many) and even assassination attempts (one or few against one or few). We have begun, I think, to see more riots -- mostly in response to police actions against citizens. Police actions are often a reflection of the political environment, and people's opposition to government actions are going to find their expression in conflicts with police first.

Several things are driving these dynamics.

Many places are increasing the minimum wage, which is making it harder and harder for those with low skills to get jobs. This is creating a permanently unemployed underclass with a lot of time on their hands and who are trained by the social workers they deal with to cheat the system (don't qualify? just say x, y, and z and we can qualify you!). People with a lot of free time have time to get into trouble. Add to this a war on drugs, and you have a situation where the police are going to be in constant conflicts with the poorest in society. A group who feels life isn't treating them fairly find themselves abused by the police as well, meaning by the government (who is abusing them at every turn, especially when it tries to help them).

Artificially low interest rates on student loans strongly contributes the the increase in those going to college, which in turn drives up the cost of college, which in turn drives up the need to get a loan to attend. That money doesn't go to university professors, by the way, but to administrators -- to a mandarin class. In fact, more and more university professors are part-timers not making enough to get by. So long as the students side with administrators, these injustices will continue unabated, but what will happen if and when students switch sides, realizing it is the administrators who are the enemy and the professors who are the allies? You never know when that will take place. You just need a tipping point.

We have people who are going to college to get debt, unable then to get the kind of job they expected, and finding their real income is lower than they expected, because of what they owe in college debts (which they cannot get out from under because of federal law). Further, colleges are not designed to produce entrepreneurs who become wealthy as a result, but rather homogenous workers for already-established businesses who remain in the struggling middle class all their lives.

This is all a lot of potential conflict just bubbling under the surface, ready to boil over. Turchin suggests that things can be done to counteract these things. Most of them will be psychological in nature rather than changes that will fix anything. At the same time, I have to wonder.

Student loans consist of over $1 trillion in debt. With an average of $30,000/student. That's a lot of debt. If you are in debt, you are not just a have-not. You have less than zero, in a real sense. Only if you can manage to pay everything off will it have been worth it. But will you?

Health care spending is around $3 trillion. The health care system consists of over 17% of the economy. That's ridiculous and absurd. Health care spending, like university tuition rates, has gone up much, much, much faster than the rate of inflation. Which means both are in bubbles, like housing was in a bubble leading in to the 2008 crash.

Housing bubbles result in recessions and depressions. Investor bubbles result in stock market crashes. Higher education bubbles result in revolution.I have no earthly idea what a health care bubble bursting will look like. But given the size of the economy it has taken (and given that housing is also around 17% of the economy), it can't be good. Meanwhile, we are reinflating housing.

We can further add to Turchin's 50 year cycle the 60 year cycle of Kondratieff, who showed the economy goes through boom-bust cycles (because, again, we don't seem to learn anything). Coincidentally, the depression of the K-cycle ends this time in . . . 2020.
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