When I was teaching at Cornell as a Clinical Professor of Finance in 2013, I wasn’t expected to “publish or perish”. That was for tenure-track professors, not us denizens of the practicum. But while teaching a course in pensions, I stumbled on a compelling thread that really concerned me and caused me to do some ham-handed research (I’m not cut out to be a serious researcher…that takes too much diligence and rigor). I found numbers that suggested that the global demographics trends were driving a serious pension crisis of proportions that far exceeded the sense that we in the general public realized. There were only a few people seriously researching the issue since pensions are such esoteric beasts that combine the ever-popular investment arena and the dry and boring actuarial arena. That overlap thins the herd of followers and there seemed to be a gap in the literature about what I was seeing in the numbers. So, on a whim, I proposed writing a book on the subject. The first publisher I submitted a proposal to, the esteemed academic publisher, John Wiley & Sons, immediately took up the offer and paid me a small retainer to spend a year writing the book. We settled on the title as Global Pension Crisis: Unfunded liabilities and How We Can Fill the Gap. I wanted a zippier title like You Can’t Build Your Walls High Enough (a phrase I used in class with students who said they weren’t going to be subject to the problems of the pension debacle), but academic publishers are more serious than I am and I ended up just using that as a chapter title and went with their insistence that I include the key searchable term “unfunded liabilities” so that people would find the book in the ozone of published materials. They didn’t really want the title to include the word Global, but I prevailed, and thank goodness since there were almost more copies sold in Mandarin than in English.
I had discussed the one-child policy of China and why that would seriously impede growth in China and show up in a big pension crisis. I don’t think I’m the guy who alerted China to that concern, but there sure was a lot of agreement with the notion at the time and the results were a change in one of the most impactful public policies in the history of mankind. Those impacts reverberate still today. What’s equally interesting is that very few Europeans or Japanese bought the book and yet those two areas I had declared as most imminently facing pension problems that I said would greatly disrupt their societies. I suspect that the Japanese were all over the issue by then and just didn’t think they needed advice from any gaijin. But I think the Europeans were just too busy enjoying the good life with the Germans taking their long vacations and the French sitting at their cafes, while the rest of the EU rode on the back of those two pillars of the EU to their grand and comfortable lifestyles.
When I wrote the book, a prevailing theme was what I called The Privilege Gap, which sets the stage for an intergenerational conflict that I said could upend our societies. I went back to look at my 2013 book this morning, in light of what is happening right now in Europe. I thought some of those comments were worth sharing:
“The New York Times has just reported on the situation in France where young, educated Frenchmen are facing dismal prospects for employment, and that this may well be a structural problem for the economy that will not go away with the normal turning of the cycle. These youth are in the midst of 22% unemployment, “who cannot find a permanent job that gets them on the path to the taxpaying, property-owning French ideal that seemed the norm for decades.” The Times calls them a “floating generation” whose trials and tribulations are made worse by the overall euro crisis and the impact of which is an “inability to find good jobs (which) damages tax receipts, pension programs and the property market.” “France and other countries in Western Europe risk losing a generation, further damaging prospects for sustainable economic growth.” Some regions are facing dramatic changes to their circumstances that are coming from a concurrent and compounding impact of slowing growth and pension underfunding. Some are flailing and still pretending they can tinker their way out of the problem or perhaps find some secret growth formula to make this all go away. But unfortunately, you can’t run away from demographics and demographics are perhaps the biggest part of the problem, as I have tried to show. The EU and Japan clearly have the biggest immediate and primary problem. China, with the backfiring of its incredibly impactful one-child policy is not far behind in seeing its growth engine screech to a halt from its administered demographic shift. The Anglo countries seem fine and the Emerging Markets as a class are poised to have yet another feather in their economic cap to thrust them into the center stage, whether they are ready for the responsibility or not. But the most important thing I cannot get out of my mind as I watch the gyrations of the Greek crisis and the beginnings of a “Grexit” unfold and lead to highly correlated gyrations in other world markets, is that none of us will be able to build our walls high enough and the global pension crisis will be a primary, secondary and at least tertiary challenge for us all.
Unlike past economic crises where some group abrogates and another (generally wealthy investor group) takes the pain and moves on, or when national policies are forced to inflate away the problems at the expense of bondholders. This problem is so pervasive and runs directly in the face of Maslow’s hierarchy of needs. This is about food and shelter. This is about saving our elderly. This is about everyone’s right to a healthy life within the best scientific means available. And mostly, this is about the economic order we leave not for our grandchildren, but our very children. The next 40 years of economic life will be dominated by one underlying theme: dealing with the retirement income security of a growing, aging and longer-living global population. This is a “can’t run, can’t hide” problem that will affect the life of almost every human being on the planet. This is what I mean by this chapter’s title of “you can’t build your walls high enough”.
Generational Warfare over the “Privilege Gap” [is upon us]. We are living in what Esquire Magazine recently called The Worst Generation….”The Baby Boomers are the most self-centered, self-seeking, self-interested, self-absorbed, self-indulgent, self-aggrandizing generation in American history.” This is the preamble to a very scathing explanation about why generational warfare is both in full swing, but also very global. I believe it tends to overstate the current tension, but may well do a very accurate job of describing what we have to look forward to in the near future. “Since the beginning of the Industrial Revolution, human potential has been consistently growing, generating greater material wealth, more education, wider opportunities — a vast and glorious liberation of human potential. In all that time, everyone, even followers of the most corrupt or most evil of ideologies, believed they were working for a better tomorrow. Not now. The angel of progress has suddenly vanished from the scene.” “At the exact moment when the United States and all other Western countries are trying to deal with aging populations, they are failing to capture the energy and potential of the people who will have to work to support those aging populations.”And one of the more compounding aspects of the generational difference is that while Baby Boomers enjoyed the wealth-creating power of ever appreciating assets…mostly in real estate, but also in equities, that trend had come to an abrupt end. Most of us are acutely aware of the bursting of the housing bubble and the revised sense that “safe as houses” is an expression of a bygone era. We are very rapidly moving from an economy predicated on home ownership to a “rentership society” driven by a combination of reduced personal capital and creditworthiness combined with a reduced desire to be homeowners.”
And, of course, none of that written in 2013 reflected the advent of AI in any serious way. While some may suggest that AI is our ultimate salvation, right now the vast majority of people (Excluding Donald Trump, Mark Zuckerberg and Elon Musk, apparently) feel the exact opposite about what AI might do to our society, economy and way of life. This morning I read in the New York Times about the protests in Europe that, “The protesters’ gloom reflects a continent that is struggling to find a way forward. Europe’s populations are aging, its debt is rising as governments struggle with growing expenses for pensions and other programs, and governments are reluctant to raise taxes. Immigration is polarizing electorates.” Rarely have my own words come back at me after 13 years with such a smack in the face. There in no joy in being right about this.