The Saeculum Decoded
A Blog by Neil Howe
Apr 142010

With super-Boomer (and now Nobel laureate) Paul Krugman advocating slapping a 25% tariff on Chinese imports and with Obama’s new “National Export Initiative” targeting a doubling of U.S. exports in five year come hell or high water, one senses a seismic shift in the geopolitical firmament. It’s not just the prospect of protectionism and trade wars I’m talking about. Yes, this is a huge danger—and could force the global economy back to the ER in a heartbeat. But there’s something bigger here: The disintegration of the Bretton Woods consensus, built by the G.I. (born 1901-1924), that formed the basis for global trade and power for 66 years, 1945 to 2011–that is, for three turnings.

The Boomer (born 1943-1960) parents created a global system (Bretton Woods, fixed exchange rates, IMFWorld BankNATO, and regular rounds of tariff reductions were all part of it) in which America’s national purpose was global prosperity, not just our own prosperity. We set up all these global rules and then we promised not to game them. Even more, we promised not to care very much if other nations, who really were just focused on their own prosperity, tried to game them. (At one time or another, this included nearly every OECD country, esp Japan.) America was “above all that.” Throughout the postwar era, every single U.S. Commerce Secretary used to complain that while the German or Italian governments made swinging huge export deals for their own companies a national priority, we always subordinated the interests of our workers and companies to broader global political goals. Again, we were America. We were above such parochial concerns. We needed to keep the rest of the liberal democratic world healthy and prosperous in our “long twilight struggle” against Communism. Somewhat surprisingly, this Bretton Woods consensus outlived the fall of the Soviet Union by 21 years, 1990 to 2011—that is, one turning—though there have been growing strains. One might attribute this to generational inertia. Enough Silent (born 1925-1942) were still in power, the Boomers were still finding their voice, and the Generation X (born 1961-1981) were still on the sidelines.

Now that may all be changing. The Silent, who are the last generation to recall, from their childhood, *why* we created Bretton Woods, is passing from power. The Boomers will not rest until they see the last edifices of their parents’ institutions reborn in their own image. And now the Xer influence is rising. To many Xers, the idea that America is “above all that” is a joke. Every since they were kids in the OPEC-stagflation ‘70s, they’ve been hearing that America is in crisis, has reached its last days, and is sliding into no-growth irrelevance and decadence (of which their generation btw is a prime example). For Xers, the hubris and complacency of the G.I. worldview has been replaced by survivalism and revanchism. Yes, we got the message: America’s empire is over. America is just one more desperate player in a dog-eat-dog world. So why not go after our share? I hurt. I need a job. I do not want my life to sacrificed on some insane alter of global stability and progress.

The G.I.s believed in Bretton Woods because it was *their* system. They built it and trusted it. For decades thereafter, younger generations deferred to their institutional confidence. I think that may now be coming to an end. From this perspective, how America emerges from the decline of Bretton Woods will depend hugely on the rising Millennial (born 1982-200?). What new global system will they erect? Will it work? Will it be built in time?

These idle generational reflections were prompted by the following essay (from Stratfor) on the outlook for the Chinese economy. According to Zeihan, the single biggest consequence of the dismantling of Bretton Woods will be the meltdown of the Chinese economy. No more “Chimerica” (to use Niall Furgeson’s phrase). And that meltdown, in turn, will have huge global repercussions.

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  • X-America

    With all due respect, I think Mr. Howe is trying way too hard to shoehorn the breakdown of Bretton Woods into the generational paradigm.

    For starters, the GI generation did not build the Bretton Woods consensus. It had been slowly taking shape for nearly a half-century and was cemented into place by two men who preceded the GI generation — John Maynard Keynes in the UK and Harry Dexter White in the US.

    Then there’s the myth of GI selflessness in how that generation administered Bretton Woods. If America were truly sacrificing itself for the rest of the world under Bretton Woods, Nixon would have moved heaven and earth to maintain the dollar’s tie to gold – bringing the troops home from Vietnam, slashing Great Society programs. Instead, he closed the gold window, gambling that the rest of the world would not abandon the dollar as a reserve currency. He won that gamble.

    Bretton Woods lived on past the Cold War because the end of the cold war was, in a way, the fulfillment of Bretton Woods, Fukuyama’s “end of history” in which all the world would adopt the Anglo-American model of parliamentary democracy, a market economy, and the rule of law. Leaders who did not accede to this model – Milosevic, Saddam Hussein – would feel the wrath of the Boomers, who lorded it over the rest of the world.

    If it’s all breaking down now, that’s because it is spent in a way that it was not in 1971. The staggering debts, the imperial overstretch… It was manageable during an Awakening and an Unraveling. It is no longer. As aged Missionaries and core Lost developed Bretton Woods, it will be up to aged Boomers and core Xers to chart a course in which America is no longer a hyperpower.

    It won’t be easy. American exceptionalism has a history as long as the nation itself, even among the most jaded of Nomads. And it has never had to cope with a global power shift from West to East.

    • JPT

      America grew into a world power during an era of relative protectionism and isolationism. The aftermath of WWII created an environment that has outlived its purpose now that the Soviet Union is gone. I think it makes perfect sense that we at least match the trade policies of other countries. Selflessly giving away our economic power is not only a luxury we can't afford forever, it's unclear what geo-political purpose it serves. Rationalizing our trade policies (meaning not using them as abstract political tools, but for the best economic outcome), along with reducing U.S. troop deployments in places where there is no ongoing conflict, would merely represent a return to normalcy from a long period of stretching ourselves too thin. That would not represent an end to “American exceptionalism” (a goal held only by the radical anti-American left), it would be a long overdue restatement of American interests.

      That said, I agree that restricting trade NOW, in the aftermath of a severe downturn, would be Smoot-Hawley all over again. Bad idea. Which means they'll probably do it.

  • paniq

    I'm posting this here because I don't know where else to send it to: If you're looking for a good late wave Millenial example, look at Adora Svitak's talk at TED.

    • dsohigian

      @paniq – I just watched that last night and I agree it is right on the money
      with late-wave Millennials. A little over top Millie, actually!

  • Brian Rush

    Generational shifts are not the reason why a Crisis happens. Or rather, they're the reason why we have a Crisis instead of smooth changes over the course of the saeculum, not the reason why changes have to happen at all. All civic orders (like all moral regimes) are tailored to specific material circumstances. When those material circumstances change sufficiently, the civic order no longer functions, and when, due to generational dynamics, this shift goes unrecognized and unaddressed for a long time, the dysfunction can take the form of a catastrophic breakdown, which we call a Fourth Turning. The generational cycle is not what causes the change; linear changes in material circumstances do that. The generational cycle merely imparts a spin, like “English” on a billiard ball.

    There are many things which have changed making the civic order put into place at the end of World War II nonfunctional at this time: the breakdown of the bipolar world order, the end of cheap oil, the emergence of global warming and other environmental dangers, the proliferation of nuclear weapons. The deliberate dismantling of key parts of that order during and after the Reagan years is only a part of the problem. We cannot restore prosperity and stability and set things up for a new First Turning merely by returning to the world that Roosevelt built, any more than Lincoln could restore the old Union with slavery intact or Roosevelt himself could restore the laissez-faire prosperity of the 1920s. We are in a new situation and require new solutions. Certainly we must correct the deregulatory mistakes of the past, but that won't be enough by itself.

    With respect to trade, the key difference between today and 1930 is the development of new technologies of information processing which facilitate easy transfer of capital across national boundaries. In 1930, the only foreign-trade problems faced by Americans involved the sale of imported goods competing with American-made products for a consumer market that had collapsed. Those imported goods were generally produced by capital raised in the country where they were made. As such, they were generally produced in other advanced, industrialized countries by work forces paid wages comparable to the standard in the U.S. and thus representing a significant market for goods themselves. Blocking trade with those countries hurt business in both countries.

    Things are different today. The foreign goods being sold in the U.S. are “foreign” in the sense that the work forces and (sometimes, at least in part) the company ownerships are foreign, but the capital with which they are produced is American. This allows production by work forces paid next to nothing and so not constituting a significant market for goods. In simple, what is happening is that American investors are investing in poor, not-very-advanced foreign countries with oppressed work forces in order to cut their labor costs by 90% or more, in order to produce goods very cheaply and sell them in the U.S. This is something that simply was not faced in 1930. References to the “lessons of X,” X being some well-known error from the past, are dependent for their relevance on a congruence between the circumstances being addressed by X and those we face today. With respect to trade, that congruence does not exist.

    The broader lesson from the Hawley-Smoot tariff, the one that will ALWAYS hold true, is that tariffs and trade wars cause a bidirectional decline in trade. That is, the result will be a decline in exports to the target country as well as imports from it. The question that then must be asked in each instant case is: would such a bidirectional decline in trade, under the circumstances, be a bad thing or a good thing for us? Because there are circumstances — and I submit that our persistent trade deficit with China and the specifics that characterize it are one such set of circumstances — when less trade would help more than hurt.

  • Heretic

    America has been sold out! It started with Woodrow Wilson's policies and continued with both Liberals and Neo-Cons. It is time Americans thought of America first and voted each of these Globalists out of office! What they did is Treasonous if you ask me! This truth hurts but learn it and it will set you free, Boomers sold us out to the Plutocracy, the Global Corporate interests who know no loyalty except to themselves. These very same types would see each and every working person on this earth.

  • Cohort74

    I would like to second X-America’s point – Bretton Woods was created by a group of Lost Generation policy makers in 1944. It was certainly NOT created by Boomers.

    Now, it may be true that GI (or “Grubber” Generation, if you will, since they freeload off of everyone) supported Bretton Woods as policy. However, it is the GI generation who abadondoned the fixed exchange rates at the center of the policy, if not the other institutions that make up the trade apparatus.

    Finally, it is the Boomers who control practically all major institutions of policy. They represent a majority in the Congress, hold 45 of 50 Governorships and still comprise the majority of corporate boards and the like. It is they, in their Manicheanism, who are tearing down Bretton Woods. Though, one might point out, they are doing so with the help of (and partially in response to) other countries whose populations may not fit the Generational Achetypes here, particularly those of East Asia who decided in the aftermath of 1997 (when the Silents still held sway under a Boomer president) that they were never going to have the IMF holding them by the short and curlies ever again.

    It is categorical rhetoric from Boomers that is undermining what was essentially a pragmatic system designed to foster trade and prevent protectionism – a classically Reactive solution.

    Populist rhetoric of the Missionary Generation, echoed by todays Boomers, is what drives us towards a possible return of Smoot-Hawley and lead us down the primrose path and into crisis. This, I fully expect. But it is manifestly unfair to lay this at the feet of the Xers. They’re still trying to get elected to a Congress full of fogies. A Congress that continues to engage in practices like farm price supports, import quotas and tariffs on green energy, while subsidizing more expensive forms of the same product (ethanol). In this, the use of high rhetoric expressing “ideals” while enacting policies directly in opposition to those “ideals” in order to reward ourselves and our friends, we again see the hands of Boomers – who insist on “principles” but only on those principles that work for them at that moment. In short, the ruthless pursuit of self-aggrandizement.