By Harry S. Dent Jr., Editor of Survive and Prosper
It’s a lie.
The rich don’t always get richer.
Sometimes the average Joe (or Jane) gets a chance to get richer as well.
Right now, we’re forecasting a shift in wealth away from the rich and into the middle class. We know this goes against the grain of what most people believe, but there is evidence.
We know this will happen because of an 80-year economic cycle, which is the most important forecasting tool we use. By tracking this cycle, we can literally see around the corner.
Every 80 years, there are two demographic-driven booms and two demographic-driven busts. This occurs without fail. The rising and falling productivity of two generations and a longer-term innovation cycle in technologies creates four seasons.
You can see this clearly in the chart below…
Right now, we’re moving deeper into the winter season. And we have the Baby Boomers to thank for this as they retire en masse and drastically curtail their spending.
But not all of this spells doom and gloom in the years ahead.
This bust will create a boom, and that means a resurgence of the middle class.
The Bust That Creates a Boom for the Middle Class
During each winter season, the rich stop acquiring the majority of the wealth, and the middle class are able to grab a bigger piece of the American pie. The driving force behind this phenomenon is the technology that comes out of each season.
During summer seasons a demographic downturn occurs as an even larger generation enters the workforce.
This season is characterized by the lowest productivity in the economic cycle because there is an influx of young workers, who are essentially unproductive during this phase. At the same time, the season is characterized by diminishing returns from the previous, now maturing technology cycle.
However, limitations in resources and growth also spur practical innovations during the summer season, such as the microchip, the personal computer, cell phones and operating software. This is what caused the computer and information revolution to move mainstream during the fall season, much as automobiles, phones, electricity and radios did between 1914 and 1928.
The fall season sees the largest generation, such as the Baby Boomers, move up their rising spending and productivity cycle. Such rising productivity, which is the result of the powerful new technologies that have moved into the mainstream, creates the strongest boom.
However, it also sees asset bubbles in everything from real estate to stocks and commodities. Those bubbles burst when the demographic cycle peaks and the economy slows again.
It’s between summer and fall that the rich get richer. The 1% of the population that most innovates does the best and it accumulates so much wealth that the asset bubble expands further.
Then winter sets in. Deflation of asset prices and the deleveraging of debt causes deflation in prices, in spite of high government deficits that most people assume will lead to inflation. This deflationary crisis creates a “survival of the fittest” challenge for older businesses and the newer industries that emerged in the fall season.
It is a phenomenon that shakes out the losers and shifts market share to the best companies that can then exploit the new technologies and business models on a greater scale, and bring prices and affordability of new products even more mainstream in the great Spring Boom. At the same time, this “seasonal” phenomenon ultimately hobbles the wealthy but creates a massive middle class boom.
How Much Wealth are we Talking Here?
Well, the numbers from the last shift give us a good starting point. After the fall season of the last 80-year economic cycle that peaked in 1929, and the onset of the deflationary winter, the wealth of the top 0.1% in the U.S. fell from 8% to 2%. The wealth of the top 1% fell from 20% to 8% and the wealth of the top 10% fell from 46% to 32%. What a shift!
With the size of the bubbles inflated during the most recent fall season and the demographic force of the Baby Boomers, we expect this current shift to break records.
This is one of huge payoffs of the winter season.
The technologies, companies and financial institutions that can exploit this mass affluence trend will be the best investments ahead.
Best of success,
Harry S. Dent, Jr.
Editor, Boom & Bust
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