Blame Michael Jackson

Public mourning for Michael Jackson crowded out other news last week, including the long-awaited papal encyclical on economics. Somehow that seems appropriate. Since 1985, this pontiff has argued that markets can be no better than the moral character of their participants. What we call "youth culture" for lack of a better word ...

The public's grief was unfeigned and profound, for Jackson embodied the desire of a generation, that is, never to grow up. Oscar Wilde's Dorian Gray had a portrait that revealed his inner decay, and Michael Jackson had a nose. If one image captures the spirit of the times, it is that nose, which narrowed, shrank and finally fell in, in emulation of the failing youth of his fans.

They forgave Jackson his dysmorphia and even his alleged pedophilia, for Jackson only expressed in extreme form his generation's refusal to age. In his self-disfigurement and eventual self-destruction, this fey child-man fought madly against maturity with a reckless abandon that his fans secretly admired. They loved him, not in spite of his personality failures, but because of them.

America's cult of youth persists, despite the rapid aging of its population. During the next 10 years, the country's elderly dependent ratio will rise to 25%, after holding steady for three decades at around 19%. Still, the baby boomers flee from the awful reality. Between 1997 and 2007, the number of cosmetic procedures per year rose tenfold, from 2 million to 10 million, according to the industry association. Its polling data states that 29% of Americans without children, and 24% of Americans with children, would consider plastic surgery.

In Beverly Hills, observes an economist of my acquaintance, there are five plastic surgeons who specialize in bodily rejuvenation, and women of a certain age reveal which one they patronize by the telltale shape of their derriere. Middle-aged women now come in identifiable models, as in the old Twilight Zone episode, "Number 12 looks just like you." Michael Jackson is just like the rest of us, only more so.

Some part of the American population, to be sure, still accepts the human life cycle; you are born, marry, have children, age, and die. Religion reconciles us to this inevitability. So much of American religion belongs in the self-help section, though, that it contributes to rather than cures the malady. Death seems a distant if disagreeable relation whose eventual visit can be postponed almost indefinitely, through exercise, anti-oxidants and cosmetic surgery.

That brings us back to the pope's new encyclical, which responds to the world's cry of economic misery. A good deal of it echoes then-Cardinal Joseph Ratzinger's brilliant discussion of markets and morality in 1985, which I praised in Benedict XVI is magnificently right for Asia Times Online on December 9, 2008. But the most-publicized practical suggestions sound like the sort thing that Third World bureaucrats have wanted for decades, for example:

In the face of the unrelenting growth of global interdependence, there is a strongly felt need, even in the midst of a global recession, for a reform of the United Nations Organization, and likewise of economic institutions and international finance, so that the concept of the family of nations can acquire real teeth. One also senses the urgent need to find innovative ways of implementing the principle of the responsibility to protect and of giving poorer nations an effective voice in shared decision-making.

Giving "real teeth" to such a United Nations agency is a cure worse than the disease, for the poor nations generally are poor because they were badly governed to begin with. A duopoly of the two most successful large economies, the United States and China, might rescue the world economy - as Francesco Sisci and I argued last November 15 in US's road to recovery runs through Beijing - but not a committee of the poor and feckless.

That is a minor quibble with a pope who for decades has fought the world's great rearguard action against so-called youth culture. Visiting Australia last year, he warned against treating his public celebration of mass as "a variant of modern youth culture, as a kind of ecclesiastical rock festival with the pope as the star". The pope views rock concerts as an anti-cult, as he wrote in his 2000 book The Spirit of the Liturgy:

It is the expression of elemental passions, and at rock festivals it assumes a cultic character, a form of worship, in fact, in opposition to Christian worship. People are, so to speak, released from themselves by the experience of being part of a crowd and by the emotional shock of rhythm, noise, and special lighting effects. However, in the ecstasy of having all their defenses torn down, the participants sink, as it were, beneath the elemental force of the universe.

Everyone has a wish for the Holy Father - this encyclical seems to reflect the wishes of a great many people with conflicting views - but I cannot help wishing that he had used the occasion of a statement on economics to say more about how so-called youth culture has ruined the world economy.

My conservative friends all wish that the pope had mentioned the role of entrepreneurs (the terms does not appear once in the encyclical) in fostering prosperity. Part of the problem is that youth culture lured the entrepreneurs into quicksand. My first essays for Asia Times Online were motivated by the alarming failure of entrepreneurship during the Internet bubble.

I wrote here in 2000,

If Internet stocks were indeed fairly valued, we would have to conclude that the population of the world would have to spend the next century buying pornography, popular music and sundry items on line. Underlying the (then) generous valuations of technology stock was a futuristic vision of a world of mental insects drawn helplessly to the cyberspheric beacon, and plunging into the flames of a globalized youth culture. (See also Internet stocks and the failure of youth culture, Asia Times Online, August 31, 2001).

Something astonishing had happened, compared to which the tulip bulb craze and the South Sea bubble seem like models of sobriety. The eternal adolescence that Michael Jackson so ably represented in fantasy turned into the foundation for the great investing wave of the 1990s. The best minds America could train worked hundred-hour-weeks in pizza-box-strewn lofts to launch the next site for web-based greeting cards or virtual-reality sex. Stock analysts valued new issues in proportion to their "burn rate", assuming that the more money they lost, the more they were worth. The sort of things the world really needed - hardier seeds, safer nuclear energy, more efficient electrical batteries - never turned up on the radar screen.

Equity markets collapsed and never came back. In nominal dollars, the technology-centered NASDAQ index stands at one-third of its February 2000 peak. Real returns to investment in youth culture followed the same trajectory as Michael Jackson's nose. Undaunted, Americans stopped speculating in technology stocks and speculated instead in houses. The Peter Pan syndrome continued to afflict the American economy. Rather than save, as aging people should, they borrowed more to acquire bigger houses. The housing bubble prolonged America's collective adolescence for a few more years, for it allowed Americans to spend money on toys rather than saving for the retirement that came rushing at the baby boomers like an oncoming express train.

Youth culture disoriented the entrepreneurs of America so thoroughly that conventional wisdom - including that of the Vatican and the Barack Obama administration - now ignores the entrepreneur as a source of economic growth.

Entrepreneurs will always be there. The supply-side economist Jude Wanniski like to say that an entrepreneur was a fellow wearing a propeller beanie and carrying a perpetual motion machine who was certain he would be the first trillionaire. Entrepreneurs are easy to find - stand still with a checkbook and they will swarm over you. But the American economy is missing something far more fundamental, that it cannot easily place, and it is a large part of what should be its younger generation. America's perpetual adolescents failed to form families and raise children as their parents had, because they were too busy being children.

My study "Demographics and Depression" appears in the May 2009 issue of First Things. I observed that America's population had risen from 200 million to 300 million since 1970, while the total number of two-parent families with children is the same today as it was in 1968, at 25 million. In 1973, the United States had 36 million large housing units, about in line with the number of two-parent families with children. By 2005, the number of large units stood at 72 million, while America had the same number of two-parent families with children. For all its growth, the number of traditional families with two parents and children has not changed since 1963. The American population is aging, and this has dramatic economic consequences.

America's demographics look frighteningly similar to Japan's at the beginning of its "lost decade" of 1990-2000. Japan's population had just began to age dramatically. In 1990, the elderly dependency ratio stood at 17%, but it had risen to 25% by 2000. As the Japanese aged, their appetite for savings grew, and as their stock portfolios and home values crashed, they saved more and more. The more they saved, the worse the economy did. Interest rates of 0.25% or less and spectacular government deficits couldn't make a dent in the vast shift towards a propensity to save. The result was deflation: falling asset values and a strong yen.

Fast forward to America in 2010, with an elderly dependency ratio of 19%, right around where Japan was in 1990. By 2020, it will rise to 25%, almost as fast as Japan's. Americans also have seen their stock prices and home values crater, and have suddenly shown an insatiable appetite for savings.

Savings are deflationary: we don't spend on current good but on future goods (securities). The government may attempt to substitute for household spending but it never quite works, no matter how many public works projects the government sponsors (again, Japan poured more cement than anyone else).

There is another deflationary dimension to aging. Old people are creditors, young people are debtors. Inflation is a transfer of wealth to debtors from creditors (debtors pay back debt in cheaper dollars). A country with a preponderance of old people will show strong political pressures against inflation. That's why the Japanese never objected to deflation. As an aging people, too many of them benefited.

Japan Dependency Ratios Medium variant 1970-2020


United States of America Dependency Ratios Medium variant 1970-2020


Michael Jackson's body lies a-moldering in the grave (in fact, it was a-moldering long before it reached the grave), but his adolescent soul goes marching on. The hangover from America's obsession with perpetual youth will last for a decade or more. Judging from the rock-star adulation accorded to Obama, Americans haven't yet learned their lesson, which is: after a certain age, no, you can't.

Spengler is channeled by David P Goldman, Associate Editor of First Things