First, there’s a backstory to make it crystal clear that I have taken someone else’s idea as the basis for this commentary. Surprisingly, trying to explain who was actually responsible for the original book excerpt took the better part of an afternoon and ended up being as long as this Invest-Notes post. You can read the curious story by clicking Art-Notes in the navigation bar at the top of this page.
This essay is based on a book excerpt (from 1806, maybe) arguing that the series of riots leading up to, and then causing the French Revolution of 1789 can be explained by mathematics. The parallels to events like the Dot-Com bust, the U.S. housing crisis, the financial mayhem in Greece, the Arab Spring and Occupy Wall Street shouldn’t be shrugged off as outliers after being followed by Brexit and the election of Donald Trump as president. Revolution is in the air, again, and the idea posed in 1806 (maybe) feels eerily prescient.
Essentially a case is made that the cause of the French Revolution was population growth. An estimated increase of the general population in France (of as much as 70%, maybe) during the fifty or so years before the revolution, suggests there were too many people chasing too few jobs, leading to stagnant or declining wages. Conversely, you also had more people chasing fewer goods, in this case corn and milk, leading to higher prices. In 1790 it wasn’t so easy to increase the number of cows or arable land.
But there is an all too familiar twist on this hypothesis, even in 1789 – technology. Improvements (relatively speaking) in health care and hygiene meant more people living longer and lower infant mortality rates. At the same time, the steam engine and other industrial revolution breakthroughs meant fewer manual labor jobs (for most people at the time). From this fact-set the author proposes “the index of revolutionary potential.” Here I’ll simply quote from the book:
“If there are high wages and low prices, this index is low, and one can expect no revolution; if there are low wages and high prices, this index is high and revolution can be predicted…”
While the actual population of the U.S. isn’t expanding dramatically, there seems to be a growing number of people needing a job with decent wages. Not just new members to the labor force, like Millennials, but lots of people who have been downsized, laid-off or are not prepared for retirement – financially or mentally. Again, it feels like mathematics is the bad guy in all this.
Add to that the reality of a spread between earnings of workers and bosses being wider now than in a generation. Now occupations like legal services are finding themselves threatened by low-cost overseas outsourcing. The movement of consumers from shopping malls to the internet is relentless and gaining momentum. Even the way we save money and then invest it is evolving faster than we can keep up with. The easy money to be made in emerging markets and places like China and Brazil is gone. And yet we understand intuitively that change can mean opportunity.
The point of these musings is to challenge you to take the sound advice offered a generation ago by humorist James Thurber, “Let us not look back in anger, nor forward in fear, but around in awareness.” Think about what this fundamental shift in the world economic order is going to mean for you, your occupation and your investments. It was easy for the Monday morning quarterbacks in 1990 to talk about what it meant “back in the day” when the Baby Boomers and women entered the workforce in huge numbers – remember the 1970’s recession (and burn, baby, burn)? Or the housing bust of 2008? Too many buyers with incomes incapable of affording the overpriced homes available? Sure sounds like “the index of revolutionary potential” to me.
So in 2016, we have a global aristocracy who seem out of touch (the 1%), governments not much trusted by their people (the driver of populism), and lots of workers convinced there are few opportunities to earn decent wages (the driver of protectionism). Despite the rhetoric from the recent U.S. election, the drivers that led to the creation of the “middle class” don’t exist anymore and aren’t coming back. Once again, technology – robotic assembly lines, e-commerce and clean energy – is causing dislocation for people who are today’s equivalent of manual laborers. The world isn’t flat anymore, entire industries are being marginalized and a lot of people are just pissed off without knowing what to do about it. So what are you going to do different now it’s clear that change, and maybe revolution, is in the air?
Terrific interview with Jack Bogle, who didn’t create ETFs, but was in the vicinity:
You may be the 1%:
Okay, even if you aren’t in the 1%, you can still live like it: