Looking ahead, the M's and Z's are about to set policy. What will it be and what are the implications?
Move Over Boomers
In response to Social Security Will Not Be Able to Pay Promised Benefits by 2034 a reader asked "What is the most likely outcome of the most likely 'solution'? At what point will pretending break down, and what will the consequences be?"
I answered in a Three-Part Tweet.
Excellent Questions: Much depends on what the Progressives can get passed by the end of the year. I assume income and corporate taxes will rise, but by how much? What about energy taxes? Those answers may decide whether its stagflation or deflation.
Then Millennials and Zoomers replace Boomers in Congress. What then? The M's and Z's have a lot of scorn for the B's. Normally I am willing to take a political educated guess. My election calls have been pretty good, but I really just do not know.
One way or another, I am firmly convinced the stock market will not like the outcome no matter what the M's and Z's decide. These imbalances cannot last even if we cannot see the precise path. Meanwhile, I remain in awe of the Fed's ability to keep these bubbles going.
Average Age of Congress
Please consider How Old is the 117th Congress?
- The average age of the 117th Congress is 59 years old and the median is 60 years old. This is much higher than the median age of 38 years in the United States in 2019, according to the U.S. Census Bureau.
- The average age of the Senate is 63 years. The most popular years of birth are 1952 and 1954 with seven members each.
In addition to aging Senators who will retire or die in office, there's an ongoing "Purple Shift" in Southern States as noted by Nate Silver.
Biden won these two states in large part by improving upon Democrats’ performance in each state’s metro area. For instance, he won Maricopa County, which includes Phoenix and usually makes up 60 percent of Arizona’s total vote share, by 2 points. He also surged in the Atlanta metro area, improving on Clinton’s margin in the 10 counties that make up the Atlanta Regional Commission by 9 points, enabling him to win Georgia. Biden was also aided by the fact that both of these states are more racially diverse than states in the Upper Midwest.
Part of that was an anti-Trump backlash but part of it was younger voters tend to be more liberal.
In both states, Biden did better in the more diverse and well-educated major metropolitan areas, but that proved insufficient. However, he still made some gains. In Texas, for instance, Biden became the first Democratic presidential candidate to carry Tarrant County (Fort Worth) since 1964, and in North Carolina, he improved on Clinton’s margins in the two most populous counties in the state, Mecklenburg (Charlotte) and Wake (Raleigh). He even carried some suburban and exurban counties that Trump won in 2016, such as Williamson County outside of Austin, Texas, and New Hanover County, North Carolina (Wilmington).
Once again, some of these shifts are due to demographics and immigration, while part was due to huge anti-Trump turnout.
Millennials and Zoomers do not have the same priorities as their Boomer parents and grandparents.
In general, M's and Z's they care more about the environment, are more liberal, and are far less addicted to automobiles and warmongering than boomers.
In less than a decade, they will be in control, calling all the shots on climate, taxes, Social Security, spending, energy, and wars.
They have far less to protect in the stock market.
The Path We Take
The M's, the Z's and the Purples will decide what's next. But when?
Biden is pushing a $3.5 trillion progressive agenda. We still don't have an outline.
Sooner or Later?
That's the key question right now. Will it pass? What will be in it?
I do expect Democrats will lose control of Congress in the Midterms.
If so, Biden has a one-time-for-now shot at passing something. So what will Democratic Senators Joe Manchin of West Virginia, and Kristen Sinema be willing to go along with?
Longer term, the fate is sealed. One look at the Purple shift in Texas is all you need to know.
Stagflation or Deflation?
I can easily make a case for either, or both, or one right after the other.
Case for Stagflation
Biden passes a massive energy tax coupled with "free education" and "free" child care.
This results in higher prices across the board for everything.
In response to higher prices, the demand curve shifts in causing a recession.
Yet, escalating energy triggers through 2030 stubbornly keep prices rising.
Case for Deflation
The stock market bubble bursts reducing demand for houses, cars, purchases in general.
Prices fall as a result of falling demand.
Neither Biden, the nonpartisan Congressional Budget Office, nor economists see any recession on the horizon.
Both of the above scenarios imply a recession.
Regardless of which one, the notion the Fed or Congress can prevent recessions is laughable.
Bubbles do burst, with consequences.
Another recession within a decade is coming. And one next year in response to a Biden budget would not surprise me in the least.
For more discussion on the stagflationary case, please see ...
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