A Word from London

Herbert London

 

      Herbert London is John M. Olin Professor of Humanities at N.Y.U., President of the Hudson Institute, author of Decade of Denial, published by Lexington Books, and publisher of American Outlook. He can be reached at: www.herblondon.org.

Five Trends That Will Shape the World

      The December 2003 issue of Wire magazine has an article which maintains the future cannot be known. Surely this contention is self-evident since no one can possibly identify unknowns. Yet there are aspects of the future that can be identified with a fair degree of accuracy.

      For one thing, August Comte argued “demography is destiny.” Assuming there isn’t a natural catastrophe such as a meteor hitting an urban area or a man-made nuclear attack, population growth can be estimated with some exactitude. At the moment 44 percent of the world’s population is not in replacement mode, i.e., 2.1 children per family. Some nations, such as Italy, have a birthrate of roughly half replacement level. By 2050 this trend towards a diminution in the birthrate will result in a reduction of the globe’s population, the first reduction in recorded history.

      Second, despite periodic setbacks and regional variation, per capita global wealth will increase barring an international catastrophe. In 1900 per capita world income was $500; by 2000 it was $5000 and by 2100, assuming conservative estimates, it will be $35,000. That means that in approximately 100 years the global per capita income will resemble that of the United States today.

      Third, instead of suggesting, as many analysts do, that the rich grow richer and poor, poorer, the present trends suggest that the rich will grow richer, through the power of compounding, and the poor will grow richer, except that the poor will grow richer at a faster pace than the rich. To understand this condition, consider the double digit G.D.P. growth in China and India, poor countries growing at a rapid rate and in the aggregate representing a third of the world’s population.

      Fourth, people will be on the move to an even greater degree than is the case at the moment. What historian George Pierson described as the m-factor in American life will be the m-factor on a global scale. In most developing states rural people migrate to cities; in mature economies, people disperse to rural and suburban areas. Whether the migration is into or out of cities people are likely to leave their place of birth and move at least another two times in a lifetime. In 1900 the average move was 1.3 times in a lifetime; by 2000 it was almost 3 times. This trend will assuredly continue.

      Five, people across the globe will live longer than was previously the limit in life expectancy. As significantly, morbidity will be reduced so that people will live in a healthy state for a longer period of time than is now possible. The mapping of the genome will usher in a revolution in pharmaceuticals. Instead of taking drugs of a generic nature, one will take customized pharmaceuticals based on genetic makeup. Most hospitals will be irrelevant.

      Whether these trends have a positive or negative societal effect depends on perspective. Fewer people may reduce congestion, but it may also put financial pressure on governments to fund those entering the ranks of retirement.

      Greater wealth invariably creates greater opportunities, but wealth can lead to experimentation and debauchery in the search for new thrills.

      Fast growth in poor nations is a long-term desired goal, but parity invariably leads to the exaggeration of small differences. As economic differences evaporate, other considerations—arguably cultural ones—are emphasized.

      Movement into and out of cities might alleviate the population pressure in some urban areas, but it also will eliminate pristine territories and challenge the existence of several species.

      Longevity, the dream of Ponce de Leon, will be a reality. Yet longevity could reduce the meaning of life and possibly reduce fidelity and religious devotion.

      Whether one contends these trends are desirable or not, they are virtually incontrovertibly shaping a future that cannot be denied. Yes, much about the future cannot be known. But it is also true much about the future can be discerned if your eyesight of present trends is 20/20.

Old Wine in New Bottles: The Elderly in America

      One of the world’s most remarkable developments is the rapid decline of mortality. In most places on the globe actuaries have uncovered a profound change in the death rate. People live longer and healthier than ever before.

      Every time I travel to Florida I find octogenarians who are playing tennis and golf, walk or “slog” each morning and are more active than one might have expected from “geezers.” Yet most individuals underestimate how long they will live. As a consequence, many private pension fund holders often prefer lump sum payments rather than an annuity, leaving them to eke out a living from Social Security.

      For thousands of years, human life expectancy remained broadly stable; until the start of the twentieth century it was approximately 40 years. Over the last 100 years this number has almost doubled. While it is doubtful this number will double again in the next century such an outcome is not implausible.

      What is truly extraordinary is the speed at which longevity is rising among the oldest people. The fastest growing cohort in relative terms is centurions. The percentage of the globe’s people over 60 was roughly 600 million in 2000, about three times that of fifty years earlier. In another fifty years that number should triple again.

      Longevity is now expected to improve by 1 percent a year for at least 25 years. In fact, demographers are now asking what is the “natural limit” to life expectancy. The one group that refuses to acknowledge this condition is politicians who are paralyzed by the prospect of unfunded liability for retirees living off Social Security payments for 25 to 35 years.

      Official forecasts distort decisions about when to retire and how much should be saved for retirement. On one matter there isn’t any question: there will be a staggering fiscal cost for global aging.

      In 1960 a healthy 60-year-old could expect to live to 75; today he can expect to live to 82. That seven-year increase has added about a third to the cost of the Social Security system.

      These developments will have several obvious effects. The age of eligibility for Social Security will increase. Privatization of some portion of Social Security is inevitable. The magnitude of benefits will not increase with the inflation rate. Those who work beyond the age of Social Security eligibility will receive a pension premium. And benefits are likely to be indexed.

      Yet even with these imminent alterations in the system, a disaster for Social Security may be just over the horizon. On the other hand, the reduction in morbidity suggests that projections of health care expenditures are probably overstated. A remarkable revolution in pharmaceutical products has had a salutary influence on public health and may produce further miracles in the future.

      There is already considerable evidence that disability among the elderly is declining rapidly. The proportion of those significantly disabled fell from 26.2 percent to 19.7 percent in the last 20 years. Elderly Americans resident in nursing homes fell from 6.8 to 4.2 percent in the same period.

      This trend is likely to continue even if the pace of change slows down. Genetic researchers are close to understanding the nature of aging. How this process can be reversed is not mere speculation. It is possible in some species to manipulate genes so that the aging continuum is reduced by as much as 50 percent. People may not reach Methuselah’s 969 years, but longevity will increase bringing with it remarkable benefits and real problems.

      There is little doubt that what we now call “elderly” will undergo a profound redefinition in the future. To some degree it has already happened. The sixty-year-old in 2004 is approximately a decade “younger” in energy and healthfulness than his counterpart a generation earlier.

      Yes this is a wonderful era in which to be alive. But it may be even better a generation from now. Life does indeed go on. It just keeps going on longer

Reading the Market Tea Leaves in 2004

      Some have argued that in 2004 the bears will be sleeping and the bulls stampeding. I have my doubts, but hope springs eternal.

      Since 2003 marked the end of the longest lasting equity bear market since the Depression, the equity market was bound to improve. And it has done so in grand style in the new year. In fact, the combined third and fourth quarter growth rates in 2003 are at about 13 percent ushering in 2004 dramatically.

      To the dismay of Democrats, the president’s tax cut is having a stimulative effect as capital spending has increased and consumer spending remains robust. Even more surprising is that corporate earnings have exceeded expectations due in some part to a weak dollar that has encouraged exports.

      Alan Greenspan and the Fed have remained accommodative. But it is hard to believe that a 1 percent Fed Funds rate is sustainable even with the deflationary pressure of cheap Chinese manufacturing and a worldwide labor supply at low wage rates. The disparity between a growth rate of 5 percent and the 1 percent Fund rate is not likely to continue throughout 2004, albeit the rise in interest rates will be gradual until the growth signals are synchronized in green.

      The equity market will probably outperform bonds in 2004, but those who see sugar plums dancing in the future of their portfolio should be wary. There is still a lot of leverage in the market and the potential for volatility remains unabated. Clearly a weak dollar and improved earnings as well as presidential jawboning about the “roaring economy” suggest a sound return on equities. But it is hoped that the average investor has gotten over his intoxication with the returns offered in the 1995 to 2000 period. A sound return in 2004 translates into 6 percent.

      As I see it, capital will flow to quality, i.e., companies with real earnings and profitability. For speculators, enormous profits can be realized in commodities such as gold. Here is a commodity that has experienced underinvestment for years. Given a weak dollar and the possibility of reflation, gold is a superb bet. It will surely outperform bonds, equities and cash.

      With a weak dollar, OPEC will try to control supply in order to maintain a high oil price. So far this strategy is working since oil prices have risen 20 percent in the last three months and oil companies have had resounding profits.

      Last, I’m persuaded that President Bush will be reelected, and the Republican advantage in the House and Senate will increase. Despite all of the imponderables in politics, it is unlikely any Democratic candidate can win the presidential race with the economy growing at a 4 percent rate or higher, unemployment going down and the conditions in Iraq improving. If reelected the president will attempt to make his tax cut permanent, a point emphasized in his State of the Union address. He will also urge the Congress to consider the partial privatization of Social Security.

      This Republican victory and likely presidential initiatives should translate into market boosterism. For one thing, the market is disrupted by a lack of certainty or a change of administrations and, for another, privatization of Social Security and a permanent tax cut could serve as an adrenalin rush for market slumber.

      As a consequence, I am guardedly hopeful about 2004. Yet there are incalculable risks that could alter this scenario significantly. A terrorist attack in the U.S. could paralyze the economy. A political collapse in China or a spasmotic North Korean attack against Japan could lead to global fear and retrenchment.

      The great “philosopher” of the twentieth century, Fats Waller, once said “One never knows, do one?” Alas, we never really know what the future holds in large part because the future changes each day and markets are a barometer of that change.

      Nonetheless, the trend lines are more positive than negative for the first time in four years. Hope is bubbling to the surface. I pray, however, that the hope isn’t converted into “irrational exuberance,” but we’ve been there before and presumably have learned from the experience. Hope combined with forbearance should make for a reasonably successful season for investors.

Old Money and New

      As F. Scott Fitzgerald noted in The Great Gatsby the rich are different from the rest of us. In fact not only are the rich different from the rest of us, the rich are different from one generation to the next.

      Having known rich people from the past and the present I feel confident in asserting that the rich of yesteryear, say 50 years ago, are different from the rich today.

      In the past, “old money” meant living modestly. Flashiness was considered outré, a kind of vulgar, tasteless expression of wealth. Truly rich people wouldn’t be caught dead in a red Cadillac convertible. Such manifestations of consumption were in the province of the “arriviste” or what might be called “new money.”

      While “old money” hid behind modest, dark cars and plain A-line dresses, “new money” was bedecked in jewels and décolletage. Of course, there were exceptions to this generalization, but those were rare indeed.

      At the risk of another generalization, old money attitudes have evanesced, interred along with humility. What characterizes wealth at the moment is excess. Despite all the revelations about the rich and famous who have looted their companies and taken from their shareholders, I believe that most corporate leaders are law abiding. But I also believe many wealthy people exhibit an unrestrained desire for excess decidedly different from their wealthy forebears.

      Without mentioning names, news accounts are filled with stories of wealthy people who have “his” and “her” aircraft, multiple Rolls Royces, gold-plated faucets, million dollar parties. It often seems that if the imagination can construct a purchase, there are the rich ready to acquire it.

      Gone are the days when a wealthy elite realized it was supposed to be the model of propriety. Rich folks were expected to set a standard that might be emulated and possibly striven for.

      Admittedly the mediating institutions in society that served as moderating influences have been knocked down like bowling pins. Rather than mom and dad, television land produces standards. These are the ephemeral values of “more,” what the rich and famous flaunt. Teachers no longer educate youngsters to walk humbly in the face of God. For one thing they cannot speak of God and, for another, trash talking has replaced civility.

      Religious institutions have been shaken by the relativistic revolution. Right and wrong have been replaced by “maybe” and “why not.” Abby Hoffman wrote of Do It! several decades ago; this generation has done it.

      The nouveau riche count. They count their houses and cars. They count their vacations and airplanes. They even count on the most lavish displays in public events.

      Of course, the rich are as free to spend their resources as anyone else. But there was a time when wealth came with responsibility. Wealth was presumably a reflection of manifest principles: hard work, sobriety, dedication, thrift. Now one gets rich with paper transactions.

      Most wealth isn’t generated from sweat and hard work. The very rich are intoxicated with their good fortune. This condition invariably results in self-absorption and arrogance, the belief that one possesses unique characteristics that others do not have. Is it any wonder Donald Trump is now tutoring the nation on business practices?

      Oprah will spend millions at a party in which she will announce her fiftieth birthday. Would John D. Rockefeller have engaged in such a charade?

      It is fair to say the very wealthy—in most instances—have lost their bearings. They believe that only money and the things it buys are important. They suffer character deficiencies and a congenital inability to recognize what is truly important.

      Yet it wasn’t always like that. The homes in Newport, Rhode Island reflect taste and aristocratic bearing unmatched by the mansions in Silicon Valley or the Hamptons. What Carnegie, Ford, Harriman and Rockefeller—with all their flaws—gave the nation will not be matched by “the” Donald and Warren Buffet.

      The rich are indeed different. They now spend more and act more foolishly than most others. But they are no longer a source of inspiration. They are merely a vulgar representation of new money gone bad.

The Democrats and a Strategic Vision

      As I listened to the Democratic candidates discuss their foreign policy positions, which invariably translate into an attack on President Bush’s war in Iraq, I’m struck by the lack of a strategic vision or any analysis which offers credit to the policy makers in this administration.

      It should be clear—but obviously isn’t—that there were geopolitical goals associated with the wars in Afghanistan and Iraq that too often are overlooked.

      Defeating Al Qaeda meant from the outset challenging this dispersed organization in the area from which it derives support. The U.S. did not have the means to induce behavioral change in every Middle Eastern state, but Iraq bordering Kuwait, Saudi Arabia, Jordan, Syria, Turkey and Iran was and remains the single most strategic country in the region, and, as a consequence, the place from which pressure can be exerted.

      Even if one concedes the maladroit way the war was presented to the American people, the strategic value in the occupation of Iraq should not be underestimated. Even if the U.S. government did not anticipate the intense guerilla resistance, it is foolhardy to ignore the nascent shift in regional behavior due, I should hastily note, to the presence of U.S. military forces in Iraq.

      Consider the following developments. Despite attacks against American troops in Iraq, the guerrilla movement is contracting. In fact, the major issue is the transfer of political power, not military inadequacy.

      The Saudis have been put on notice that support for Al Qaeda will be regarded as war-like actions against the U.S. It is not coincidental that the royal family has curtailed most financial and institutional support for radical Islamists around the world. The gushing spigot of assistance is being reduced to droplets.

      The Iranians are discussing—primarily in private—collaborative efforts with the U.S. in an effort to bolster its increasingly fragile regime.

      The Libyan government has renounced its weapons of mass destruction program and the Syrians have actively sought negotiations with Israel over the Golan Heights, a matter that fell into desuetude for years.

      Most significantly, the predictions of an inflamed Islamic world has not come to pass. Rather than the passive and acquiescent view of the Clinton administration, Islamic societies view a determined and vigorous Bush team intent on seeing the war through to victory.

      Without much fanfare, the United States is securing, through diplomacy and military presence, the Middle East from the Nile to the Hindu Kush.

      Has nirvana arrived? Not by a long shot. Conditions are still volatile and unpredictable with a fall of the Musharaf government in Pakistan and the royal family in Saudi Arabia the wild cards.

      Second, while Al Qaeda has been hurt, it hasn’t been dismembered. It is still capable of a lot of mischief, including a terror attack on the U.S. mainland.

      Perhaps the most notable concern is a loss of will by an administration unwilling to pay the price in blood and treasure to defend our interests. If John Kerry becomes president, the determination to fight and prevail could be undermined. This is the hope of the extremists and the fear of the centrists.

      In his State of the Union address the president argued that this is a moment when willpower is tested. He is right. All issues are subservient to this matter of determination.

      As I see it, we must secure the peace for our children by fighting a war today. Already the deployment of forces in war is bearing results. The dominoes are falling in our direction. Peace is certainly not at hand, but Americans are far more secure today than they were before 9/11. It would be refreshing if John Kerry could acknowledge that fact.

      Of course, I’m not holding my breath.    

Kerry as President

      As unlikely as it may be, consider the possibility that John Kerry is the next President of the United States. What are the likely policy shifts should this occur? How would Kerry be different from President Bush?

      Although these questions are speculative, the likely outcomes are easily predictive.

      Based on Kerry’s positions expressed in the Senate and on the campaign trail his stance is known and presumably would serve to guide his policy prescriptions.

      While Kerry did vote for the war in Iraq, he voted against the appropriations for that nation’s rehabilitation. During the campaign, Kerry continually noted that this nation cannot cut and run from Iraq, but he believes the situation should be “internationalized.” That is a euphemism for greater involvement of the UN.

      What Kerry does not note is the utter failure of the UN to play a systematic and coherent role in Iraq or anywhere else in the Middle East. Moreover, Germany and France, the nations Kerry contends we should have cultivated for the war effort, are vehemently opposed to U.S. hegemony in the region. And if recent accounts are at all accurate, the leaders of these nations have been compromised by financial arrangements with Saddam Hussein.

      Yet this position is consistent with his impulse for multilateralism in general. Kerry is persuaded the United States should be encouraging a world community of interests, one that recognizes the importance of alliances.

      What he overlooks is that most Western European states are eager to challenge America’s world dominance. They consider multilateralism the ropes that can subdue an American Gulliver. Without the military means to pursue their interests, European states rely solely on diplomacy, which, as the prelude to war in Iraq indicated, has its limitations.

      If one were to extend this multilateral orientation to other critical matters Kerry would most likely have supported the Kyoto Accord, despite the fact Russia disapproves and India and China—the world’s most populous nations—are not included in the agreement.

      It is also likely Kerry would be inclined to support the International Criminal Court even though some of the world’s most tyrannical states are members. What these concerns add up to is a Democratic leader inclined to consider international before national interests, having bought into the proposition that global stability is more easily achieved through alliances and diplomacy.

      Senator Kerry, as his background suggests, is not disinclined to support the use of the U.S. forces abroad, but like most Democrats he believes that our national interests are restricted to humanitarian interests solely, what I would call “restrictive internationalism.”

      Self-conscious Americans unable to come to grips with U.S. dominance on the world stage, chastise President Bush for “going alone,” a largely exaggerated judgment. But what these people, including Kerry, fail to consider is that the current administration is responsible for eliminating two of the most violent and tyrannical regimes on the globe. Does anyone think this would have happened if the U.S. relied on diplomacy and our so-called allies in Europe?

      Does any serious policy analyst think this would be a safer world if the U.S. acted only with the complicity and approval of our so-called European allies?

      George Washington spoke disapprovingly of entangling alliances two centuries ago. Notwithstanding Kerry’s instincts, this is still good advice today. If the U.S. has to overcome any deficiency, it is the naive belief this nation cannot act alone even when it is in our interest to do so. I doubt Kerry appreciates that matter. As president his positions, as I see it,  would be catastrophic in fighting the war on terrorism and protecting U.S. interests abroad.

      “President Kerry?” I hope not.     Ω

“Madam, we are the press. You know our power. We define all values. We dictate all the rules. Your future is entirely up to us.” —from The Madwoman of Chaillot, a play by Jean Giraudoux (1882-1944)

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      We would like to thank the following people for their generous contributions (from 1/15/2004 to 3/10/2004): Lee R. Ashmun, Gordon D. Batcheller, Dean A. Benjamin, Jan F. Branthaver, Patrick J. Buchanan, D. J. Cahill, James R. Cavanaugh, Cliff Chambers, Irma I. Clark, William D. Collingwood, AMI Communications, Samuel J. Criscio, Robert C. Davis, Michael D. Detmer, Edwin J. Feulner, Gary D. Gillespie, Lee E. Goewey, Joseph H. Grant, Paul J. Hauser, Quentin O. Heimerman, David Ihle, Arthur H. Ivey, D. Paul Jennings, Robert R. Johnson, Louise H. Jones, Mrs. Walter J. Kenworthy, Robert E. Kersey, Gloria Knoblauch, Norman D. Koch, Robert M. Kubow, Herbert London, Francis P. Markoe, W. K. McLain, Aubrey A. Melton, James S. O’Brien, Donald J. Povejsil, Garland L. & Betty Pugh, Mark Richter, Shirley W. Roe, Kathryn Hubbard Rominski, Morris R. Scholz, William Schummirick, Howard A. Shaw, Weldon O. Shepherd, L. Sideris, Norman Stewart, Clifford W. Stone, Miller Upton, Eugene & Diane Watson, Robert D. Wells, Merrill H. Werts, James J. Whelan.