The world is likely to experience as many revolutionary changes in the next 25 years as it has in the past century. "The 21st Century is a different game from the 20th Century. If you're thinking [out] 20 to 30 years, you should be thinking large-scale change."
That was the message of former Speaker of the House of Representatives Newt Gingrich when he spoke at the Financial Advisor Symposium (FAS) on October 8. Gingrich was the closing keynote speaker at FAS. Other keynoters included author and columnist Nick Murray, money manager Frank Capiello and financial planner Roy Diliberto. The FAS conference drew more than 100 speakers and 1,500 attendees.
"There are more scientists alive today than in all of human history" and they are connected by cell phone and e-mail, Gingrich told attendees. This enhances their ability to share ideas and discoveries, bringing several horizons on the scientific frontier much closer in a much shorter period of time than civilization has been accustomed to.
In this dynamic new world, deflationary forces are likely to entrench themselves within the global economy. The industrial boom in China and the ongoing technological revolution virtually "guarantees" downward pressure on most prices for the next 20 years, the former speaker predicted. The fact that productivity increases are eating into job creation helps explain what some have termed the "jobless recovery," and it's a trend that isn't likely to go away any time soon, he said.
But Gingrich was quick to point out that what we are experiencing is something akin to the productivity-driven deflation of the last 30 years of the 19th Century, rather than the monetary-driven deflation of the 1930s. He added that these are problems that the United States can deal with, and which pale in comparison to the extraordinary problems facing Europe and some of the giant government-owned enterprises in China.
"Population in many areas is declining," he noted, citing Japan, Korea, Macao, Hong Kong, parts of Europe and the city of San Francisco as places where populations would shrink between now and 2050. Over time, population decline will cause places like Japan, South Korea and Europe to become relatively less important in the global pecking order. Some European nations face the prospect of having three retirees for every worker by 2050, a phenomenon that could strain their already overextended welfare states.
The upshot, according to Gingrich, is that the "United States will become even more important among industrialized nations." But it will face a tough set of challenges. "If the United States wants to compete with China and India, we must overhaul our litigation system," he remarked.
Another challenge involves raising the level of scientific and mathematics education in America, where we are starting to lag behind China and India. Gingrich also believes that to maintain competitive factories and industrial production operations, the United States may be forced to change its accounting system for capital spending, substituting direct expensing of plant and equipment for the depreciation schedules beancounters have used for a long time.
Other competitive obstacles to America in the 21st Century include health care and regulation. "Health care is 14% of the economy, and you can't compete with China with health care costs rising at the rate they are," Gingrich said.
"Deregulation was not a Republican idea" when it first emerged as an issue in the 1970s, he continued. "Teddy Kennedy and Jimmy Carter deregulated" the trucking and airline industries, and many Democrats saw it as a way to annoy big business, he said. As a result of airline deregulation, "we've cut the price of air fares in half" and tripled the number of passengers.
The good old Ozzie and Harriet days of the 1950s, where an individual spent 40 years working for one company, are gone. The average worker in the 21st Century will have nine to 15 jobs, Gingrich predicted. This explains why young people today, having seen their parents or friends' parents get downsized, are more suspicious of big companies and are more entrepreneurial.
This contrasts America ever more sharply with Europe. "The rise of Brussels [the European Union] is much more important than [most Americans] think," Gingrich told the attendees. "They have the power, through regulation, to make our lives miserable."
Asked after he spoke whether he thought the Atlantic alliance was dead, Gingrich said it wasn't, but it needed to be "reinvented."
"We are natural allies, but there are good reasons why we have tensions and arguments," he said, adding that after what America did to salvage Europe in two world wars and the Cold War, "we should be allowed to disagree."
Gingrich recommended that attendees read a newly published book, The Right Nation, by John Mickelthwait and Adrian Wooldridge, two writers at The Economist who attempt to explain America to Europe. "The core explanation is that we really believe in freedom," he said.
Having just returned from several speaking engagements in Europe, Gingrich recalled a conversation he had with a French woman after one of his talks. "She said, 'I'm an entrepreneur. I own my business, which means I get to spend four extra weeks at my [vacation] home in Spain,'" he related. Europeans, he continued, prefer quality of life to income, they prefer pleasure today to delayed gratification, and "they think we're nuts."
America's belief in the power of the individual contrasts sharply with Europe's faith in large institutions, ranging from monarchies to the EU and the United Nations. But one individual can really wreck a nation, as Juan Peron did to Argentina, taking it from one of the world's top ten economies and putting it into an almost permanent crisis, Gingrich observed.
Fortunately, he said, the founding fathers designed our system to have so many checks and balances and render it so inefficient "that no dictator could ever make it work. It's hard enough for anyone to get it to work." But, he noted, the White House goes from Georgia peanut farmer to Hollywood movie actor and somehow the system holds itself together.
Unquestionably the gloomiest part of Gingrich's talk surfaced when he addressed the war on terrorism, which he predicted could last as long as 70 years. The United States is engaged in a real race against people who would kill millions of citizens if they could acquire the means to do so, Gingrich warned.
"People motivated by religion have a much higher willingness to sacrifice their lives," he said. "Don't underestimate them. They are totally sincere and willing to kill all of us. It's only 3% or 4% of Islam, but that's 39 million to 52 million people."
But there is also good news on the horizon. The first hydrogen-powered car could be on the road by 2020, and breakthroughs like the elimination of many kinds of cancer "are coming in the next 20 years."
After his talk, Gingrich answered several questions about the presidential election and its aftermath. A second Bush administration would witness several radical developments, such as the introduction of personal Social Security and the application of Health Savings Accounts (HSAs) to Medicare and Medicaid. "You'll also see him [Bush] come back on the space issue; he's sincere about it," Gingrich said.
A Kerry administration could be successful if he gives up "his liberalism and infuriates his base. Clinton was successful when he governed like an Eisenhower Republican."
What has Bush done right in the campaign? "He gave a tremendous acceptance speech," Gingrich said. What about Bush's mistakes? He failed to drive home just "how liberal" Senator Kerry has been and failed to explain some of his achievements, such as HSAs, which provide a direct subsidy of up to $36,000 to small businesses with 12 or fewer employees.
What did Kerry do right? "He persevered when he was down in Iowa last year, and again this year [after the Republican convention]," Gingrich commented. "He tried to avoid his Senate record somewhat successfully." Kerry's biggest mistake? Nominating John Edwards as his vice president. Edwards won't help Kerry carry a single southern state, whereas former New Mexico Governor Bill Richardson would have strengthened his position among Hispanic voters and provided undecided voters with more confidence in the team.
Finally, Gingrich dismissed the widespread consensus that a Kerry administration would find it difficult to get a tax increase through a Republican Congress. "There are enough moderate Republicans [for him] to do it," he said.