2024: The Year Ahead

Advisors absolutely do not have a crystal ball, so this post isn’t going to tell you what hot stock to buy or whether Taylor Swift and Travis Kelce will stay together. But there are a handful of themes that will play out over the course of the year, and those are important to understand.

In a previous life as a municipal investment banker, I put together bond deals and my work involved looking at long-term trends, which were more important than what happens in a fiscal quarter. Bonds were issued for up to 30 years, so long-term issues like demographics and local and regional economics mattered. For a 30-year bond, you were looking to understand what might happen to your return over the next generation, not just the next quarter.

So what are the big trends I think will influence 2024 and beyond? Here are four, and how they might impact your finances:

#1: CLIMATE

With last summer’s wildfire smoke from eastern Canada affecting the US Midwest and Northeast[1], as well as power grids failing in various parts of the country last winter, we may have turned the corner on accepting climate change. NOAA has been tracking climate for 174 years, and last year was the warmest year on record, by a lot.[2] What we decide to do about it, however, still appears to be up for debate.

One of the biggest impacts of climate change will hit you at home. You might think your home isn’t in danger of wildfire or flood, but insurance companies may think differently. Homeowner’s insurance has been responding to the greater risks created by climate change, and you may find your home becomes too costly to insure – or uninsurable. And your home itself may not be at risk now, but it may be in time – maybe around the time you’re thinking of selling or downsizing.

Don’t put off looking into the risks. You can look up your home on Redfin and scroll down to the Climate Risks section for information from First Street Foundation, a not-for-profit organization that leverages researchers and scientists worldwide to model the likelihood or flood and wildfire in an area. It’s a place to start.

Beyond your front porch, in the US efforts to blunt the climate crisis often work through our tax code. Our current tax law, the Tax Cuts and Jobs Act passed in 2017, expires at the end of next year. Whether it’s through carbon pricing, taxes or credits, the carrots and sticks needed to incent the energy transformation we need will be determined in 2025. The legislators and other policymakers in office next year will be making these decisions. You can read more about the policy choices up for debate in the Hamilton Project’s recent analysis, here.

#2: MIGRATION

While climate change may be a new(ish) development in world history, conflict isn’t, and both climate and conflict are each creating a type of migration.

We see conflict migrants in the news daily: from Mexico and South America, from Ukraine, from Gaza. Many Americans are descendants of refugees like this, my family among them, who migrated from Europe after World War 2.

Climate migration has begun as well, and interestingly, some of it is domestic relocation. “Climate-Proof Duluth”^[3] started attracting new residents during the pandemic, despite its below-freezing winter temps. Its proximity to Lake Superior – the largest freshwater lake in the world – gives it an advantage in a future in which water is a scarce resource in a country that doesn’t give plentiful clean water a second thought now.

So far the West is responding to migration pressures with fear and anger that stem from a scarcity mindset. This is the perspective of zero-sum. Of everything in terms of win-lose. If someone else has something, that means less for me. An abundance mindset comes from the idea that there is enough. You can make the pie bigger. Sharing recognition, profits, decision-making opens up possibilities, creativity, new ideas.

What if we responded in a completely different way? What if we welcomed the stranger? All those workers, all that talent, invited in to grow our economy, contribute to our tax base, to Social Security, to Medicare? None of these Big Issues are going to be resolved overnight, so we’ve got time. (Sort of.) By all means, offer whatever plans to integrate new migrants into the economy to native-born Americans as well, or even first.

The United States continues to be the largest economy on the planet with a mixed economy, vast resources and GDP of $20.54 trillion. There is no question that the flow of migrants both in the US and Europe is highly disruptive. Trying to build a giant gated community so far hasn’t worked in either here or in Europe. The UK went as far as to formalize their moat with Brexit in early 2020. Today its economy is in recession and future generations are trapped on an island with fewer opportunities. There may be a better way.

#3: LONGEVITY

I used to have debates with clients about what time horizon to use for their plans. No one thought they would live “that long.” Today, I use software that leverages actuarial tables so that it is not *me* suggesting they might reach a triple-digit birthday. In personal finance, we’re planning for 100-year lives for clients.

With almost 90,000 Americans aged 100+, we need to reconsider our set-up. Both work and retirement will need to change (and for the better).

Social Security, part of the foundation of modern American retirement, was created in the wake of the Great Depression based on stats that had the program making very limited payouts; in 1935, at that time, men’s life expectancy was just under 60 years and women’s just under 64[5]. By the middle of the last century, in the wake of World War 2, the life expectancy of an American man was 66.5 years[4]. Medicare was passed in 1965, when the average retirement lasted about two years. (In case you were wondering how they chose 65 as the retirement age.) Women lived a bit longer then, too, about 72 years. With Social Security and Medicare in place, poverty rates among elders fell dramatically, from 47% in 1967 to 15% in 2012[6]. A great result, but this system was built for another time.

Back then, you trained for one job, then you did that job, then you retired (and then promptly died). But according to the Bureau of Labor Statistics, even younger baby boomers (those born between 1957 and 1964) held an average of 12.4 jobs from ages 18 to 54[7]. The nature of work has changed, and how we organize resources for retirement or other periods of not working needs to change, too.

On the labor front, there are two forces at work: workers wanting to change jobs and the jobs themselves changing. It’s the second factor that freaks people out the most: Will their job disappear? Require training they don’t have? Will the robots still need them when they take over?

None of us are doing our work the same way we were doing it five years ago – Covid concessions to online and remote work notwithstanding. I’m not *that* old, but personal computers didn’t exist when I got out of college, and when I started my first job I was using Lotus and WordPerfect. Last year I gave a presentation to a group of colleagues when I was halfway around the world, with a co-presenter managing the slide deck seven time zones away.

We will need to embrace lifelong learning and help smooth the way for workers struggling with these changes and for businesses and industries that need to more rapidly and regularly transform. The fight between RTO and WFH[8] is just the most recent pushback from business, entrenched in a more established way of working.

The bad news may be that early retirement will be more difficult to achieve, and standard retirement ages will shift from 62 or 65 to 70 or 75. But the good news is, continual learning and engagement is going to make that longer life healthier and – if you believe the research – happier.

#4: DECISION-MAKING

Okay, this one is a bit of a catch-all.

It’s a mixture of technology, democracy, capitalism and AI. Depending on how the November elections go, some are thinking that at least one of these may no longer be a thing.

But I digress.

This collection of issues is part of the framework through which we make decisions. The world is moving faster than ever, and we’re still humans with our modest brains to process everything that’s coming at us. We often use systems for decision-making, placing choices in the hands of the few: we defer to world leaders, those in the C-Suite, those with authority in certain domains (doctors, first responders), maybe we let Google tell us what we’re really searching for. But what do we think happens to fairness, efficiency, bias and allocation of resources? Are our interests included?

“Technology” is a Big Topic because it impacts so many different facets of life: How we work, how we arrange our households, how we connect, communicate and interact, and how we make decisions. But are we using it, or is it using us? Are we being protected or surveilled? Are we the user or the product? If you search for information on Egypt, does your device – embedded with cookies galore – return information about the Arab Spring? Or does it give you travel recommendations? Are we asking good questions and getting good answers?

“Capitalism” means different things to different people. I learned the formal definition as an economics undergrad in the early 1980s. At that time it really came down to one question: who profits from what makes money? Originally, the means of making money meant people – labor – then it evolved into trade and then into industry, and along the way machines and technology became part of the money-making apparatus. On its face, today’s capitalism and its profit motive offer one way of making decisions. But if all the players aren’t considered (i.e. workers and customers) and all the factors not included in the model (i.e. companies that pollute but push the cost of clean-up onto others), you don’t arrive at an optimal decision.

“Democracy” and its relationship to Capitalism is debated. Capitalism doesn’t always lead to strong democratic states, it can lead to absolutist, fascist and totalitarian states, too. China is not a democracy and it has done a pretty good job of growing into a Superpower using capitalist principals. In our democratic system there are many who feel their one vote doesn’t matter, or that in our Electoral College circumvents the popular vote and the majority. So maybe democracy doesn’t matter.

But it does. Plenty of research indicates that long-term economic prosperity for a society needs a wide base, and the concentration of wealth in fewer and fewer hands is destabilizing. Look at Brazil, the UK, most African nations. Creating a populace of desperate people who will take any job offered might work in the short-term, but it’s not likely to last. And climate migration notwithstanding, promoting democratic norms and a wide middle class is one way to help stem the tide of migration impacting Europe and the US. It really is in everyone’s best interest to spread the wealth. And if labor – people – is still a major input to the economy, then something like universal basic health care and lifelong learning (upskilling, retraining) accrues benefits to business (reduced absenteeism, lower health care costs, higher productivity) in addition to the people themselves.

“AI – Artificial Intelligence” is the hot topic – or hyped topic – of the day. We’ve all heard about ChatGPT^[9], maybe even used it. The promise of AI is part of what is driving the stock market to new highs – whether these levels last remains to be seen. But as for the prospect of the technology, there are A LOT OF FEELINGS on all sides: AI will save us, or it will be our undoing. You’ll be left behind it you don’t use it, or you’re a fool if you do. Personally, I’m somewhere in the middle. Like money, like social media, AI is a tool. And like those other things, its application could be for good or evil. It depends on the user. Are we embedding the same biases that have existed for millennia, or are we training it to challenge us with questions that engage critical thinking?

The optimist in me thinks AI could become the ultimate sounding board, offering information and objective challenges to those who use it to consider the outcomes of their decisions; the pessimist in me thinks that it could amplify the dark, negative, constraining way dogmatic thinking works. The latter is what we seem to fear about it – at least, that’s the dystopian outcome that shows up in most sci-fi stories of our future. We worry that AI will be a reflection of the worst in us.

THE FOUR ISSUES ALL TOGETHER

We can decide to look at these Big Issues and conclude they are too big to do anything about, too grim to contemplate. Or we can look for the opportunities. We are laboring (literally) in an economic structure that was largely constructed in the middle of the last century, before personal computers (1971) and the internet (1983), before recreational jogging (1961), knee replacement surgery (1968) and jet travel (1952). The world has changed. We need to embrace the opportunities our new circumstances present, but that means change. And we know how much we love that.

If the real world and these Big Four issues get to be too much, consider escaping to the worlds created by Becky Chambers in her “cozy sci-fi” books, which deal with all of the above, with imaginative results:

A Psalm for the Wild-Built is her Hugo Award-winning novella about what happens after the robots attain consciousness (it might not be what you think).
The Long Way to a Small, Angry Planet is the first of Chambers’ Wayfarer series, and it deals with how the Big Four issues have played out – and continue to impact life – far into the future. (It includes background about how Earth dealt with a climate crisis, but note the small angry planet of the title is not our home base). The novel won the Arthur C. Clarke Award in 2016, among others.

There are upsides to long lives, a cleaner world, and an economic framework to which all of us can offer our best talents for a fair reward and which allows both work and play along the way. So don’t stop being interested, curious, and engaged when these issues invariably arise. But definitely pace yourself.

[1] North America’s summer of wildfire smoke: 2023 was only the beginning, The Conversation, 09/01/23 (accessed 01/15/24).

[2] 2023 was the world’s warmest year on record, by far, US Department of Commerce/NOAA 01/12/24 (accessed 01/15/24)

[3] Climate-proof Duluth? Why the city is attracting ‘climate migrants,’ MPRNews, 10/4/2021, accessed 01/15/24.

[4] https://nap.nationalacademies.org/read/13089/chapter/3#8

[5] https://u.demog.berkeley.edu/~andrew/1918/figure2.html

[6] https://www.cbpp.org/research/chart-book-the-war-on-poverty-at-50-section-1

[7] https://www.bls.gov/nls/questions-and-answers.htm#anch41

[8] RTO = Return to Office, WFH = Work From Home

[9] Be the cool one who knows what ChatGPT stands for: Chat Generative Pre-trained Transformer