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June 30, 2016
The next killer app is already here.
It needs to be. It has to be.
The American economy desperately needs it and an entire generation of Americans — one that is altering the fabric of the country — is built for it.
Americans don’t need more unemployment benefits and more food stamps. They need jobs. They need access to capital. They need new ways of thinking.
Yet in large segments of the American economy, that’s not happening. Take Wall Street, banks and Broker Dealers (WSBB), who are all stuck in the past. These are firms that still behave like they believe they are smarter than their clients and that they can control the flow of information. That is part of the reason Millennials have exhibited an actual antipathy toward the Advisor Class: The Advisor class attempts to extract fees, sometimes egregious fees, by hiding the ball and keeping information close to the vest.
The most connected generation isn’t buying it. Even as this country is on the verge of the largest wealth transfer in history. The transfer of wealth from the Boomer generation to heirs is expected to top $30 trillion, according to an Accenture report. At the peak wealth transfer from 2031 to 2045, 10 percent of total wealth in the U.S. will change hands ever five years.
The next killer app is … well, hang on there. Let’s do some background first.
At a time when Millennials have become the largest generation, supplanting the Baby Boomers, their impact is being felt across the economy. But the big jolt is still to come.
We can see the effects of Millennials across culture, politics and the economy in a multitude of ways. Take entertainment, where we’ve seen the rise of Netflix, Apple TV and Amazon Prime, for a few examples, and the decline of cable TV. Even cable stalwarts like ESPN are hemorrhaging viewers, with ratings for the iconic sports network down 10 percent last year.
In transportation, the old-school taxi system is getting upstaged by Uber and Lyft, the scrappy ride-hailing startups who are altering a time-honored tradition of getting around for business people like you and me and many others as well.
When it comes to housing, Millennials are renting in the cities instead of buying houses in the suburbs. In the commercial sector, we’re seeing less retail space under construction, a boom in open office “WeWork” style spaces and a trend in refurbishing dilapidated spaces like warehouses.
Let’s pause here and take a macro look at the economy that the Millennials are operating in and why I think the next killer app is so essential to our future.
In an analysis by Fabrizio Perri, monetary advisor to the Federal Reserve Bank of Minneapolis, the market income among U.S. households is displaying an increasing inequality of postwar highs at the top and bottom of the distribution. The few at the top are doing quite well compared to those in the middle and especially those at the bottom, who are suffering from long-term unemployment that’s depressing income.
The government has attempted to offset the pain to the middle- and lower-income brackets by increasing distributions in the form of unemployment compensation, food stamps — now called Supplemental Nutrition Assistance Program, or SNAP — and other “transfers.” But I don’t think this is a sustainable long-term solution and I would argue it is detrimental to the economy at large…..and most people know it.
Following what’s known as the “Great Recession” of 2007-09, income has stalled or grown slightly for most Americans. On an inflation adjusted basis, average incomes have actually declined for over twenty years! Standards of living have declined as a result and there’s ongoing talk of whether we’ve actually “recovered” from the Great Recession.
Two studies by the Federal Reserve Bank of Kansas City Federal have shown that there’s been a fundamental shift in the economy following the Great Recession. Unlike other recessions, including the 1980-82 recession, the recovery has stalled. Not only is there diminished wealth and income, high unemployment and a stagnant labor market, but further hampering any recovery are tight borrowing and lending conditions that lead to weak productivity growth.
Tighter credit conditions has resulted in firms failing to invest in innovation and lowering output. That’s not good for unemployed Americans, nor is it good for people hoping to see wage increases. If companies aren’t innovating and producing more goods, we all lose.
Millennials are coming of age at a time when the economy is still limping along. The “American Dream” of their parents is clearly unavailable to them and reeks of falsehood in light of the present job market, student debt, crony capitalism and political corruption.
With all this wealth, do Millennials trust the WSBB crowd with their inherited riches? Not a chance. WSBB and the Advisor Class are dead men walking if they don’t get with the program. The new reality is that technology and Millennials simply will not be controlled and taken captive in this way.
Change your business model or die. WSBB and the Advisor Class must move from buzz words like ‘transparency’ toward honesty and integrity AND find ways to actually add real value by doing some heavy lifting from time to time.
So what’s the answer? What is going to appeal to and appease the Millennials while goosing the economy in the short-term and lending long-term stability?
Is there an app for that?
Say it with me, “Crowdfunding!”
Crowdfunding IS the next killer app. In addition, new laws combined with technology have the potential to completely decimate the status quo WSBB and Advisor Class. Frustrated entrepreneurs now have the mechanisms available to reach out directly to the skeptical investor pool without being forced to pay exorbitant fees to the toll-taking gatekeepers in the Advisor Class.
It is early yet, and the process is messy and uncertain, as are all truly new things. But rapid progress is being made. Free market entrepreneurs are eager to grow great companies, investors are in desperate need of solid portfolio returns … it sounds like a match made in heaven!
Pres. Obama himself said in 2013 that the defining challenge of our time is making sure our economy works for every American. But rather than doing it his way — with handouts — it’s high time to bootstrap the economy to crowdfunding. It’s the great equalizer, the way for forward-thinking, aggressive entrepreneurs to tap into new sources of revenue and lift the economy and provide jobs and more income to Americans the old-fashioned way: With hard work and pluck.
It’s a crazy concept, right? Innovation meets savvy with a dose of bold. That sounds like the American way to me.
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Links to research that support this article:
Fabrizio Perri analysis “Inequality, Recessions and Recoveries” — http://www.fperri.net/PAPERS/2013_Annual_Report_Essay_FRB_Minneapolis.pdf
Kansas City Fed —
Accenture report —
George Washington is known as America’s `First Entrepreneur’ and I am fully confident he would have been a huge proponent of crowdfunding and the new Reg A+ rules — also