Walter Molano | The NINTENDO phenomena
Americans love acronyms, everything from SCUBA to FUBAR to YOLO. Our vernacular is full of silly initials.
A little more than a decade ago, one acronym almost brought our financial system to its knees. Known as, NINJA loans, it stood for No Income, No Job or Assets. It represented the lax lending standards that had been adopted by the banks.
Financial institutions realised that there was much more money to be made in packaging mortgages and selling them as asset-backed securities, than just earning interest on the loans.
Moreover, since the banks would quickly sell the loan to some other financial institution, they had no incentive to maximise the quality of the borrower. On the contrary, their incentive was to obtain the highest possible yields. They wanted low-quality borrowers.
Behind this scheme were the rating agencies, which concocted high credit ratings for the newly bundled securities, thus earning high fees for themselves and lucrative career opportunities for the analysts.
Unfortunately, the system eventually collapsed under its own weight and brought the United States economy to the brink of the abyss.
Now, a new acronym could describe a set of different conditions we are facing.
US labour shortage
It may be hard to believe but there is an acute labour shortage in the US, which is getting worse every day. A study by Deloitte estimates that there is a shortage of 600,000 skilled workers in manufacturing, and that the number could rise above two million by the end of the decade. In their desperation for warm bodies many companies are taking out ads, saying that no experience is needed. Many employers are even targeting people without degrees and offering to pay their college education.
This brings me to my new acronym, NINTENDO: No Intelligence, No Training, Education nor Degree or Orientation. The acronym is probably DOA - dead on arrival - but it makes the point.
The main reason for the shortage is demographics, and to a lesser extent the decline in immigration flows. It is not so much President Trump's aggressive stance against Mexico. For years, more Mexicans have been immigrating home rather than emigrating to the US. The most of the new arrivals are Central Americans, escaping the explosion of drug-related gang violence that has gripped Guatemala, El Salvador, Honduras and Nicaragua.
Nevertheless, the seeds of the demographic shift were sown more than 65 years ago, when returning soldiers from World War II settled down and started families. It was a phenomenon that reshaped the global economy. This mass of new workers entering the labour force created cultural and societal changes, such as the hippies, the yuppies and mass consumerism.
Now, they are quietly slipping away, leaving a huge hole in the labour force. It is true that this generation also left its progeny. Known as the baby boom echo, they were born between 1982 and 1995. Therefore, most of them already entered the labour force, and we are now facing a shortfall which is promising to unleash powerful economic forces.
Demographics is one of the most important natural forces that has shaped the world's economic history. One of the most notable episodes occurred after the onset of the Black Plague, halfway through the 14th century. Some chroniclers estimate that the plague consumed a third to half of Europe's population. Although hard to believe, the percentage may have been higher in Asia. Entire towns perished, and the role between individuals evaporated.
The plague knew no social barriers, and it attacked rich and poor alike. Some economic historians call the Black Plague 'the great economic leveller', because it brought an end to European serfdom. Entire estates were abandoned, and lords were more than happy to give generous benefits to any able hands willing to work their land. Wages, along with inflation, rose dramatically.
The change in relative economic position between the classes, with the poor gaining more power, led to greater social demands. In England, this culminated in the so-called Peasants Revolt of 1381. Although the rebellion was dispersed and many of the leaders executed, it put a formal end to the feudal system.
Elements of the class structure persist to this day, but the demographic forces unleashed by the Black Plague had important consequences that reshaped the trajectory of European and global economic history.
The same may happen with the demise of the baby boom generation. The burning thirst for labour may trigger unexpected changes in wages, education, training, gender roles and immigration. The importance of formal education may ebb, particularly with the proliferation of OJT and online training. The opposition to immigration may ease, and gender barriers will continue to disappear. Therefore, IMHO, the NINTENDO phenomenon may have a long list of consequences. OMG!
- Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC.