Things are looking pretty sweet out there right now, aren’t they? The economy seems immune to all the handwringing over jobs and inflation. The stock market is on fire. The financial community, including but certainly not limited to the commercial real estate finance community, is doing cartwheels over the expectation that 2026 will be the year we’ve been talking about staying alive until for a couple of years now. Oh, we keep invading places, our politics are awful. It should be illegal for any of our politicians to use social media. There’s certainly a fair share of hyperventilation about almost everything out there. But, basically, things look really good.
That’s a perfect time for some dystopic thoughts for the new year.
Traditionally, the turning of the calendar tends to lend itself to reflection. I don’t know about you, but I often wake up around 3:00 am, at which point I marinate in worries and regrets for a while. Most of the worries that plague me are the normal sort of personal worries that we all have: health, weight, age, balance sheet, etc., but I always leave a little time for regrets such as why couldn’t my parents have been wealthy. Let me be clear that I would be as good as any at waking up on third base and telling everyone I hit a triple. Nonetheless, in these nightly sojourns into disquiet I do save some of this quality anxiety time to worry about the state of the world. Comedy next time.
Today, I want to talk about things which, for lack of a better word, I’ll call megatrends. You know, those opaque, furtive, sub-rosa things that inform the things which cause the things that make the news. I’m talking about the hidden, underlying substructure of our culture and polity, you know, Dan Brown things.
Courage, corrosive decay and collapse.
COURAGE. Over a dozen years ago Jean Claude Juncker, then the President of the EU Commission, said, “We all know what to do, but we don’t know how to get re-elected once we have done it.” Doesn’t this capture our politics? Don’t you suspect most of the folks we elect aren’t as stupid as they appear on TV (or whatever media you actually consume their bloviations upon). Don’t you sort of suspect they actually know what they ought to do, but simply won’t do it because, let’s face it, their job, the only job for which they have any aptitude, is being a politician and that requires doing whatever one must, not matter how unseemly, to get elected and re-elected. When crises come, when real problems arise, these folks are going to swank around, chatter performatively and then run away. I don’t think our grandees can be relied upon to do the right thing. It’s not comforting when the emergency lever behind the break the glass logo is attached to…nothing.
What Mr. Juncker observed, seems demonstrably true. All western democracies are living far beyond their means and appear to be completely unwilling to do anything about it, or even admit it. Fixing it is easy, right, right? Spend less money or raise more revenue. Voila! We, in the States, have been able to hide behind our reserve currency status to pretend that we don’t face any sort of binary choice. The Europeans are increasingly close to the cleft of the stick here. The mere suggestion in France, a country with the largest and most cushy welfare apparatus in all of socialist leaning Europe, that a modest reduction of governmental goodies might be needed sent the folks into the street. When the government proposed increasing the retirement age from 62 to 64, it was onto the barricades! (Note in the US, it’s fast approaching 70.) In Britain where the Labor Party has a massive majority in the Commons and can do essentially whatever it wants (it must make Speaker Johnson weep), government simply can’t get its arms around even modest budget trimming endeavors. Indeed, the Chancellor appears intent upon increasing the amount of entitlements and, in an unseemly way, is turning over every stone, however small and obscure, to find a tidbit of revenue. The Chancellor is doing this because the government has concluded that it can’t be straightforward about it and raise the income tax rates and indeed is getting near the bottom of the revenue cookie jar while being completely unwilling to trim the cost of the welfare state. I wonder whether the inspiration for all this is the Master of the House ditty from Les Misérables…“charging for the lice, charging for the mice, two percent for looking in the mirror twice…”).
Will the Europeans figure out how they can square that circle while still getting reelected? I doubt it. Consequently, they will dither until they run the polity into the proverbial bridge abutment at 100 miles an hour. And then they will follow the politicians’ playbook of prevaricate, distract and deflect. (Will we go to school on this European failure? Nah!) This is our future, too. (Like any good economist, I’ll tell you what, or I’ll tell you when, but not what and when.).
This problem is confronting every single democratic government across Europe. Of course, in Europe, the “thing” making all this much more existential is Russia’s revanchism ambitions. Politicians across Europe since the fall of the Iron Curtain in 1992 have grasped a peace dividend to their bosom with religious fervor. Now that trade is looking a little frayed. The US has been beating Europe like a drum to increase its defense expenditures for a considerable period of time. Not much happened. However, the light appears to have gone on across all the capitals of Europe that they indeed have to…I don’t know, do something with the Russian bear snarling to the east and the American eagle doing a walkabout in the west. They cannot afford their welfare state in full, plus more for defense without raising considerably more revenue. However, they don’t think, probably rightly, that they can squeeze much more tax revenue out of the folks through a straight-up income tax, and they are rapidly running out of headroom for more deficit borrowing. What to do?
CORROSIVE DECAY – I saw a recent article (I’ve misplaced it so I can’t tell you who wrote it and where I saw it) discussing the risk of an authoritarian backlash following a perceived rising tide of extremism, crime, collapse of social mores, a loss of confidence in our government, our judiciary and our institutions and political assault on the rule of law. Hmm, that’s never going to happen, is it? However when chaos is not addressed, historically, the folks look for scapegoats and simple solutions. Often, those simple solutions wear jack boots.
Liam Fox recently wrote in the Telegraph (I do truly love the Telegraph of London because it often makes me feel relatively better about life in the US) observing that in his view the biggest risk to our national security, indeed our national identity, was not external geopolitical risk but the corrosive consequences of a failure of courage and conviction around Western values. These sort of observations are popping up awfully regularly these days and they’re not all delivered by the folks wearing tin foil hats who, in their spare time, talk incessantly about relatives who, honest to God, have had carnal relations with aliens. Of course, we’re also hearing this type of stuff from our politicians, yapping about the Defense of Democracy which seems largely a content-free talking point helpful for those who otherwise don’t know what to do.
According to my besty AI friend, there have been dozens of articles published recently in such wild-eyed news outlets such as the New York Times, The Guardian, the Washington Monthly and The Economist talking about moral and cultural decay and the collapse of western civilization. According to a recent Gallup Poll, almost 90% of Americans are pessimistic about the American experience. I’ve got to say that every time I board an airplane and see people in their pajamas, or when I see a young couple in restaurants staring into their cellphones and not gazing into each other eyes, every time I am confronted by the frightful lack of historical knowledge in the younger generation (“We fought the Russians in World War II.” “Slavery was invented in America.” “The War of 1812 was fought 75 years ago.”), I get anxious. Every time I see a poll that suggests the folks prefer socialism to capitalism, I begin to wonder whether we’re soon to become France, without the good food but with all their myriad problems. Of course, much of the same type of thing was in currency in the years prior to and around World War I, so I take our current palpitations with a grain of salt. Oswald Spengler and his Historical Morphology theory (that polities decay like people) hasn’t been proved up…at least not yet.
Societal decay, deterioration of behavioral norms, schism and tribal behavior, us vs. them-ism and a rising tide of antisocial and non-majoritarian behavior can be seen around us, but as that sage of the bayou famously said, “It’s the economy, stupid.” To a large extent, as long as the economy performs, as long as most of the folks feel the economy is working for them, a rising tide of chaos, incivility and disorder is forgiven, ignored, or swept under the rug. All good, right? Economic distress is the secret sauce that turbocharges chaos and social dysfunction. It’s the agar in the petri dish in which dangerous political bacteria grows. It’s not center stage yet, but worries are in currency and not entirely ill-founded. Perhaps we’ll take a victory lap for a slight reductions in the pace of inflation this year, the terrific stock market (thank you all very much) and the not yet too ugly employment situation, but doesn’t it feel a bit brittle? Discontinuities are rare, but rarely do we see them coming. (Just because you’re paranoid doesn’t mean you’re not being followed.). It does seem brittle to me. Are the red cheeks on Mr. Market a sign of ruddy health, or fever? We all better hope the economy continues to perform well and that the inevitable cycles which will periodically produce a recession do just that, a recession and not something considerably worse.
COLLAPSE. Recent articles talking about a backlash against a bouillabaisse of chaos, political and religious violence, global threats and the loss of confidence in our political and social institutions are chilling. There are those who think that Mr. Trump is riding this smorgasbord of real and perceived risks into his own very best, best ever, autocratic government (with lots of gold trim). Perhaps he is, but if not him, might it be someone else soon? Chaos is rising, conviction is diminished. Economic success is at risk. Maybe that’s just a symptom of my indigestion; I rather hope so.
To be clear eyed, there are risks. The playbook, straight from that dog-eared book, Dictatorship for Dummies, is absolutely clear. Create, encourage and tolerate enough chaos and pain, and then, when the folks are prepared to pay virtually any price, promise to get us back to the way it was, but to be clear, no more pesky elections required. Robespierre and his fellow radical loonies were tolerant of the fount of chaos as the guillotine happily whacked off something like 40,000 heads, seeing it as a reasonable price for the ideologically driven purity of the Revolution. Napolean got the joke, read the book and “fixed” France.
Remember Mao’s cultural revolution? Very Robespierre-ish. After they booted the old pedophilic sociopath to the sidelines, the collective leadership of the Chinese Communist party consolidated control over the country and “fixed” the red guard and fixed the notion that the folks might have something to say about what’s happening. Decades of relative stability followed under a regime heavy on police-state architecture (and that’s so much better in these AI days, isn’t it?) and otherwise oligarchic, hierarchal, mercantile that has more in common with the courts of Henry VIII than Trotsky.
February 27, 1933 was a terrific day for the Nazis, after the Reichstag burned down. They had spent the last half decade or so creating chaos by trolling the communists and indeed the middle, promising goodies and embracing tub-thumping revanchism, but the Reichstag fire was the cherry on the political sundae, wasn’t it? The first (of many) Enabling Statutes followed. Game over democracy.
There are plenty more of these examples; we all know how this works. When the center fails to hold, when chaos begins to spread, the risk that someone would kick over the traces and take absolute control, in the name of the folks, goes up exponentially.
My, my. What a delightful triptych of observations about the current conditions of our polity and world. Lapsing normative verities, abandonment of the traditional canons of belief and standards of behavior, a dysfunctional political system and a potential for economic distress…make a trend that could change the shape and contours of everyday life. (To be clear, that’s not all that’s going on out there. Can one forget AI? Blue or red pills, anyone?)
I worry about things that could rapidly change the calculus, a sort of blasting cap on a stick of dynamite. There is indeed a long and fairly open ended list of black swan-ish things that could light the fuse and turbocharge these megatrends towards their final denouncement. How about an invasion of Taiwan that drags the US and Japan into a shooting war with China (what’s good for Venezuela is good for Taiwan, right?). Further adventurism by Russia in Europe, something bad (I mean worse) in the Mideast, a bond market revolt that demands significantly more yield for government debt, something truly horrible in the markets which results in significant losses hitting the pocketbooks of the folks and causing a vaunted trillion dollars of equity which soothes the minds of the middle class and facilitates ongoing consumer spending to go Poof. And, there’s always the possibility of alien invasion and the Jets winning the Super Bowl.
Now, I’m not an unreconstructed purveyor of doom, doom scrolling in my basement surrounded by survival gear, guns and dried food, but I think we need to be mindful of these risks. In fact, I do have confidence (well, at least some confidence…) the center will hold…for a while. My optimism is informed by the power of stability and continuity and historical facts that whenever we have visited the edge of the cliff, we have stepped back. We got through the Civil War. We got beyond President Roosevelt’s authoritarian streak. There were nihilists in the 19th century tossing bombs about and then they went away. McCarthy’s fascination in the mid-20th century, followed by whatever it was the 60s were didn’t end our successful experiment in democracy and capitalism.
So, as the new year begins, let’s end on an optimistic note. While bad things will continue to haunt me at 3 am, they’re all far from inevitable. That’s my story and I’m sticking with it.