What
Lies Behind Trump’s Comfortable Victory
In November 2024 American voters again voted
for Trump. My conclusion was that either most voters were too ignorant
by being dissatisfied with the current excellent state of affairs according to the
mainstream media; or most voters were brainwashed by various alternative media
outlets to believe that life was not okay; or the alternative media were more
creative than the mainstream ones; or maybe the current economic model where a monetary
policy aims to stimulate debt-based consumption rather than ensure price
stability simply does not work anymore, while goods, services, real and
financial assets are getting ever more expensive.
A recent survey shows that
members of the Gen Z want to have at least $600,000 in assets to be happy (See
Reference 1 and Picture 1 below). According to Forbes, one of the major factors behind these expectations is
the fact that “…they have come of age in an era marked by economic instability.
Gen Z’s developmental years have been significantly influenced by major
economic disruptions, including the Covid-19 pandemic, the highest inflation
rates in over four decades, the burden of substantial student loan debt and a
challenging housing market that has become increasingly inaccessible to many
Americans. These factors have likely contributed to shaping their perceptions
and expectations of what it means to be financially successful in today’s
economy” (see Reference 2 below).
Furthermore, the 2024 World
Happiness Report shows that the young in North America are less happy than the
old, while in many Western European countries they are only as happy as the old
(see Reference 3 below):
“In the West, the received wisdom
was that the young are the happiest and that happiness thereafter declines
until middle age, followed by substantial recovery. But since 2006–10, as we
shall see, happiness among the young (aged 15–24) has fallen sharply in North
America — to a point where the young are less happy than the old. Youth
happiness has also fallen (but less sharply) in Western Europe.
By contrast, happiness at every
age has risen sharply in Central and Eastern Europe, so that young people are
now equally happy in both parts of Europe. In the former Soviet Union and East
Asia too there have been large increases in happiness at every age, while in
South Asia and the Middle East and North Africa happiness has fallen at every
age.”
This is somewhat
counterintuitive, if you do not know economic history. The fact is that the
current generation of the young people in major developed countries is likely
to be poorer than their parents for the first time in the last 200 years (see
Picture 2 below).
Probably, now you understand what
the young people in ancient Rome were likely to experience when the Empire was gradually disintegrating
before their very eyes.
The Great Economic Malaise and the Rise of “Charismatic”
Leaders
Many have probably read or heard that life was
not that easy in economic terms in the developed world during the
stagflationary years in the 1970s and early 1980s. Actually, life was not
that bad during that period compared with the current economic malaise.
If you are wondering why populist
politicians are on the rise in the developed world, just check out GDP per
capita growth rates and the average ratio of public debt to GDP during the
stagflationary period from 1971 to 1982 and during the latest pandemic and
post-pandemic episode from 2019 to 2023 (see Picture 3 below):
Is Trump charismatic? Yes, he is.
Is Harris charismatic? No, she is not. What is the reason behind it? This is
because you need charismatic leaders only in times of crisis. When things are
going well, there is no need to have “drama queens” around you. It is enough to
have competent managers to manage
day-to-day operations.
Do we have a crisis now? Yes, we
have. It is clear that the current model of liberal consumerism launched in the
1970s and 1980s is obviously stagnating.
Liberal consumerism was the
attempt to mitigate the effects of declining rates of technological progress
that reached its apogee in the 1950s and 1960s (see Picture 2 above).
At the same time, relying on
loose monetary policy, financialization, and more debt to support consumption
as an engine of economic growth has only had a temporary positive effect, while
creating serious long-term economic, financial, and social imbalances. This is
what lies behind modern political instability.
To maintain consumption, you
need:
1) high rates of technological
progress. But they keep on declining;
2) low labor costs thanks to
immigration or outsourcing to cheaper overseas labor markets. But this creates
serious domestic social problems. And it also subsidizes potential competitors;
3) low commodity prices. But they
keep on rising due to loose monetary policy that stimulates consumption.
That is why the liberal camp’s
solutions are as follows:
1) reducing consumption by
promoting the green transformation;
2) distracting the public from
the issues of economic growth and economic inequality by promoting personal
freedom issues (diversity, inclusivity, etc.)
However, this is not
growth-oriented capitalism. This is “scarcism” which focuses on limiting
consumption and conserving scarce resources in the absence of technological
progress and economic growth.
Trump and other populists strive
to relaunch “classical” capitalism by pursuing mercantilist and protectionist
policies:
1) more investment to speed up
rates of technological progress;
2) a much stricter immigration
policy to support domestic labor markets;
3) more intensive use of natural
resources.
Can the populists in the
developed world succeed? The chances of success are slim. Unlike in the initial
stages of capitalism, today there are too many competitors on various
continents to provide you with “free” land, resources, labor, and markets to
accomodate your mercantilist aspirations.
Over the last 30 years the West
in general and the United States in particular have facilitated the rise of its
own competitors. As a result, the United States has already largely lost its
role as the leading manufacturing power.
The West may try to replace China
with India and Southeast Asian countries in their supply chains. However, it cannot
be done overnight even if you invest substantial funds: that is the difference
between the real economy and the financial sector. Second, there is no
guarantee that those countries will always follow Western advice, having
accumulated manufacturing expertise and financial muscle. In fact, India has
been already pursuing a very pragmatic policy by refusing to take sides in the
ongoing geopolitical conflict.
The United States is still a
financial power. However, the permanent twin deficits – trade and budget – will
keep undermining this power as well. Actually, the U.S. dollar has lost more
than 90% of its purchasing power since the abolition of the gold standard in
1971. That is why the prices of gold, bitcoin and other cryptoassets are almost
guaranteed to rise in the future if the current monetary policy
The best way out of the current
economic malaise is a decisive technological breakthrough to replace cheap
migrant labor the United States urgently needs to maintain its overblown
debt-based consumption. However, given the fact that even Elon Musk is poised
to become a government official, high tech entrepreneurs are clearly not
hopeful that any meaningful breakthrough can be achieved any time soon.
Can the populists contribute to the rise of
geopolitical tensions and even major military conflicts, if they fail in
pursuing their policies? Probably, they can. However, we must remember that
World War II, started by the charismatic leaders of the 1930s, was a just
continuation of World War I, started by the uncharismatic government
“managers” of the 1910s. The difference is that charismatic leaders
jump into wars, while uncharismatic leaders slide into them.
Let’s hope there is a major technological breakthrough just
around the corner…
The Undergraduate Economics and Politics Behind Trump’s Domestic and
Foreign Policies
The current economic and geopolitical state of
the world suggests that Trump’s main policy algorithm at home and abroad is
likely to be structured as follows:
Domestic policy
1. devaluing U.S. debt obligations by further easing of
monetary policy and lending standards that may lead to higher rates of
inflation;
2. overhauling the U.S. retirement system since it is funded
with debt obligations that lose their purchasing power value at an increasing
rate;
3. launching a new “safe haven” monetary asset
whose value should rise sharply in U.S. dollar terms in order to repay its U.S.
dollar-denominated debt;
4. overhauling the immigration policy with the aim of
attracting high-skilled foreign workers, while restricting the influx of
low-skilled immigrants;
5. to achieve the above objectives you would welcome more
control over the U.S. political landscape.
Foreign policy
1. if you run a huge budget
deficit, it is almost certain that you run a huge trade deficit too;
2. if you run a huge trade
deficit and if you do not manage to attract foreign investments to finance it,
it is almost certain your currency will be under pressure;
3. if the value of your currency
is under pressure, your country’s investment returns should be attractive
enough to attract foreign investors;
4. if returns are not attractive
enough or if foreigners face a political risk of asset confiscation, try
cutting your budget and trade deficits;
5. if you are unable to balance your
budget and foreign trade deficit, impose prohibitive import tariffs;
6. if prohibitive import tariffs
do not help, start pursuing a confrontational foreign policy, including military
conflicts, to get access to cheaper resources in order to stabilize your domestic
financial system.
Perhaps
Trump’s policy plans – relaxing procedures for foreigners who invest at least
$1 billion in the United States, establishing
a new Department of Government Efficiency (DOGE), introducing tariffs on foreign trade partners
with largest surpluses, imposing sanctions on those trade partners who would
not be willing to buy U.S. Treasuries out of those “excess” surpluses, introducing
a 100% import tariff on the BRICS countries, if they try to establish a
currency mechanism that would compete with the U.S. dollar, “acquiring” Canada,
Greenland, the Panama Canal and other “outrageous” measures – are more
understandable now.
So expect more inflation, a new retirement system, new
monetary assets, and more political upheaval at home and abroad.
Predicting the Future under the Populists
Historically, men have ensured
the progress of societies, while women have ensured their stability.
When any society becomes too
masculine, progress and development tend to degenerate into conflicts and chaos
that eventually lead to its spectacular collapse.
When a society becomes too
feminine, stability and predictability tend to lead to its stagnation, decline
and, eventually, extinction.
We have definitely moved from a
feminine stage of history to a masculine one.
Practical Implications on an Individual Level
What are the practical implications on an individual level?
These are some of the things you might find worth considering in addition to common
investment advice like saving early or diversifying wisely:
1. stay healthy, expand your professional
horizons, and develop your networking skills to be able to work for as long as
you can because benefit and retirement systems around the world are going to be
overhauled in one way or another;
2. buy gold to maintain your
long-term purchasing power. Investing in gold will never make you rich.
However, in the long run gold maintains its purchasing power extremely well,
while being the safest asset on Earth;
3. buy a small basket of cryptos
to benefit from the emergence of new monetary assets. The current monetary
policy is likely to be continued. This means further debasement of fiat or
“paper” money. Investing in cryptos is extremely risky. Therefore, invest small
amounts, while remembering that people tend to regret the things they did not
do more than the things they did.
4. Hope for the best, prepare for
the worst, and stay calm.
References:
1.
“Gen
Z’s Vision of Success? Nearly $600,000 a Year”, Cara Michelle Smith, Salon,
December 5, 2024.
2.
“Gen
Z’s Benchmark for Financial Success Is a $600K Salary—Why the Disconnect?”,
Jack Kelly, Forbes, December 12, 2024.
3.
“World
Happiness Report 2024”, John F. Helliwell, Richard Layard, Jeffrey D. Sachs,
Jan-Emmanuel De Neve, Lara B. Aknin, and Shun Wang (Editors), University of
Oxford: Wellbeing Research Centre, March 8, 2024.
