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.
