Inequality and Political Change

Research Affiliates posted an interesting article today titled, "The Profits Bubble. "

The gist was that outsized profits are controlled (or allowed) by government and when they get too big (there is a trade-off between profits and income), the resulting growing inequality leads to social unrest and political change. The article correctly argues that profits cannot grow at a faster rate than the economy for too long and established that they have been growing at a faster pace than the economy for the last 20-30 years.

I think this idea/notion is correct. The problem is one of timing. It is very hard to know when or what the last straw will be that has been added to the camel's back. Changing societal/cultural norms and rising living standards around the world (rising economic tide in developing world, falling cost of living in developed world) are likely to make this process alot longer than prior history examples (maybe).

Societies are just like markets inasmuch as they are tightly coupled complex systems prone to periodic crisis and unravelings.

Shifting framework

I feel as though I am in the midst of a paradigm shift. I am moving on from the old framework through which I processed national and geo-political forces. I am not sure where the ship will anchor. I am not 100% sure what has been the cause of the shift.

But I do not feel as confident today as I did in the past of interpreting and understanding international developments. I get a sense that part of it is that I have been so long in the trees that I no longer trust my judgment or focus on the forest. I think part of it is that big picture events have not necessarily played out the way I thought they would. This has dented my confidence in understanding cause and effect. The market seems to have become dull to any number of problems or risks. Maybe it has seen it all before and is betting it will play itself out or wash over in time. Perhaps it is just the belief that the CBs are cleaning things up and whatever happens there will be a back stop to nullify the full force.

Global Socio-Politico Trends

Post the Great Depression the global socio-economic trend among political elites was toward greater government involvement in the economy. That trend finally came to an end, shipwrecked on the rocks of the 70s recession. But by the time it had run its course, it had blended opposing socio-economic ideologies into indistinguishable political forms. Turning, so-called "conservatives," such as Richard Nixon, Edward Heath, Helmut Schmidt, Valery Giscard d'Estaing, Malcolm Fraser, and Robert Muldoon into quintessential socialists. Such is the pressure of a trend and a supportive ideology (Keynesianism).

The natural backlash to the expanding Statism of the 50s, 60s, and 70s, was the countermove toward deregulation and financial liberalization in the 80s and 90s, led by Margaret Thatcher and Ronald Reagan (supported incidentally by ideological liberals Francois Mitterand, Bob Hawke and David Lange in France, Australia, and New Zealand respectively). This trend now appears to have run its own course, shipwrecked on the shoals of the Global Financial Crisis, with Tony Blair and Bill Clinton the best examples of political actors who melded their opposing ideological disposition to the dominant ideology of the time (monetarism). Whether Democrat or Republican, Labour or Liberal, the times and the culture might change, but the dominant political parties seem to move symbiotically together.

Interestingly, the role that President Carter played (serving in the transitional flux between periods) might serve as a template for the role that President Obama is playing, as socio-political forces work out a new direction.

"plus ça change, plus c'est la même chose"