History does not repeat but it does rhyme
American society and the American economy have a rhythm.
Every fifty years or so, they go through a painful and wrenching crisis, and in those times it often feels as if the economy were collapsing and American society with it. Policies that had worked for the previous fifty years stop working, causing significant harm.
A political and cultural crisis arises and what had been regarded as common sense is discarded. The political elite insists that there is nothing wrong that couldn’t be solved by more of the same.
A large part of the public, in great pain, disagrees. The old political elite, and its outlook on the world, is discarded. New values, new policies and new leaders emerge.
The new political culture is treated with contempt by the old political elite, who expect to return to power shortly, when the public comes to its senses.
But only a radically new approach can solve the underlying economic problem. The problem is solved over time, a new common sense is put into place, and America flourishes - until it is time for the next economic crisis and social crisis and the next cycle.
It has been forty years since the last cyclical transition occurred. In 1981, Ronald Reagan replaced Jimmy Carter as president, changing economic policy, political elites, and the common sense that had dominated the United States for the fifty years since Roosevelt replaced Herbert Hoover.
If a pattern that goes back to the founding holds, the United States is due for its next socioeconomic shift in about 2030. But well before that, the underlying exhaustion of the old era will begin to show itself.
Political instability will arise a decade or more before the shift, accompanied by growing economic problems and social divisions. When the crisis matures, it concludes with someone who will be regarded as a failed president and the the emergence of a new president who does not create the new cycle but rather permits it to take place. Over the following decade or so, the United States reshapes itself, and the new era emerges.
What has to be remembered is that the political strife and noise are simply the outer wrapping around deep social and economic dislocation. Politics isn’t the engine pushing the system. The system is pushing politics. Roosevelt and Reagan didn’t found their eras. The era was in crisis, and that crisis could not be solved in conventional ways. A break with the past was essential and Roosevelt and Reagan presided over what was necessary.
To date there have been five of these socioeconomic cycles. The first began with George Washington and ended with John Quincy Adams. The second began with Andrew Jackson and ended with Ulysses S Grant. The third began with Rutherford B Hayes and ended with Herbert Hoover. The Fourth began with Franklin Roosevelt and ended with Jimmy Carter. The fifth cycle began with Ronald Reagan and will end with someone whose name we don’t know yet, but he or she will likely be elected president in 2028.
We have to remember that presidents are simply the street signs. The cycle is working itself out in the murky depths.
The Storm Before The Calm (published 2020)
At this point, some British readers may be thinking…That’s all very interesting but what about the UK?
Reagan’s rise to power in 1979 over-lapped with Thatcher becoming UK prime minister in 1980. The ascent of the neo-liberal right happened at the same time in both countries.
Similarly the switch to the neo-liberal left overlapped in both countries. Clinton’s presidency started in 1996, Blair was elected in the UK in 1997.
This is probably not just a co-incidence. Correlation is not causation. But there are enough similarities between the culture and socio-economic factors in the USA and the UK for us to be able to join some dots between cycles in the two countries.
In this cycle it seems that UK politics is lagging the USA by 1 - 2 years.
The precise lag is uncertain. What is undeniable is that Starmer has already burnt through all of the political capital that a new government starts with and is now running on empty.
The change of political elites and beginning of the new regime will be accompanied by much wailing of the propaganda outlets of the old regime.
There was this (middle-class) idea in the past that pleb readers of The Sun, The Star etc were idiot proles being brainwashed and that readers of The Financial Times and The Economist were being “informed and educated”.
That sort of Boomer thinking just looks quaint now.
We are in the age of information wars. The challenge will be to identify individual news sources acting in good faith: individual youtubers, writers and journalists rather than corporate brands.
The point for investors here is to keep calm and carry on.
There is a bull market in doomerism right now.
There are lots of things to worry about in the world right now but I feel very optimistic about the stockmarket.
And even Ethereum is showing signs of life:
Happy Saturday
Barney
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