Russia, One-Off or Precedent?
Plus an Investment Update
If you are new, welcome. You can read what I am up to here. I write these pieces both to force myself to think through what is going on (for subscribers, down to the level of what I am buying and selling) and to give you something to push back on. Ideas improve with debate.
Observing Russia is disturbing. How disturbing is in part a function of distance. When the war broke out, I was a few hours away in Cyprus. Later, in New England, an ocean separated me and I felt safer. Last week, driving Palo Alto’s Sand Hill Road, the idea of a Russia-like swing in US politics felt implausible. But what if what is unfolding in Russia is a disease that can spread?
If we measure “spread” as loss of life, the disease is spreading to eastern Ukraine. If Ukraine beats Russia conventionally, the risks of Putin using tactical nukes rises, another terrifying form of spread. If Russia’s descent—initially gradual, then faster—into paranoid, aggrieved authoritarianism occurs in the country you reside in, then the spread is complete.
Maybe what we are seeing is unique to Russia, a one-off. In 1917, Russian politics was roughly as developed as England in the late 1600s.1 Perhaps they are still catching up, in fits and starts.
On the other hand, strongman rule is neither new nor uncommon. In the 1930s, Germany was the epicenter. Tomorrow, France votes Macron vs. Le Pen. Turkey, Hungary, Brazil, the Philippines and China are all under the sway of such leaders.
The root cause of such shifts seems to be a combination of our own wiring, chaotic economic change, new media, aggrieved national pride, specific political culture and a charismatic leader. The parallels of 1930s Germany and modern Russia are haunting. WW1 = collapse of the Soviet Union; 1923 hyper-inflation = 1990s economic collapse, etc.
Wealth & Education Make a US Version Unlikely…Sort Of
Given both the above precedents and of course January 6, the odds of the US falling under the sway of an authoritarian leader are above zero but, at first glance, don’t seem very high, either. The Western formula is civil rights + free press + educated public + representative government = a gradual evolution in rules such that liberty is preserved and wealth increases.
Over time, this system has created stunning, uneven, increases in wealth, as the chart below from Rose Technology shows.
Interruptions have been due to a) civil war b) global conflict and c) central bank policy error (1929 and 2008). The system is set up such that it isn't easy for the politicians to significantly de-rail the economy, which is an important contrast to an authoritarian system with less checks on power (think Cultural Revolution).
To be sure, this story is true in aggregate, not the specific. The experience of slaves and their descendants looks different. Still, today a record high percentage of citizens holds a four-year college degree which, together with the wealth, suggests risks of a full-scale retreat from rule of law are overblown.
Weakening Faith in Elections
For calculating politicians, ideology is simply a tool to open the door to power. Trump was particularly brilliant with inventing stories that resonated, especially on social media, whose algorithms (while secret) favor outrage. After he lost and against all evidence including his own Attorney General, Trump said the election was stolen. About 25% of Americans identify as Republican, of which 70% believe him.
That suggests 20% of the US population will support an authoritarian leader today. Uncertainty over reliability of US elections has led to a sharp deterioration in the perception of the US as a safe bet (lower means worse) though so far this is showing up more in polls than in the pricing of assets.
Motivations to support an authoritarian leader vary. In the US, there is a racial element. What spans countries (Turkey, France, etc.) is economics and information. The modern economy creates concentrated wealth, which is then discussed on splintered social media.
The current spike in inflation, which drives real wages down, will make this even worse. But real wages are not a sound-bite-ready concept and many of the candidates themselves are extremely wealthy. A better target is needed to stir up the vote.
Finding the Right Shark
As discussed in my podcast about story, a good story needs an inciting incident, like the shark in Jaws. The question is if the politician’s shark will be one that threatens to destroy rule of law or not and also how viral the story is. If you are ambitious and watched Trump’s success, the temptations must be mighty.
Imagine being Florida’s Ron DeSantis. The 43-year-old Yale and Harvard educated Governor knows he could, a la Bill Clinton, jump from State-house to President. How to play his cards?
So far, DeSantis has stopped short, as far as I can tell, of claiming US elections are rigged, even as he lauds Trump.2 Instead, he has used what he deems the excesses of political correctness as his shark, thus his attack on Disney over opposing a law (HB 1557) about sex education and what is known as the “stop woke act” (HB 7).3
This is a Twitter-informed strategy. One bill attacks a difficult to define term (“woke”) that polls show many Americans dislike.4 In truth, there is likely broad agreement on the need to teach US history well—both the bright spots and the blights. DeSantis isn’t dumb, he is looking at the information channels.
The Walter Cronkite world I grew up in is as dead as the typewriter. Even Anderson and Tucker are afterthoughts relative to those with 100 million plus followers on Twitter. Trump’s mendacious tweets weren’t as successful as Barack or Katy Perry, but pretty close. Putin’s stated Ukraine objective is de-Nazification and, speaking with my Moscow-based mother-in-law, that lie resonates quite well. As long as only a minority of Americans believe big lies, we are probably OK. Still, it’s kinda scary.