Tag Archives: economics

Why Gold Fails as a Hedge Against Inflation (and when it works)

In the aftermath of Trump’s win, something that wasn’t supposed to happen, happened. Inflation expectations surged, but gold got clobbered:

The GLD fund, a proxy for gold, fell 8% (from $125 to $115) in the days immediately following Trump’s victory, and then it fell another $7 in December:

Inflation expectations, however, surged as shown by the spike in short-term yields in anticipation of considerable federal spending under the newly-elected Trump administration:

As shown above, interest rate expectations have ratcheted significantly, and the yield curve is expected to be much flatter due to short-term rates rising very quickly under Yellen’s rate hike regime.

And the week Trump won, treasury yields went nuts, in anticipation of higher interest rates and inflation:

Gold, which is touted as a ‘hedge against inflation’, failed spectacularly.

If you listen to talk radio or watch TV, there are ads that tout gold as a hedge against inflation. But gold also failed in 2013 when the fed announced the beginning the its taper program and the impending end of QE…But if the TV ads and Zero Hedge were right, the opposite should have happened: gold should have risen in anticipation of higher inflation due to the fed ending its QE program…So why in 2013 and 2016 did gold fall in anticipation of tighter monetary policy (taking away the punch bowl, as they say). Why is gold doing the very opposite to what everyone says or expects that it should? Why is gold not hedging this inflation?

There are a lot of subtleties to why gold behaves the way it does, and why it hedges but also fails to hedge. It took me years to understand this myself until only as recently as a month ago when I had an epiphany. People don’t really understand how gold or even how inflation works, even though they think they do.

Notice how I use the words ‘inflation’ and ‘interest rates’ almost interchangeably–but this is wrong–they are not interchangeable, although are often correlated. This key subtlety underlies why golds fails so badly for Americans who buy it as a hedge.

Let’s start with a simple example that shows when gold works as a hedge.

Let’s assume you’re a citizen of Venezuela, country that has 200% CPI inflation. But depositors in Bank of Venezuela only get 70% a year, because the central bank of Venezuela is always behind the curve on inflation. Inflation is rising faster than central bankers can keep up. Also, Venezuela has a really poor standard of living and a falling currency relative to the US dollar. $500 in Venezuela bank becomes $200 after a year, due to currency depreciation–even after taking into account the interest paid on deposits at Bank of Venezuela. This means your purchasing power relative to US dollars (or more specifically, American standards of living) shrinks considerably for anyone who has money in Venezuelan currency. This makes gold an effective hedge for preserving buying power (or more specifically, American US dollar wealth), because $1200 invested in an ounce of gold will still be wroth around $1200 after year (give or take 10% or so), versus only $400 after a year in equivalent Venezuelan currency.

But Americans aren’t citizens of Venezuela, yet they buy gold anyway. But what if America becomes Venezuela? Well, it can’t, because the US dollar is still the world’s benchmark of wealth and buying power, and until that changes (if it ever does), there is nothing to actually hedge. Also, US living standards, similar to the dollar, are a global benchmark (when measuring living standards of a specific country, they must be measured relative to American living standards). As I showed in a post awhile ago, when people complain about America’s stagnant real wages, they are not taking into account rising standards of living for Americans and increased purchasing power. Venezuela may have positive inflation-adjusted wages, but what good is that if the standards of living are really awful (empty shelves in food stores, spoiled food, no electricity, no running water, etc.).

But what if US dollar plunges? This will make imports more expensive–boosting the CPI and thus inflation to some degree. If Europe can replicate the same standards of living as America, but cheaper, then gold is a good hedge against a falling US dollar relative to the Euro and Pound. This was the case in 2002-2011 when gold, the Euro, and the Pound all rose together. European buying power and standards of living were boosted by their strong currency. But in 2011, and continuing to this very day, six years and counting, the US dollar has done very well, and gold has done poorly.

OK, but what about Trump, 2013, and gold failing to hedge against rising anticipated inflation and rate hikes? Again, going back to this quote:

Notice how I use the words ‘inflation’ and ‘interest rates’ almost interchangeably–but this is wrong–they are not interchangeable, although are often correlated. This key subtlety underlies why golds fails so badly for Americans who buy it as a hedge.

As the Venezuela example shows, gold becomes more attractive when present inflation exceeds expected inflation. For Americans who hold gold as a hedge, what matters is not the inflation itself but the inflation relative to interest rates. Trump winning jacked-up future rate hike expectations, but inflation itself didn’t go up much. The market perceives the spending under the Trump administration to be more inflationary for interest rates than expansionary for CPI, which makes long-dated bonds less attractive, but the CPI itself won’t go up that much, because the spending won’t boost GDP growth that much relative to the deficits. This makes gold less attractive, because the actual inflation (CPI) itself isn’t going up that much, just the interest rates are.

The Taylor Rule is important here–if the fed is ‘behind the curve’ (inflation exceeding interest rates), gold can be a good hedge. If the US CPI is 20% and interest rates are 10%, yeah, gold prices should rise. This is why economic stimulus, counterintuitively, is bad for gold holders, because it boosts interest rates but not inflation, because stimulus spending doesn’t boost the economy that much, only debt. Rising interest rates makes cash more attractive. If you have 10% CPI inflation but 20% interest rates, gold becomes less attractive than if reversed. 2013 is another example…the taper boosted long-term interest rate expectations, but actual inflation itself didn’t go up. The market had no reason to expect inflation to rise, and thus perceived the Bernanke fed as being to hawkish. As a result, TIPs, medium & long-dated treasury bonds, and gold all fell significantly in 2013, but short-term treasury bonds (1-3 years) did not fall much, because the fed was not expected to raise interest rates much within the next 2-3 years. Yes, even TIPs are not a good hedge, because like gold, TIPs only hedge against rising CPI-based inflation, not rising interests rates.

In mid-2016, after Brexit, gold surged despite the Brexit being deflationary, because after brexit, because the US economy and stock market didn’t contract much, the expectation was that the fed would be ‘behind the curve’ in delaying rate hikes due to Brexit, but otherwise US economic growth was unchanged.

But also, after Trump won, the dollar surged, because higher interest rates makes the dollar more attractive, further hurting gold (because a rising dollar makes imports cheaper and lowers CPI, thus is deflationary). But in 2002-2007, the dollar fell and interest rates rose, but this was because hedge funds were buying the Euro, Pound and other foreign currencies in anticipation of a foreign economic boom that never came (these funds lost a ton of money in 2008, 2011, and 2013).

Between 2009-2011, the CPI was around 2% but interest rates were less than .25%, which is why gold did well–the fed was behind the curve.

In conclusion, for Americans who buy gold as a hedge, it’s only effective as a hedge if: the US dollar falls a lot like it did in 2002-2011–and or–if the fed is perceived as behind the curve in tackling CPI-based inflation. Gold will not preserve capital if CPI-based inflation is expected to be low relative to interest rates; in such an instances, short-duration bonds and notes are better. If Trump’s stimulus plans are passed by Congress, gold will likely take a hit, to the dismay of those who are expecting gold to hedge.

Bifurcated Inflation

The news cycle as of late has been like watching paint dry…months ago I predicted such slowness, but even I am kinda surprised by the uneventfulness of the Trump administration so far. The administration started off with a ‘bang’ with that travel ban many weeks ago, and for a moment it seemed like things were really going to change, but everything has slowed since.

Anyway, Xenosystems has a post up about bifurcated inflation, a topic which this blog covered in 2014 and 2015 a couple times.

The NRx critique is that Marx and Milton Friedman are opposite sides of the same coin: looking at the world through the prism of economics and capital–it’s just that Milton’s approach works better.

However the caption below the tweet is incomplete–yes, computer hardware is cheaper, but Microsoft Office is not. Software is still as expensive as ever. TVs are cheaper, but not the cable bill or the internet bill. Printers are cheaper than ever…The ink? Not so much. A gallon of printer ink costs $9,600, and ink prices have exceeded the CPI. The chart is comparing apples and oranges: services on the top; hardware on the bottom.

From Age of Abundance? It Depends

Carriers will give the phone for free if you lock-in a long-term expensive contract. The electricity bill, too, which in addition to the internet bill, needs to be paid to run Netflix. TVs are very cheap but cable bill keeps rising…

The future of economic growth is services and ‘upkeep’ (rent)- whether it’s housing rents, insurance, cable bill, phone bill, or jobs in the low-paying service sector such as fast food. It’s become so cheap to manufacture stuff, that growth must be extracted from services. Decades ago, electronics were expensive, but relatively speaking, services were cheap; now that has been flipped:

Although the tweet shows a decline for cellphone service, Americans are paying more for phone service (but this could be because they are spending more total time on the phone and using more bandwidth, thanks to smartphones):

Why Robots Won’t Take All The Jobs

Over the past month or so, there has been considerable debate online about whether automation will destroy all jobs, and if so, how should policy makers try to respond. A few weeks ago, Bill Gates made headlines by proposing a ‘robot tax’, an idea which many economists roundly shot down. A story in February about Wendy’s installing 1000 self-ordering kiosks also made global headlines and was viral everywhere, as somehow being a harbinger for the imminent destruction of all jobs.

IMHO, the empirical evidence suggests this robot hysteria is overblown and that the ‘Luddite Fallacy’ will remain fallacious, but of course there is no guarantee that past economic trends will be predictive of future ones. Despite the trend towards increasing automation, the US labor force has grown in lockstep with working-age population size:

This says nothing about the quality or pay of such jobs, but it’s obvious the ‘end of jobs’ is far from certain.

So why hasn’t the post-labor utopian leisurely society that sci-fi movies and books promised us, happened yet? Why do these pesky jobs just refuse to go away? Here are some reasons why automation hasn’t eliminated all jobs, and why it likely won’t.

1. If an automation technology is successful at reducing costs, such technology will spawn an entire industry in and of itself, hence more jobs. The printing press led to eyeglasses industry, because so many people were reading books (which had become easy to produce, rather than having to be laboriously transcribed individually), that ‘farsightedness’ became a recognized medical condition. Until the advent of mass-produced printed literature, being farsighted was not really considered an aberration as it is today.

From The Economics Debate: Jobs and Automation:

What has to be understood is that when a new productivity-enhancing technology is successful, it spawns an industry, creating jobs in the process even if the original intent of the technology is to eliminate jobs. As more companies want this new technology to save money, the company that makes this technology is swamped with demand and needs to expand, and this means jobs are created. And then the new technology may occasionally break, and then repairmen need to be hired, ad infinitum.

2. Technology lowers prices for consumers, increasing demand, and hence employment.

Technology lowers production costs, which makes products cheaper for consumers. But technology also puts some people in the production process out of work. The ‘saving grace’ here is that lower prices increases demand for said product, which means that the manufacturer hires more people to keep up with demand , replacing employees lost to automation. This is shown by the price-demand curve below:

The shape of the curve is determined by price elasticity, but generally, cheaper goods means more demand.

Furthermore, the company (Company B) that sells the raw goods to the first company (Company A) also sees increased demand (because Company A is seeing more demand due to lower prices), so Company B hires people, which counterbalances jobs lost from Company A. It’s not going to be the same jobs, but you can see how jobs lost from one company/industry can create jobs for anther company/industry. But what if Company A doesn’t lower prices? Then Company A will be more profitable and use the profits to possibly expand their business operations and thus hire more employees, anyway.

3. The old jobs and technologies never completely vanish.

My ‘theory’ is that rather than technologies making old technologies completely disappear, both the old and new technologies coexist, but the new technology increases productivity so much that it dwarfs the older one, but demand for the older technology still stays strong for a very long time. So although the horse and buggy is an obsolete form of transportation, there will always be some need/demand for horses: for food, performance, sheriffs, racing, nostalgic stagecoaches, for fun, etc. Same for typewriters and quill pens..they haven’t gone away yet. Also, stagecoaches are still used in some circumstances. When food stores and fast food restaurants install self-checkout kiosks, rather than replacing all cashiers, there are still cashiers, but also attendants who help people with the kiosks.

4. New types of jobs are constantly being created.

Related to #1, innovations tend to create jobs. During the Middle Ages or Medieval Period, from the 5th to the 15th century, there were perhaps only as few as a couple hundred unique types of jobs, such as husbandry and farming. Nowadays, the number of types of jobs is probably in the hundreds of thousands. Jobs are being created that decades ago were inconceivable. The Web 2.0 boom, for example, spawned thousands of app and social media jobs that a decade ago didn’t exist. There are jobs were it would seem like jobs wouldn’t exists, but do.

For example, some websites, especially those that try to copy a magazine-style format, have those huge, annoying banners on the top of every article. Other websites have large images embedded within the article. Choosing those images is often no easy feat. Not only must the picture be relevant to the article and not draw too much attention to itself, but it has to be of a high enough resolution or else it will appear grainy or blurred when enlarged. Also, the image cannot be copyrighted, so scouring the internet for images its not an option unless such images are of the free domain. As you can see, there is a lot of work that goes into seemingly mundane tasks (such as choosing images to accompany an article), which means labor is required.

So what does the future hold? There will likely never be an ‘end of jobs’, but rather a decline of work and maybe fewer hours worked, meaning that a lot of able-bodied people will not work, either voluntarily or due to the job market becoming harder, and there will also continue to be a proliferation of low-paying service sector jobs. It’s also possible that individuals in the lowest strata of IQ may find themselves either relegated to jobs that pay subsistence wages, or unemployed and some some form of government assistance. Gig jobs, welfare, self-employment, disability, prolonged education, social security/retirement, and the ‘underground economy’ is replacing a significant chunk of the traditional job market.

Tyler Cowen’s The Complacent Class: Reviews and Discussion

I have compiled a list of reviews for Tyler Cowen’s new book, The Complacent Class, along with some insight.

From Arnold Kling:

My Review of Tyler Cowen’s Complacent Class

3. I am still not happy with Tyler’s use of the term “complacency.” I can think of three senses of the word that are floating around in the book.

a. Complacency is “a general sense of satisfaction with the status quo.”

b. Complacency is a desire to avoid risk and resist change.

c. Complacency is a belief that the current social order is stable, that we will not suffer from a sharp increase in violence or a major breakdown of norms and institutions that maintain order.

Full review: Complacent or Pathological?

IMHO, ‘c’ the most likely outcome. Tyler seems like a ‘c’ person as well. ‘b’ seems wrong–a complacent person would be indifferent to change, not resist it. Americans may not like the status quo, but they aren’t doing much to resist it, which is is why ‘c’ will prevail.

This book has generated considerable discussion and many reviews..everyone wants to know, why do Americans seem so complacent?

Have Americans Given Up?

Third, the growth of large companies has clearly sapped some of the dynamism from the U.S. economy. As I’ve reported, the decline in entrepreneurship has coincided with the rise of new monopolies—across retail, healthcare, and tech—that make it harder to start a new successful firm in these industries. Starting in the late 1970s, antitrust regulators stopped cracking down on large companies as long as they provided cheap products for consumers. Since 1978, the share of U.S. firms that are startups has fallen by 50 percent.

I disagree…as stated earlier, my ‘theory’ is that entrepreneurship has declined not because of monopolies (although it is a small contributing factor); rather, because start-up costs are too high (when adjusted for inflation) and credit is too scarce. Everything is just too expensive and difficult, and lenders have become too risk-averse.

As shown below, for example, after a long lull between 1950-1980, New York real estate and rent between 1980-2006 inexplicably shot up 700%, far outpacing inflation, straining budgets for cash-strapped small businesses. This rent and real estate explosion was not limited to New York and occurred in many cities, particularly cities on the East and West coasts.

Another reason is that people are choosing ‘capital’, which beats labor and entrepreneurship.

If given a choice between spending hundreds of thousands of dollars starting a small business, which has a 80-95% chance of failing within a decade, or buying stock and or real estate (such as New York, which gained 500%, or S&P 500, which is up 300% since 1998) the choice seems obvious. Capital wins, hands down. Small business is hard unless you get lucky or can secure venture capital. Venture capital, not surprisingly, has become risk-averse, plowing billions into large, safe companies but only peanuts into tiny start-ups.

Capitalism has gotten much smarter, choosier, and efficient since 2008…as capitalism gets smarter, ROI and ROC (return on capital) will increase, but there will be fewer winners and lots of losers, and the winners will get very big (Matthew effect).

Furthermore, not only is rent for office space surging on an inflation-adjusted basis, so to is residential rent. People are unable to create businesses because of expenses for student loans, rent, healthcare, phone bill, daycare, and insurance…all of which exceed inflation. The US economy is growing at 2-3% a year, the federal funds rate is only 1/2 percent, but inflation for many services is more like 6-10%/year. And credit card debt has the highest inflation of all. People are being squeezed by these growing, unending rents. If that isn’t bad enough, add a perpetually weak labor market and an already strained social safety net. Due to all these factors, it’s little surprise the average American has less than $1,000 in savings and isn’t in much of an entrepreneurial mood.

From NPR: America’s ‘Complacent Class’: How Self-Segregation Is Leading To Stagnation

It is truly a shocking fact. Now you could argue the measurements are not perfect, that’s true, but that even the numbers can come out that way. So many of the advances in our economy have come from women working more, working harder, getting more educated. That’s great. But when it comes to males, something has very badly gone wrong.

I think we have switched to a service-sector economy — most jobs are now service sector. That’s bad for some percentage of men. Jobs require more and more that you be skilled in information technology. That’s great for the top 1 percent, 10 percent, 15 percent. Not so great for the median or the bottom third for males.

Men are falling behind, as I describe in Society is Failing Men (or how men are failing at society)

Women tend to excel at structured, academic environments. Men, due to higher testosterone and other biological factors, generally thrive under more chaotic situations. America’s post-2008 economy rewards people who have lots of academic credentials and can sit still, take orders, and retain rote knowledge quickly, not those who literally want to get their hands dirty. Most service sector jobs (especially the service sector jobs created since 2008) are monotonous, low-status, and low-pay. In earlier generations, men had manufacturing jobs, but many of those jobs are gone, and those that remain have lower inflation-adjusted pay and fewer retirement benefits than in the past.

Referring to Ravi Batra’s social cycle theory, since 2008, especially, we are in the an era of capital acquisition and intellectualism, not warriors and laborers. After 911 and then the invasion of Iraq and Afghanistan, ‘warriors’ (soldiers, firefighters, police, etc.–all of which are male professions) gained some status, but that faded. The aftermath of the 2008 crisis gave the aquisitors more power than ever, because the system was reshuffled and restructured in their favor, and their power keeps growing with each passing year.

Return of Kings is right: we are not living under a patriarchy anymore.

From Virtue Signaling and Status:

In accordance with Ravi Batra’s Social Cycles, physical dominance may be losing its potency. Nowadays, especially since 2008 or so, society and culture seems to revere smart ‘gammas’ and ‘betas’ more so than the alpha ‘tough guy’. The former are making all the money in tech, real estate, stocks, and other high-IQ means, while getting all the prestige whether it’s in science (Higgs boson and gravity wave detector stories which made headlines globally, for example) or technology (web 2.0 founders making headlines and billions, the idolization of Musk, Buffett, Gates, and Jobs etc) it seems. The latter, on the other hand, are losing their jobs, whether it’s oil falling from $100 in 2014 to $30 today, hurting lots of blue collar energy workers, or the housing bust of 2006-2009, which hurt blue collar construction workers. Or the rise of the low-paying service sector, replacing obsoleted but high-paying factory jobs. Meanwhile, high-IQ tech is doing better than ever, impervious to pretty much all macro conditions, save for a blip in 2000-2002 during the dotcom bubble or in 2008 during the recession. This dichotomy is also observed in the housing market, with real estate in high-IQ regions such as the Silicon Valley constantly making new highs, versus almost everywhere else still well-below the 2006 highs.

A combination of various social and economic trends have rendered a lot of people, especially men of working age, ‘useless‘.

Another review: The future will be good for matchers and bad for strivers:

“[Millennials] are not actually indifferent or lazy or lacking in enthusiasm — quite the contrary — but more and more of their passions take forms other than those of the old climb-the-social-ladder variety,” Cowen writes. “Millennials might therefore appear to be lacking to the older generations who don’t quite get the new terms of competition and satisfaction. In reality, the Millennials are doing pretty well with respect to the options the world has given them, and they are helping move that world toward more contentment and also less interest in grand projects or topping previous records of achievement.”

This could explain why so many millennials are embracing intellectualism and minimalism, rejecting the ‘rat race’ and materialism, and choosing to live a life that may even seem ‘boring‘ to some. Millennials would rather make money on their own terms than be cogs of the corporate machine, but also many millennials see knowledge as being the same as wealth. Intellectual wealth is as important, if not more so, than monetary wealth.

But also the concept of the ‘American Dream’ is begin redefined or downgraded. The future is one of less entrepreneurship and creation, but instead more passive consumption, such as idling away for hours on Netflix and Facebook.

75-minute video presentation: The American Dream and the Complacent Class

Disturbing New Facts About American Capitalism

From WSJ: Disturbing New Facts About American Capitalism–When winners are taking all, it’s often time to buy the winners

“Let your winners run” is one of the oldest adages in investing. One of the newest ideas is that the winners may be running away with everything.
Modern capitalism is built on the idea that as companies get big, they become fat and happy, opening themselves up to lean and hungry competitors who can underprice and overtake them. That cycle of creative destruction may be changing in ways that help explain the seemingly unstoppable rise of the stock market.

New research by economists Gustavo Grullon of Rice University, Yelena Larkin of York University and Roni Michaely of Cornell University argues that U.S. companies are moving toward a winner-take-all system in which giants get stronger, not weaker, as they grow.

That’s the latest among several recent studies by economists working independently, all arriving at similar findings: A few “superstar firms” have grown to dominate their industries, crowding out competitors and controlling markets to a degree not seen in many decades.

Let’s look beyond such obvious winner-take-all examples as Apple or Alphabet, the parent of Google.

This agrees with earlier posts in which I recommend Amazon, Google, Facebook, and MasterCard stock, all which have market dominance, strong growth, are high-IQ, and have trounced the S&P 500 index over the past decade or longer (with the exception of Facebook, which only went public in 2012). Post-2008 capitalism (but also society) is increasingly winner-take-all, with large and successful firms (but also high-IQ neighborhoods such as Palo Alto and Menlo Park) becoming richer and bigger, as everything else kinda stagnates.

The article offers the following explanation:

Why might it be easier now for winners to take all? Prof. Michaely suggests two theories. Declining enforcement of antitrust rules has led to bigger mergers, less competition and higher profits. The other is technology. “If you want to compete with Google or Amazon,” he says, “you’ll have to invest not just billions, but tens of billions of dollars.”

These explanations seem inadequate. The AOL Time Warner merger was considered a failure and cost shareholders a lot of money. This occurs because parent companies overpay, so bigger is not always better. Established companies can indeed fail or falter when newer and better ones take over (Myspace vs. Facebook; Research in Motion vs. Apple, Google vs. Yahoo, etc.), indicating that the free market system works when it’s allowed to, akin to evolution where better-adapted organisms replace poorly adapted ones. So what could be hindering it? My guess is the difficultly of establishing competing firms, due to high costs. Venture capital has become too scarce and risk-averse (due to the 2008 crisis), and costs such has advertising, rent, labor, insurance, etc. that are required to start a business have all exceeded inflation.

Also, contrary to the ‘tens of billions of dollars’ figure cited by the article in reference to Amazon, in the technology industry, disrupting an existing business can be done for far less. Yahoo was worth $100 billion at the peak of the bubble in 2000, but Google, started 1998 in a garage with $1 million in funding, was able to beat it. In 2006, Myspace was worth billions and owned by Fox News, but Facebook, launched in a Harvard dorm room in 2004, won in the end. But this hasn’t happened yet to Amazon, because the alternatives either don’t exist, aren’t as good, or haven’t been able to unseat the market dominance that Google, Facebook, and Amazon already have, or such alternatives simply cannot get the funding, due to scarcity of venture capital.

Overall, both middle income workers and small businesses are being strained, the latter unable to keep up and take advantage of the cheap borrowing and economies of scale that large firms benefit from; the former on the losing end of the tireless push for more productivity and efficiency, where for many jobs the supply of labor vastly exceeds demand.

With wealth creation the ‘new America religion‘ (which is both kinda cruel and ironic given how hard it has become for the typical American to create wealth, unless you’re in the technology industry, get lucky, or have a lot of money invest in the stock market and or real estate), it’s not surprising many feel left out.

Related: The Post-2008 Economic Reality

Why Socialism for the Rich, Capitalism for the Poor?

This article is going viral: Why Socialism for the Rich, Capitalism for the Poor?

A small annoyance is how the word ‘socialism’ has come to mean so many things, usually depending on the underlying political or economic motives of whoever is using it, that it’s become hard to define. Socialism can mean:

1. Partial or total government ownership and influence of otherwise private firms

2. Worker ownership of the means of production

3. A system of government (social democracy) and or policy characterized by a very large social safety net (welfare state); significant presence of unions

4. Used interchangeably with ‘crony capitalism’ in which the government ‘picks and chooses winners and losers’, and or an economic system or policy that favors the wealthy and or large corporations

The article seems to be alluding to the forth definition.

This passage stood out:

Theirs is cutthroat hyper-capitalism—in which wages are shrinking, median household income continues to drop, workers are fired without warning, two-thirds are living paycheck to paycheck and employees are being classified as “independent contractors” without any labor protections at all.

Yes, as discussed before, for those who don’t have above-average IQs, your life may suck, if it doesn’t already. The past half century, but especially the past decade, has hit these people the hardest, who find themselves stuck in the low-paying service sector or unemployed, the high-paying manufacturing jobs of earlier decades that were doable by people of all IQ levels, long gone.

The problem is a lack of stability. Manufacturing jobs provided generational stability for families and children, but with these jobs gone, people have become more itinerant and atomistic. Construction and energy jobs, although they pay well, are very sensitive to both macro and miro economic conditions, making it hard for workers to settle down. Gig jobs don’t pay well, are demanding, and offer no benefits, unlike salaried jobs–but gig jobs create a lot of economic value–there is no waste, because workers, who are dependent on feedback and referrals, are fully accountable for their success or failure, whereas in corporate america, the cost of individual incompetence and sloth is shared by the entire firm (it’s like those group projects in school, where the smart kids do all the work but everyone gets equal credit).

It’s not so much that all jobs will vanish, but rather the quality of many jobs in terms of pay is declining, as part of the ‘hollowing out of the middle’.

But also, many businesses are struggling. By some estimates, this is this harshest environment ever for small business (except web 2.0 and stuff like that, which is immune). Employees are being squeezed but so too is small business, which is another component of capitalism. Multinationals are thriving because of an abundance of cheap capital (due to low interest rates), allowing them to expand and possibly crowd out smaller businesses. But there other factors for why small business is doing so badly: over the past quarter century, the cost of rent, land, insurance, and advertising has vastly exceeded inflation, but credit has become much more tight to all but the largest and safest of borrowers (the old joke being, to get credit you must first prove you don’t need it). This is part of America’s transition to a deterministic economy (similar to a planned economy) and society.

Related:
The Meritocracy We Don’t Understand

Why Bitcoin Keeps Going Up: Analysis

The huge 2016-2017 Bitcoin rally is on a lot of people’s minds: Why does it keep going up? Didn’t all the ‘experts’ in 2011-2014 say it was a bubble? Why does it refuse to burst? Is it a bubble? Maybe not.

Correct Predictions, Part 2:

Over and over again I keep being right: Bitcoin keeps going up, now at $630 on its way to $1,200 again, and even higher. Been telling readers to buy since $100 in 2013.

It hit $1,200 last night.

In late 2015, I explained why the US government didn’t make a concerted effort to prohibit Bitcoin, and how many got it wrong:

Since 2011, Bitcoin has defied all predictions of its collapse. If I had to compile all of the failed predictions of Bitcoin’s demise, it would take days and fill dozens of pages. Here are some of them, courtesy of Google. Even Moldbug, as smart as he is, got it wrong.* One could argue it’s too soon to call Bitcoin victorious, but I think three years is long enough. If the US govt. were going to make a concerted effort shutdown Bitcoin, it would have done so already. Unless it’s overtly illegal, what has to be understood is that the government typically doesn’t like to shut things down, preferring instead to regulate and tax. In the wake of the Silkroad debacle, Bitcoin has become heavily regulated,as far as America is concerned, and people who trade bitcoins are subject to capital gains taxes, much like a stock. Same for vendors who use Bitcoin as payment. If the government can’t shutdown cigarette companies, which cause about 500,000 deaths per year in the United States alone, are they really going to make a big effort to shutdown a harmless currency**? Because people occasionally use firearms for nefarious activities, does that make guns illegal? No. But guns are heavily regulated…same for cigarettes and alcohol.

But my explanation was inadequate. There are more factors at play as to why Bitcoin keeps going up–global macroeconomic factors.

Bitcoin is surging because it’s a globally accepted store of value and means of commerce, and the fixed quantity and production prevents devaluation. Unlike gold, all transactions can be done remotely and confidentially, and there are no storage costs, eliminating all the problems that are associated with storing large quantities of gold. My prediction is all dips will continue to be bought and the price will keep rising. $4,000/coin is possible. Been long since 2013, so I am biased in that regard, but there are real fundamentals here too.

Foreign currencies have lost anywhere from 30%to 99% of their value against the US dollar since 2013. Beginning around 2002 and ending around 2011-2013, many foreign governments carelessly amassed substantial infrastructure debts that now they are struggling to pay off (due to economic weakness for these foreign economies and the surging US dollar), creating a cycle of inflation and currency depreciation, making Bitcoin more attractive to own for people and businesses in these countries.

Between 2002-2011, US hedge funds and private equity flooded foreign markets with billions of dollars in capital in the hope such countries would emulate the economic success of America, but these countries amassed large debts, such as to fund construction projects, pensions, and other initiatives. Such hopes dissipated in 2011-2013 when the foreign economy turned south, first during the 2011-2012 Euro crisis, then in 2013 when the Federal Reserve began its ‘taper’ program, and then, finally, two year later when the Fed began its rate hike cycle after an seven-year hiatus. These factors made foreign debt became much less attractive, helping to spur both a US dollar rally and and outflows out of foreign asserts and currencies, and then the commodity crash of 2014-2015 dealt a second blow to these foreign economies, particularly Russia and Brazil, both of which fell into recession. Greece, Spain, Italy, and Portugal, which squandered their 2000′s surpluses on pensions and other projects, fell into recession and needed to be bailed out.

US investments helped propel an emerging market bull market that lasted between 2002-2008, but since 2011 emerging markets have significantly lagged. Hedge funds, having been burned in 2011-2015, are not going to touch that stove again.

Bitcoin is rising because citizens and businesses have lost faith in the competence of their governments, and rightfully so. America is an exception in that it’s well-managed and strong economically and fiscally (especially relative to these foreign economies), which explains the flight to the US dollar, and also Bitcoin.

For example, in 2013, depositors at Cyrus’ largest bank lost 48% of their savings above 100,000 Euros:

NICOSIA, Cyprus (AP) — Depositors at bailed-out Cyprus’ largest bank will lose 47.5% of their savings exceeding 100,000 euros ($132,000), the government said Monday.

The figure comes four months after Cyprus agreed on a 23 billion-euro ($30.5 billion) rescue package with its euro partners and the International Monetary Fund. In exchange for a 10 billion euro loan, deposits worth more than the insured limit of 100,000 euros at the Bank of Cyprus and smaller lender Laiki were raided in a so-called bail-in to prop up the country’s teetering banking sector.

A second factor may be the rise of global authoritarianism, unrest, and unease, reducing confidence in keeping money in banks, and assets that face geopolitical risk…Bitcoin, because it’s decentralized, is immune to geopolitical risk. As long as you have your wallet, you have your wealth.

But what about the US debt clock? Doesn’t America also have a lot of debt?

The absolute debt does not matter. To put the debt in perspective, interest paid on US debt relative to GDP is at multi-decade lows, meaning that the debt burden is not significant:

The US dollar is unique because it’s the world’s benchmark of wealth. The Forbes 400 list is benchmarked in dollars, not Yen or Euros. The US dollar is not only a reserve currency, but everything (such has oil, gold, etc.) is denominated and traded in US dollars, not Euros, Francs, Pounds, or Yen. This allows the US to persistently run trade deficits without hurting its ‘wealth’, unlike other countries that would lose wealth in the form of high inflation and currency depreciation if they did the same. This makes the debt clock almost meaningless, and had someone in 2000 sold short US treasuries in anticipation of high inflation, they would have lost their shirt despite the national debt surging since then. Foreigners are buying Bitcoin to preserve their wealth against recession, currency depreciation, inflation, and crisis.

Related: Collapse Can Wait, Part 2

Peter Schiff was technically right…but he got the country and the currency wrong. The debt crisis is not in America…the evidence suggests it’s everywhere else (except Germany, Japan, and China). So the same ‘debt crisis’ argument that is often ascribed to America applies to the rest off the world instead, and that helps Bitcoin.

The Best of Times or The Worst of Times?

We have two contrasting opinions:

From Bill ‘RamZPaul’ Gates: Warren Buffett’s Best Investment

Bill: One of my favorite books is Steven Pinker’s The Better Angels of Our Nature. It shows how violence has dropped dramatically over time. That’s startling news to people, because they tend to think things are not improving as much as they are. Actually, in significant ways, the world is a better place to live than it has ever been. Global poverty is going down, childhood deaths are dropping, literacy is rising, the status of women and minorities around the world is improving.

And on the other extreme: Our Miserable 21st Century

Based on the empirical evidence, I side with the latter (optimism about the US economy and America), although it’s sightly more complicated. I argue there is a Lockean/Hobbes optimism/pessimism dichotomy, from Neo Masculinity and Christianity, Darwinian Conservatism, Free Will, Biological Reality:

But this should not be confused with a pessimistic view of human nature, as expounded by Hobbes. In the spirit of Locke, I am optimistic about the human condition, as well as the economy, but not for most individual humans – in that while society will continue to advance and prosper in terms of technology and other metrics, and the stock market will keep going up, at the individual level things won’t feel so great, with ennui, anxiety, and emptiness the dominant human condition for the vast majority who are not smart enough to attain ‘enlightenment’. John Locke’s optimism was rooted in his faith, for man to full fill his ‘god given’ potential to create, in contrast to the atheist Hobbes who equates man to animals. There is a middle ground, in that we are in an ‘enlightenment’ for those who are smart and successful enough to participate in it , but a Hobbesian ‘dark age’ for everyone else. The capacity to create does not come from god or some creator, but from genes, which is how Darwinism can be reconciled with the more optimistic, future-oriented worldview of the Enlightenment.

America, are measured by it’s economy, S&P 500 profits & earnings, stock market, global military and economic influence, and innovation is doing better than ever; but a lot of people, especially those in the ‘fat middle’ of the IQ distribution, seem to be falling between the cracks. They aren’t starving to death, but they aren’t fully participating in the post-2009 recovery either, plagued by high debt, weak job prospects, medical bills, student loan debt, etc…

So for for rich and or high-IQ people, especially in the web 2.0 ‘tech scene’, times are, generally, good:

..America, especially since 2008, has become a hyper-meritocracy in overdrive. If you like coding, have a prestigious degree and a high IQ, now couldn’t be a better time to be alive, although having the first two qualities pretty much guarantees the third. We’re in a high-IQ, STEM, wealth creation feeding frenzy on a biblical scale. The Rockefellers, Vanderbilt and Carnegies actually had to build something to get wealthy, which took decades and thousands of people. Now start-ups less than three years old are making instant billionaires out of their youthful founders and early investors. Even in the 90′s – what many consider to be the epitome of a bubble – a typical tech start-up was seldom valued at over $60-100 million. Now that is just the Series A round. The Bay Area housing market is going nuts in all-cash bidding wars above the asking price due to endless fed money, rich foreigners, web 2.0 founders and investors flush with cash, and private equity.

This does not apply to all smart people, obviously, but your odds are better than for the less intelligent. For everyone else, maybe the odds of economic success are poorer. That’s the way I see things for the foreseeable future, possibly for decades or even a century or longer. This is also how HBD, the ‘American dream‘, and the success and strength of the US economy are intimately related, because America, through its free market, political stability, and prestigious research universities, is like a ‘magnet’ for the world’s best and brightest, boosting the US economy but also causing a ‘brain drain’ among countries that have their top talent poached by American tech firms and universities. The ‘wealth of nations‘ is real, and, economically, low-IQ countries do worse the high-IQ ones, like Singapore:

The Gross Domestic Product (GDP) in Singapore was worth 292.74 billion US dollars in 2015. The GDP value of Singapore represents 0.47 percent of the world economy. GDP in Singapore averaged 71.73 USD Billion from 1960 until 2015, reaching an all time high of 306.34 USD Billion in 2014 and a record low of 0.70 USD Billion in 1960.

A 422x gain in 55 years, greater than perhaps any developed country:


source: tradingeconomics.com

Contrast that with Zimbabwe, which only gained 14x in the same time period:


source: tradingeconomics.com

Obviously, there are other factors besides IQ, but as we see, time and time again, smarter countries are better countries, with greater economic growth, less corruption, and more stability.

America’s national IQ is 100, but that includes large populations of ‘low scoring’ groups, but in regions such as the Bay Area, Massachusetts Avenue Cambridge, and Manhattan, it’s probably as high as 110-115. The same applies to real estate: since 2007, smarter regions (Palo Alto, San Francisco, Manhattan) have provided higher returns than low-IQ ones (Detroit, Chicago, Minneapolis).

Regarding the second article, Our Miserable 21st Century, the author is misconstruing/misinterpreting statistics and committing logical fallacies (such as moving the goalposts) to advance his political agenda.

The recovery from the crash of 2008—which unleashed the worst recession since the Great Depression—has been singularly slow and weak. According to the Bureau of Economic Analysis (BEA), it took nearly four years for America’s gross domestic product (GDP) to re-attain its late 2007 level. As of late 2016, total value added to the U.S. economy was just 12 percent higher than in 2007. (SEE FIGURE 2.) The situation is even more sobering if we consider per capita growth. It took America six and a half years—until mid-2014—to get back to its late 2007 per capita production levels. And in late 2016, per capita output was just 4 percent higher than in late 2007—nine years earlier. By this reckoning, the American economy looks to have suffered something close to a lost decad

Yes, maybe growth is slow and weak compared to the 40′s and 50′s, but compared to the 80′s and 90′s and early 2000′s, it’s pretty much in-line with historic trends, albeit just a tad lower:

But part of the alleged economic weakness may also be attributed to the declining population growth rate of America:

When adjusted for population size (per-capita GDP growth), it’s better.

Yes, it often takes 4-5 years to recover from a recession. It was that way in the 70′s and 80′s, yet the author somehow ignores those instances.

“The U.S. Congressional Budget Office (CBO), for example, suggests that the “potential growth” rate for the U.S. economy at full employment of factors of production has now dropped below 1.7 percent a year, implying a sustainable long-term annual ”

Sounds like moving the goal posts…growth is growth, and the USA has the highest real GDP growth (at 2-3%) than almost all developed countries. Anyone can create an arbitrary metric and than say the US economy is ‘failing’ by not meeting said metric. Part of being a ‘reactionary realist’ is living in reality, not, as Scott Adams calls, a ‘mental movie’.

The USA has the highest real GDP growth of all developed countries, which is even more impressive given its size:

This is the chart the ‘fake news’ does not want you to see, who insist the US has weaker growth than the rest of the world, which is refuted by simple empirical comparison of growth rates.

The fake, misleading financial media only reports nominal GDP growth, not real growth, so countries with high nominal growth seem to be better but the are actually worse because all that growth comes at the cost of inflation and falling currencies. From Slow Economic Growth Not a Big Deal:

It’s like selling a book for $20 but inserting a $20 bill inside. Yeah, you’ll get a lot of sales, but it’s costing you more money than you make. That’s the bad situation facing many of these emerging countries right now…they are borrowing a lot of money at very unfavorable rates to keep growth high, whereas America can borrow at very little and still have solid growth.

Profits & earnings for tech companies, payment processing, retail, and consumer staples companies have far-outpaced GDP growth. A lot of the lag comes from the chronically weak financial, commodity, and energy sector.

Google, Amazon, and Facebook reported blowout quarters for like the 50th time in a row. Companies like Nike, Lowes, Costco, Disney, Johnson and Johnson, Starbucks, and Home Depot reporting double-digit profits & earnings growth.

The pundit-left as of late has invented a new tactic: trying to emphasize with the concerns of Trump voters and the ‘working class’ (as Michael Moron tries to do), instead of mocking them, which I have dubbed ‘concern liberalism‘. Maybe this is a sign of desperation or capitulation by the far-left, because they know their ideology is failing and they are losing.

Make The Stock Market Great Again

Stock market hits new highs The ‘Teflon market’: Why stocks keep setting new highs despite Trump drama

The S&P 500 has gained 10% since Trump’s victory.

However, thank free markets, profits & earnings growth, exports, consumer spending, web 2.0, technology, and innovation by America’s best and brightest, not Obama.

Glad I ignored all those people who said to sell stocks if Trump won…Bitcoin will also keep going up. Same for home prices in Bay Area. My favorite picks, Google, Facebook, and Amazon, keep doing well too. the Snapchat IPO will also likely be a success and I’ll buy some of that (but not much). These companies have become an inseparable part of everyone’s lives…people using Google for search, and there are Google Adsense ads everywhere (all major sites have them…Bloomberg, NY Times, WSJ, Forbes, etc). Everyone shops on Amazon, which is overtaking offline retail. Over a billion people login to Facebook every day and also click the Facebook ads, which advertisers spend billions of dollars every year on. Also, there is Instagram and WhatsApp, both owned by Facebook are are seeing huge growth and ad spending.

Barry Ritholz, who despite being on the ‘left’ provides a sober and rational outlook on political and economic matters, has a list of all the pros and cons stock market under Trump The Investing Pros and Cons of Trump:

No. 1. Tax Reform: This is the big one, and it includes tax cuts, cleaning up the corporate tax code and repatriation of trillions of dollars of corporate profits parked overseas to avoid onerous taxation. As noted before, it would be hard to beat the economic impact of tax cuts, tax reform and the return of all that overseas money. Add this to No. 3 on our list, and you get Keynesian stimulus at its finest.

No. 2. Deregulation: Hope comes not only from the financial sector, which has enjoyed a bigly post-election market rally, but from lots of other industries. The wishful thinking is that the cost of doing business declines.

No. 3. Infrastructure: Trump seemed at one point to be gung-ho on a plan to spend as much as $1 trillion on refurbishing and expanding America’s bridges, roads, tunnels, ports and water systems. As we pointed out yesterday, it is long past due.

No. 4. Sentiment: All of the above have combined to make business people and investors more optimistic, which of course feeds into what we’ve seen going on in markets.

Barry also lists the potential negatives, which in my opinion are vague and vastly outweighed by the positives. Should Trump get his way, which given the GOP-controlled house is almost certain, we can expect a couple trillion dollars of more spending on top of existing spending projections. Much of that spending is going to flow into the economy, housing market, and stock market. Even if tax cuts do not pay for themselves, because the USA can borrow at such a low rate, the spending adds to top-line growth at almost no immediate cost.

I don’t like Zuck’s politics, but Facebook has been and will continue to be a great investment, and Zuck seems to know how to please the people who matter most, the shareholders. Same for Google and Amazon, which despite censorship from the former (by deleting YouTube videos and accounts that post ‘controversial’ stuff and then making up lame excuses such as ‘copyright violations’ for a mini soundtrack from 25 years ago or some other BS) and crappy politics from the CEO of the latter, continue to be good investments. Sometimes you can’t agree or have everything. Zerohedge, although they tacitly support Trump, has been wrong about the economy and stock market since 2009. I don’t take my politics and investment advice from the same source: Facebook has crappy politics but it has been a great investment; I agree with the alt-right on things like anti-democracy, Trump, anti-feminism, anti-SJW, Nietzsche philosophy, HBD, etc., but not on the doom and gloom economic stuff.

Gab is gaining momentum as an alternative to Twitter, but alternatives to You Tube are more elusive.

I tend to be more of an empiricist when it comes to certain issues. It’s empirically obvious to myself (and others) that SJW-liberalism is as much of a mental illness as it is a failed ideology, that the alleged ‘college rape epidemic’ is a combination of hoaxes and false memories, that biological differences between men and women and races exist and such differences manifest in socioeconomic outcomes and IQ scores, that capitalism > communism, that ‘rape culture’ is a also myth, that the mainstream media is rapidly losing credibility, and that democracy as a system of government is deeply flawed. Yet at the same time, the empirical evidence also shows that that US economy is not dying, but is doing quite well as measured by data such as consumer spending, technological innovation, exports, and profits & earnings growth. Although there is some some civil unrest and angst in America, the empirical evidence again shows it’s not abnormally high relative to earlier decades.

However, there is significantly more unrest in counties such as Turkey, France, and Brazil (so much so that it threatens their economies), but I would never invest there nor recommend anyone else do so. I have been bearish on emerging markets and Europe since 2013. Emerging markets and Europe have significantly lagged the S&P 500 since 2011, as another example of a correct prediction by this blog. Low-IQ countries tend to have a lot of unrest, graft, inflation, and corruption and make bad investments. Italy and Greece are much closer to being an ‘idiocracy’ than America. In America, the Tea Pot Dome scandal and Watergate are still a big deal, to give an idea of how rare corruption in America is compared to quotidian corruption in Brazil, Argentina, Venezuela, and Turkey, which fills volumes and is a part of everyday life for those countries.

I am ‘short’ Europe and emerging markets while ‘long’ US stocks and treasury bonds. If there is global civil and economic collapse, Europe will most certainly go down the drain first and the deepest and furthest down the drain. I will profit from the differential (America minus ex-America), so even if there is collapse I will come out ahead.

Another reason I’m optimistic is because the neocons in Congress, even if they aren’t crazy about Trump, will gladly accept lower taxes, deregulation, more military sending, which is what Trump wants and what the stock market wants. Trump may cave on some issues to get his other policy passed. If Congress stonewalls Trump, then fears of Trump upsetting the economy through ‘rash policy’ will be abated, which is an undue fear to begin with.

Overall, the fact so many pundits were wrong about Trump and the stock market is further reason why they (and the rest of Fake News media) are losing credibility. Let them fail…their absence won’t be missed.

Trump Presidency Predictions and Significance: Economics, Immigration, Culture, and Endgame

From Social Matter: Reactionary Political Theory On Contemporary America

Our question is the following: what is the significance of Trump’s victory? What does it mean for the Modern Structure?

To answer the first question: a change in national sentiment. To answer the second, not much.

Trump’s rise definitely ties into a ‘shared narrative’ of a national frustration with the direction of the country, a distrust of elites, and opposition to the ‘status quo’ both in terms of economics and immigration.

But is Trump a legitimate threat? Maybe not so much.

Part 1. Economics & Finance The stock market keeps making new highs…if Trump is supposed to be a threat to the establishment, the market is not buying it. I think the market is correct and that most of this is just saber rattling , although we’ll see. The stock market is a good real-time barometer of the well-being and confidence of financial elites. If elites lose confidence, they will sell stocks and move to treasury bonds, corporate bonds, gold, or cash. ‘Challenging’ the elite is the first part; ‘doing’ is much harder. Elites are used to being challenged, and are also used to getting their way.

Tariffs are not that a big deal and more symbolic than anything, although could be problematic if overdone. Trump’s pledges to keep jobs in America seem seems to involve overly generous subsidies and or corporate welfare that may have unintended/perverse consequences. For example, the Cobra Effect.

Related, a major criticism of the Trump Carrier deal is creates a perverse incentive for companies threaten to outsource more jobs than originally planned, to get subsidies for jobs that they originally had no intent to move.

Trump is a businessman, and businessmen generally don’t like to lose money. Trump (to borrow from Taleb) has a lot of ‘skin in the game’ in that his own personal fortune is closely tied to the overall health of the US economy.

Motivated by self-preservation, I predict Trump will avoid sweeping economic policy that may cause harm both to his own personal wealth and the overall US economy, instead, as Scott noted, focusing on ‘symbolic gestures’ that get a lot of media coverage but on the grand scheme of things don’t move the needle much.

So overall, the finance-elite probably will come out ahead in a Trump administration, barring some sort of major recession or bear market (which may or may not be attributable to Trump).

Part 2. Immigration Regarding immigration, now this is where the ‘elites’ are sightly more scared, although I don’t think they have too much to worry about. Trump’s executive order was a setback, but the 9th Circuit struck it down, so it’s off to the Supreme Court, but the odds don’t look too good:

But given that the Supreme Court currently lacks its ninth member, there a real chance of a 4-4 split on the bench along ideological lines, which would have the effect of affirming the ruling of the 9th Circuit, inflicting a more permanent blow to the new administration.

Even if it passes, there will be too many holes, exemptions, and waivers. And as everyone has already noted, the ‘ban’ does not include the countries that are most responsible for state-sponsored Islamic terrorism, such as Saudi Arabia, Pakistan, UAE, and Egypt. Sunni Islam is the bigger threat, but Trump’s ban mostly targets Shia countries. Also, many instances of Islamic terrorism in America have been perpetrated by second generation immigrants from middle or upper-class backgrounds. From CounterJihad.com A Case Study in Conversion to Terror (UPDATED):

That a first generation of Muslim immigrants is often succeeded by a radical second generation has been documented by Foreign Policy, PBS, and by statisticians in Denmark. The first generation came to America or to Europe for reasons they felt strongly enough to make the move. They understood they were electing to move to a society that was less Islamic, and accepted the trade off. Their children, born in the West, did not experience the realities that made their parents leave the old world. They reject the laws and customs of their new society as being opposed to their Islamic identity. The Danish statistics found that second-generation Muslim immigrants are 218% more inclined to crime than their parents’ generation.

Furthermore, obviously, it doesn’t deal with Mexican immigration, which is what voters specifically had in mind when Trump was campaigning on immigration control. It’s still very early in Trump’s first term, so he has plenty of time to get to that. But given how Trump’s travel ban has been neutered (and was porous to begin with), deportations and restrictions against Mexican immigration similarly faces a major uphill battle. That’s the problem with democracy and progressivism: you can’t undo it. It’s like an escalator: either you get off or keep going up, but you cannot turn back.

So the amnesty-elites are worried, but too soon to call it a defeat for them.

Part 3. Culture wars Given the GOP’s long history of losing ground on culture issues, the prognosis is not good. Trump campaigned as an ‘immigration warrior’, not a ‘culture warrior’, and his past views on these issues is cloudy, such as being pro-choice at one point. He is also indifferent about same-sex marriage, and may or may not try to overturn Roe v. Wade. Many of the people close to Trump and part of his ‘economic circle’ aren’t big on culture issues.

Part 4. Endgame Overall, to reiterate, my expectations for Trump, especially regarding economic policy, are muted. That’s that’s at least for the next 4-8 years. Although I said earlier that progressivism is irreversible, technically things can change, although it will be a marathon, not a sprint.

There are two possibilities of ‘reset’: ‘quick and sudden’ (such as economic collapse, natural disaster, nuclear war, or other crisis) or ‘slow and steady’ (gradual change in sentiment and leadership). The former may not always be the best, if the elites do the rebuilding, which was the case in the 30′s following the Great Depression in which FDR, a major leftist, rose to power and whose reforms far outlasted his four terms. The 2008 financial crisis and 911 also saw the elites rebound to a stronger position than before.

The ‘slow and steady’ approach may be more viable. A notable example was the transformation of the Rome Empire from paganism to Christianity, which unfolded over a 100-year period, from around 300 to 400 AD. Until Constantine’s conversion and legalization of Christianity in 312, Christianity was mostly relegated to the fringes, practiced by only 10% of the Roman population, who feared persecution, in contrast to paganism which dominated. By around 400, paganism was outlawed. Such an ideological transformation can occur in America, and will also take a similarly long time. What is required is that ‘alt right’ politicians (who are more extreme than Trump and don’t care about financial self-preservation) accede and maintain control of the major branches of government long enough to have the Supreme Court replaced and restocked, eventually allowing constitutional amendments to be reversed, and possibly new ones to be added that increases the power executive branch–or-possibly does away with the existing system of government all together. Over 60-100 year timetable, this is possible, although still unlikely. The odds will go up if there are exogenous factors to speed this process

Related to this theme of collapse, check out And then what happens?