Extremism in a (Relatively) Healthy United States

If an alien dropped into the United States this week, they would be forgiven for thinking our country was in the direst of straits.  Recent headlines have screamed out, "Fire and Fury", "DEATH & HATE", "In Chilling Nuclear Terms, Trump Warns North Korea".  For people of all viewpoints, Facebook walls are flooded with (typically echo chamber-ish to one’s own beliefs) desperate pleas to “do something”.. So how bad is it?

True, recent events are scary.  A seemingly schoolyard pissing contest over nuclear weapons in North Korea, an unreliable and unpredictable President in the White House and the apparent rise in popularity and brazenness of white supremacists are not things to dismiss.  However, I am struck by the fact that these panicky headlines and Facebook posts are coming at a time when overall, things in the United States are pretty good!  What happens when shit really hits the fan?

Good news abounds in 2017.  While all of the following stats can be caveated and don’t necessarily tell the entire story, they create a pretty reasonable argument that we are living in a time where, historically speaking, things are pretty good.  There are no current world wars. The stock market is consistently hitting all-time highs after bottoming out during the recession in 2009.[1]  The unemployment rate is at 4.3%, a 16-year low.[2]  While our current environment of stubbornly low inflation has its problems, it also means that people are able to buy goods cheaply including gas being on average 43% cheaper than its high in 2008.[3]  Although violent crime increased slightly in 2016, it is still at historic lows.[4]

If our current sense of panic is palpable at a point when many economic and other conditions are pointing positive, we must be wary of the consequences of a massive disruption, whether economic, political or military related.  Ray Dalio, founder of one of the world’s largest hedge funds, recently wrote a report on historical examples of populism and how leaders who invoked this tactic rose to power.[5]  Among his many findings about the rise of populism, he notes that “the most important thing to watch is how conflict is handled – whether the opposing forces can coexist to make progress or whether they increasingly “go to war” to block and hurt each other and cause gridlock".  In addition, in a day when every President’s attempted power grabs are (correctly in my opinion) noted and lambasted by the media and other social participants, it is hard to believe that in 1933, the economy and democracy were in such dire straits that many academics, financiers and those in the media were pushing for FDR to take dictatorial powers!  As Jonathan Alter writes in “The Hundred Days”, “.. he (FDR) toyed with whether to assume wartime powers, the line that had won him such applause the day before.  Which way to go?  He could easily have ruled by emergency decree; the country would have cheered.” 

Dalio’s findings and FDR’s examples warn us of the dangers of a panicky public experiencing a devastating disruption of any kind and should be top of mind as our country moves forward.  Dalio indicates that even as tempers flare and the partisan divide deepens, it is imperative that the government still gets things done for the American people.  FDR's story warns us of the potential consequences when an extreme shock hits the system and government is seen as ineffective.  Combined, these lessons drive home the necessity of preparing for and being wary of the next, real crisis.

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[1] http://www.marketwatch.com/story/what-stock-markets-string-of-all-time-highs-says-about-the-future-2017-07-17

[2] http://www.marketwatch.com/story/us-jobless-claims-fall-to-six-month-low-of-232000-2017-08-17

[3] http://gasprices.aaa.com/

[4] https://www.usnews.com/news/articles/2016-09-26/us-crime-rate-rises-slightly-remains-near-20-year-low

[5] https://www.bridgewater.com/resources/bwam032217.pdf

Review of the Inner Lives of Markets

The Inner Lives of Markets - Fisman and Sullivan

New types of markets (for example Ebay, Uber or Airbnb) are an ever-growing part of our lives whether we are aware of it or not.  The authors argue that the answer lies somewhere between the free-market idealism and state-heavy regulation.  The authors also argue that people can make sense of the current market set-up through understanding the evolution of economic thought over the last 100 years. These ideas have slowly been building on each other leading us to better set-up and performing markets.

Key insight- They're not for everything!
I enjoy the book's idea that markets are increasingly sophisticated and can be utilized to solve an increasingly large number of problems.. However, they do NOT argue that they are the end-all be all for every challenge society faces.  There are plenty of situations where markets and platform companies can help facilitate inefficient groups to ensure everyone gets their best possible outcome.  However, on certain issues, societal concerns about fairness mean that the most "efficient" market is not the one society values most.  For example, it is likely that deaths due to people waiting on the kidney transplant list could be reduced with a system where people can offer money in return for a kidney.  More people would have the incentive to donate and it could be argued that even poorer people would be better off because they value the resulting payoff ($!) more than a second (unnecessary) kidney.  Free market advocates may say that is reason enough to go forward with the plan. However, do we want a system where poor people are selling their organs to the highest bidder, especially if that potentially crowds out people who can't pay for them?  I think the power of the more advanced thought on markets is that we now have a better understanding of how markets can best perform in a vacuum.. With that information, we can make better decisions on how we want to allocate weights to different challenges/variables.

Uber, Airbnb.. New companies that eliminate friction permanently or temporary?
People have hailed the rise of companies like Uber and Airbnb as revolutionary and that have permanently ended some of the frictions that have plagued consumers for years (such as difficulty in getting a taxi when you want one).  The authors make a great point however that these companies will have incentive to create friction in order to maintain their competitive advantage.  For example, Uber will raise obstacles so competitors like Lyft can't thrive which in the end may hurt consumers.

Executive Action on Refugee Program - Unnecessary and Counterproductive

The controversy surrounding the Trump administration continued with the executive order temporarily banning travel from seven Muslim-majority countries.  Proponents claim this is a necessary move (and a follow-through on a Trump campaign promise) to increase US security (America first!) and, anyways, it is just temporary.  I disagree with this executive order because it seems both unnecessary and counterproductive.

Unnecessary and Counterproductive
How does banning travel for those from these countries make the US safer? As many have noted, nobody from these seven countries has performed a terrorist attack in the US since 9/11.  It's not like people from these countries have just been waltzing into the US.  Refugees face a complex and stringent vetting process in order to be able to enter the US.  By shutting down travel from these countries, the US is seemingly handing Islamic terrorists group another propaganda gift.. As this story is covered globally, how easy must it be for ISIS and other groups to use it as "proof" that the US rejects Muslims.  To be clear, I don't think this executive order necessarily means that the Trump administration is rejecting Muslims but I think it is imperative to think of all consequences of these actions and this is one of them.

In my opinion, if the US is concerned about making the US safe, particularly regarding who is coming into our country, it would be a good time to be appreciating and strengthening our relationships with Mexico and Canada.  The effort, strength and cooperation of these countries helps to create the stable regional environment that the US lives in and one that almost any country would trade for.

With many campaign promises checked off in high profile manners, I hope to see the Trump administration think more long-term and strategically in these types of issues moving forward.

Voter Fraud.. You talking about voter fraud??

A main issue that Trump ran on during the 2016 Presidental Election was voter fraud.  Purportedly, millions upon millions of people were voting illegally, swinging elections to the Democrats and overall causing a degradation of our democracy.  Even after winning, a defiant Trump has said he only lost the popular vote because people voted illegally. To me, this is ridiculous as well as dangerous because it distracts from the proven bigger issue of voter suppression.

Ridiculousness

No credible source has agreed with Trump that voter fraud is a big issue.  Surprise! This is a bipartisan issue where everyone agrees very few (and not remotely close enough to affect an election) people actually commit voter fraud. In a day and age where the main parties can not agree on anything (read: Republicans claiming Democrats are going against the American people's will by delaying Supreme Court votes.. When Republicans did the exact same thing 6 months ago), this is something that almost nobody sees as an issue! Based off bi-partisan dismissal of the issue and voting experts claiming the system is secure, I dub this claim, ridiculous,

Dangerous

Maybe Trump knows it's a ridiculous claim. Maybe there's a more complex strategy in play here.  It's no secret that changing demographics are making Republican's jobs of winning elections tougher.  The population increase of minorities who have traditionally voted Democrats coupled with the decreasing population of the Republican base has made the election map more difficult (although the recent presidential election shows assumptions about who makes up the base may be ill-founded.. READ: Hillary's midwest bulwark.  Therefore, some have suggested Trump's pressing of this issue is more of distraction for other things that are going on in the voter area.  For example, the 2016 election was the first election in 50 years where the protections in the federal Voting Rights law were not in full effect. Many have noted that Republican led state governments have enacted many rules that seem to target traditionally Democratic voters such as students, minorities and immigrants.  Even if Trump's investigation into voter fraud results in nothing, it likely will be beneficial from a Republican standpont because it diverted attention from these laws.

Even in the age of fragmented media, I hope journalists continue to do their investigative duty to ensure comments from politicians from all parties are vetted and countered if proven incorrect.