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Trump and the USA

1/3/2017

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Welcome to Donald Trump and Politics. In my upcoming ebook, I explain in greater detail the issues we face going forward, but I want to touch on a few of these now. Note that these issues would be largely the same had Clinton won the Presidency, but I will focus on the potential issues going forward that could be exacerbated by the Trump Presidency. The great global convergence has barely begun, and this means there is lots at stake going forward.
We all know it: there is a problem with the employment rate in the USA. Automation and offshoring are draining the US job market of jobs. This is extreme efficiency, and in a sense it is the normal result of cost efficiency and shareholder returns for multinationals, which are more present in the USA than anywhere else. The issue now is that it is becoming harder to get a spot under the sun for a greater portion of the population, as people must cope with significantly-more-than-wage-growth education, health, and housing cost inflation. People are priced out. Real GDP per capita is increasing while median real disposable incomes are stagnating. The USA has the highest daly-standardized depression rate in the world, a murder rate 3 to 5 times higher than all other high-income countries, ranks systematically in the top 3 countries in the world for antidepressant consumption, and an off-the-wall incarceration rate that is just unreal compared to all other high-income countries to the point that it artificially decreases the unemployment rate.

Anyone saying that all is fine with the USA is in deep denial. There is a problem, and it is serious. Now let's talk about how rough it is to be in the Land of Opportunity... The USA is a great nation and a great superpower, there is no denying that. The policy context in which a superpower operates is one of global dominance and domestic (and regional) stability. Growth is paramount to a superpower, more so than distributional considerations. The 2 regional neighbours are pretty "safe", as Canada and Mexico, although quite different, will not pose a stability risk in the region. On the global sphere, there are NO competitors in sight in terms of geopolitics, but coalitions could eventually form that would act as a counterbalancing power to the USA, with China being the obvious growing giant and Russia failing to prosper, but still armed enough to have significant strategic power. There is quite a bit to say about the global geopolitics under the Trump administration, but I don't want to discuss that in this post... Here I want to talk about domestic stability. Yes. In the USA.

People voted for Trump for many reasons, but a significant proportion voted out of sheer rage. Life is rough in the USA and people are exhausted. The only country in the world with ZERO regulatory paid vacations is... not China, not Mexico... the USA. Now before you start freaking out about efficiency, let's mention that efficient, low unemployment and high employment countries such as Switzerland, Australia, the UK, Sweden, and many others have between 20 and 30 days per year, not counting national holidays. Canada is on the low side at 10. All this to say that life in the trenches of the US middle class is rough and it may be starting to be too rough...

Superpowers such as the USA must balance the need for 1) a good option for their own people so that domestic stability is maintained, 2) economic growth, and 3) regional and global military dominance. The need for growth and military dominance is easy to understand: you need prosperity to feed power and military superiority without excessive debt buildups or sacrifice in other sectors to finance the military (North Korea). The USA has general growth and significant military superiority... but it is underestimating the increasing hurting of its own majority, and I contend that this could cause some instability in the USA within the next decade, which will be noticed and leveraged by geopolitical competitors. What form would this take? Perhaps not an outright "revolution" (although you never know!), but rather a "slow and gradual walk into chaos", with small extremist groups, civil unrest, more crime (if that's possible), more dirty politics, more inequality and "rage at the elites", and a gradual flaking of the Union, to the great pleasure of geopolitical foes. The Soviet Union disregarded all aspects of enduring power: respecting freedom, providing a context with a fighting chance to get ahead with somewhat equal opportunity, and general prosperity. Hopefully the USA will have the wisdom to "see" that the "system" is not benefeting the majority anymore, and perhaps the system may be pushing the limit a bit much. Actually this is the ultimate enemy, because it is not a big "catastrophe" or a large-scale attack, which are "easy" to confront and "unite your people against"... it is the slow, imperceptible walk into a crisis situation that gets to a hard-to-repair point. France is close to that point now, but for very different reasons than the USA. Like the frog that you put in cold water over a heating stove, it doesn't "notice" it is boiling until it is too late.

When large portions of workers are rendered useless from automation and offshoring while at the same time your system is becoming a hard-to-carry weight for the majority, you are gonna run into problems eventually. Inequality is already high and Trump wants to detax high-incomes who are already not taxed all that much, which will only add to capital markets, asset price inflation, and bring more automation and offshoring. I expose the whole story in greater detail in my ebook, but I wanted to mention this now, as Donal Trump will soon take over. The need for wisdom, vision, and boldness has rarely been higher. I will give to Trump that he has boldness... we'll see for the rest... Please show appreciation by liking and sharing. Regards.

Pascal Bedard
contact@yourpersonaleconomist.com


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