RECOGNIZING SOCIAL CHANGE IS HARD, BUT MAYBE EVEN HARDER TO ACCEPT?

The Greatest Political Challenge of the next decade will be the fallout from"Inequality"

  • We are in the initial stages of a long-term tectonic social shift which will change the financial markets as we now know them forever.
  • Already Capitalism has morphed into "Creditism" which has profound repercussions as we have moved from Savings & Investment to Credit & Consumption!
  • The enormous financial opportunities this has created has brought about "Peak Greed" which has spawned Social Inequality,
  • History tells us that times of such social imbalance and political impotence spawn the most dangerous event risks.

INEQUALITY & INABILITY TO SEE ACHIEVING A QUALITY LIFE

There is increasingly more populism today which talks about social revolution of some form or another.

  • The truth is we need to make things better,
  • We are confronted with political failure across the occidental economies – the UK paralyzed by Brexit, Europe in sway to populism, and the US – enough said.
  • We face a time of increasing protest and struggle.
  • The issues should not be about social revolution against the insanely wealthy – but making everyone better. (If they were smart, the wealthy would agree.)
  • At the core of the crisis is income inequality and a populist leftward-shift fueled by the growing and very visible divide between the haves and the have nots.
  • Firebrands like Democrat Alexandria Ocasio-Cortez have seized the imagination. She is clearly scaring the billionaire class – because they are doing their utmost to dismiss her as a blundering momentary fad. But, she and the rest of the Social Democrats – or Socialists as the right wing are demonizing them - are getting airtime, and hitting the pulse of the stretched middle who are nervous on their futures, their families, healthcare, education, taxes and jobs.
  • The new Democratic/Socialist agenda is not that shocking – it boils down to simply needs and challenges current political leadership continue to fail to address:
    • Reaffirming opportunities for all,
    • Providing training to create a workforce prepped to succeed in the new modern/robotic environment,
    • Up-skilling,
    • An educational rebuild,
    • Being able to be more productive in a competitive/disruptive global marketplace,
    • Aiming to create future security by investing across infrastructure to future proof the economy.
    • Aiming to cover and provide strong and stable healthcare for all.

These are all common goods to benefit the whole of society.

  • Its difficult to support Billionaire capitalism when ostentatious wealth is flouted in our faces, our monied “betters” won’t embrace society, and the weak and struggling of society are treated with contempt.

Image result for social contract

PEAK GREED

Bill Blain concludes that we have hit "Peak Greed" as he recently lamented on what he and others feel:

....  there was a discussion I had with a client this week. He’s a very successful fund manager who has been doing well. He was enthused, interested, and keen to explore new investment ideas. Over coffees we got onto talking about his young family, the fact he doesn’t see enough of them, the misery of his 1 hour each way commute, and his feeling of constant struggle – his earnings seem to just cover the mortgage, fees, schools, the cars and all the other sundries of modern life. He is time poor and feels financially stretched. He’s certainly in the top 0.2% of UK earners, but feels he’s just making do.

Most of us will know exactly how he feels. He is not alone. Apparently, you need a £250k income to survive in London these days. San Francisco is even more expensive.

What is in store for our kids? Even after we poured money into their education and they’ve found “good” jobs, they struggle to pay rent on grotty flats (with little expectation of buying their own), and are lumbered with student debt. What have they got to look forward to? 30/40 years of clinging on before retiring on miserable pensions they’ve struggled to save in the heartless gig economy? And these are the better off kids..

WHAT WE MUST BE PREPARED FOR

  1. There will be significant political shifts and reinvention – populism won’t last long as it will be replaced with new social norms and expectations,
  2. We can expect to see massive change in the role of central banks, and their inter-reaction with governments, to drive clearer economic goals and objectives.
  3. The age of inflation targeting is over – we are going to undergo profound change after the scale of the last 10-years mistakes becomes apparent.
  4. Green/environmental themes will come to the fore as the scale of what we’ve done to ourselves becomes apparent,
  • Billionaire Ray Dalio’s comments on the inevitability of Modern Monetary Theory, and his acceptance of the need for taxing the rich, is one aspect of the new financial reality. The imperative for change in the actions of central banks as they are stuck in zero rates is one thing. The fact his thoughts are echoed my many other leading economists, but also by the rising star of politics, Alexandria Ocasio-Cortez, is fascinating.
  • I was stuck by the Sob-Story of a Chinese mother who blubbed she thought the $6mm she paid a corrupt sports coach was sponsorship to get her daughter into Stanford University. The video her daughter made was much more revealing – justifying her privileged admission to her “followers” on the basis of hard work she never did.
  • Or how about the billionaire boss of US pharma firm INSYS, John Kapoor, going to jail for bribing doctors to overprescribe opioids – now one of the largest killers in the US. What shocks me is the numbers of doctors happy to take $150k per year from Insys not blinking as they were killing their patients!
  • This week in LA was the “Predators Ball” in Los Angeles – the Milken Institute’s annual gab-fest of the great and greedy of the markets. It’s been described as yet another gathering of “Billionaires telling Millionaires what the ordinary people think”. The theme of the conference was “Driving Shared Prosperity”. (WTF does that mean?)  Some of the participant quotes are shocking – but at least the Billionaire message was very simple: Capitalism is Good, Venezuela and Russia prove that Socialism is very bad - taxing billionaires is Socialist and therefore very bad. The conference came complete with a sound garden and a puppy petting park - because petting puppies “reduces blood pressure, promotes focused inter-reactions, and stimulates problem solving.” BARF.
    • Let’s go back to the Predators’ Ball in LA. Conference founder Mike Milken is now a philanthropic legend supporting medical causes. Those of us of a certain age remember him as the king of the junk bonds who was sent down to sew mailbags for Uncle Sam after his shady dealings at Drexel Burnham Lambert were exposed in the 1980s. He remains insanely wealthy.  (Some say he was the model for Gorden Gecko – check it yourself…)
    • Apparently, the conference highlight this year was a 1977 video of Margaret Thatcher telling every one “Capitalism has a moral basis… to be free, you have to be capitalist.”
    • Thatcher made a good point in 1977 as she prescribed her drastic cure for a very sick and troubled UK in the iron grip of the unions, spiralling from daily power cuts towards the dire Winter of Discontent, before her election victory in 1979. But, I am sure Thatcher would be shocked by Capitalism today. Capitalism is justifiably under attack because of its excesses. Let’s not think it’s a battle between humanity and few billionaires – but what the 0.01% elites have come to represent looks crass, shoddy and vulgar. They are a tiny minority.
  • At heart, Democrats in the US, and most Labor voters in the UK, remain Capitalists at heart – taking responsibility for themselves and striving for better. Voting from AOC or for Jeremy Corbyn does not mean Moscow wins and we all start singing the Red Flag. (Disclosure: I am originally Canadian which makes me genetically a quasi-socialist)

HOW WILL THIS BE PAID FOR?

  • The horror is because the Democrats propose taxing the rich to pay for it. The sheer effrontery!
  • They don’t believe in trickle down. They don’t believe rich entrepreneurs create jobs and pay more to their workers.
  • They dare to suggest their social betters pay minimum wages to their workers and pay themselves obscene amounts!

They do that because its true…

  • Ray Dalio – the hedge fund manager who paid himself $2 bln in 2018 – has noted the change in the wind. Despite that $2 bln paycheck he admits capitalism is flawed and needs reform. He accepts he will pay greater taxes,
  • Moreover the predicts an enormous shift in policy responses –Monetary Policy 3 and Modern Monetary Theory (MMT) as inevitable consequences of failed monetary experimentation these past few years. 
  • These are dangerous concepts – governments spending money is always open to abuse.
  • Issues from simply writing off the vast amounts of public debt held by central banks to generating public consumption through directly paying consumers to consume could be on the table. You can read Dalio here.

There are going to be fascinating times ahead!