Reframing the Political Environment by Stephen Duneier
What we are witnessing in America, and indeed around the world, is an uprising, a revolution of potentially historic proportions. And it should come as no surprise. Throughout history, whenever wealth and income disparity has risen to such extreme levels, it has triggered social unrest of the highest order. Understanding why it has occurred and the likely implications, will help us be better prepared for what awaits us on the horizon.
Since the invention of capital, whenever mankind has experienced a leap forward in the evolution of technology, large scale social disruption has developed. This time appears to be no different. The question is, why does it happen?
Technology makes us more efficient as a species. It allows us to gather food, build homes and cars, execute orders and file tax returns faster, better and cheaper than we could do it before the evolutionary leap. When we think of technology in those terms, it sounds fantastic. It is exciting and positive. There is a dark and disruptive side to innovation, though. A side that we rarely focus on. It is important to understand that when we say technology has made us more efficient, what we’re really saying is that we now require far fewer humans in order to generate the same output as before. While society as a whole may benefit from cheaper goods and services, the bulk of the gains from a leap forward in the evolution of technology gravitate toward the owners of the genetically advanced seeds, the machines, the software, and the capital. It is the natural order of the system we adhere to as a species, but it is not without its problems.
The sense of “fairness” looks very different depending on which side of the equation you fall. As a software designer or investor in a business that say, owns patent rights to a drug that a great deal of people depend upon, you think it’s only fair that you are able to extract as much of the benefits as the market will bear. After all, without your invention, no one would benefit. If you require that drug or want to use that software, but can’t afford it, maybe because you have been displaced or devalued by technology elsewhere, you will see the price spike as unfair. When enough members of a society perceive the balance of transaction fairness to be skewed against them, the odds of an uprising build, and the dissension plays out through politics. Over time, as the disparity in wealth and income grows, so too does the political polarization, until it reaches the point where it seems neither side of the aisle can agree on anything at all.
The polarization bleeds into other societal institutions, particularly the media. People choose a side and gather their information exclusively from the sources dedicated to propagating their team’s views, ensuring that each side becomes more deeply entrenched in their own narrative. Any dissension, even listening to the opposing players’ opinions is viewed as treasonous, making compromise and negotiation impossible. The result is a stalemate. Nothing happens from a policy perspective, but technological progress continues unabated, away from the fray, and the disruption continues to build.
Eventually, someone steps in to put the blame squarely on the system, and everyone associated with it. They argue that the entire system is broken and must be overthrown. Anyone associated with it is accused of corruption, and outed as part of the problem. If the entire system is corrupt, it must be wiped clean, and rebuilt correctly from the ground up again. To take down such a far reaching, powerful organization requires an extraordinarily strong leader. One who is beyond reproach. One who can be trusted to not only lead the overhaul, but to identify who is “clean” enough to be a part of the new regime. History is, in fact, repeating itself.
The Current US Election Cycle We have framed the current presidential election in the same way we have done for nearly 200 years, as a contest between a Republican and a Democrat, a liberal versus a conservative, a left leaning versus right leaning candidate. But the frame is wrong, and that is what has created the confusion among pundits, participants and even voters. While many have correctly recognized that this is not a traditional election, we haven’t properly identified what it is that makes it truly unique. However, with one marginal adjustment to the frame, the distinction becomes obvious. Instead of thinking of this as a competition between Republican and Democrat or conservative versus liberal, think of it in terms of a duel between moderates and extremists, on both sides.
To see what I mean, let’s begin by examining the Democratic primary. By all accounts, it was a competition between Hillary Clinton, a moderate liberal Democrat and Bernie Sanders, an extreme liberal Democrat. Since they are both liberal Democrats, the only truly distinguishing factor is that one is a moderate while the other is an extremist. While you might take issue with the term “extreme” and “extremist”, they are the most appropriate for properly framing this. After all, Bernie Sanders’ views and objectives clearly place him on the far left end of the political spectrum, particularly relative to any of the other major candidates, at least in recent history. By comparison, Hillary is so moderate that during the primaries, she was often characterized by Bernie supporters as a Republican in a Democrats clothing. Now to the current election, beginning with the support for Hillary Clinton. As you would expect for the Democratic nominee, she has a lock on the party base. What you wouldn’t expect though, is how much support she has from Republicans, including staunch, lifelong members of their base. Just as surprising though, is how difficult she has found it to gain support from Sanders’ base, even with him unequivocally and adamantly imploring them to do so. What it suggests is that his base isn’t so much in favor of him as they are in favor of something other than the status quo. If they were truly supporters of Bernie, they would get behind Clinton without question. Instead, when he suggested that they vote for Clinton in the general election, many of the extremists on the left abandoned him as a traitor.
On the Republican side, there were three extremists vying for the candidacy, but only one with national brand recognition. It makes sense that Trump would choose to run as a Republican. Strategically, it was the right move. The Republican base has been moving further and further toward the extreme right end of the political spectrum for decades. It’s important to note that one of the fundamental tenets of extremism is an absolute and unbridled belief that your views are beyond reproach, that anyone who sees things differently is stupid, brainwashed, or even criminal. Therefore, negotiation and compromise are not viable options. Being centrist or moderate is viewed as a weakness, even treasonous. It is the very nature of an extremist’s modus operandi.
While many believe that the electorate wants to hear solid plans for righting the perceived wrongs, we appear to have moved beyond that point. After decades of fighting and stalemating between the parties, while the problems continue to grow, rightly or wrongly, the majority appear to have lost faith in the government’s ability to fix the problems. What they are saying in no uncertain terms, is that they don’t trust the people in charge.
The truth is, what ails us is the system itself. There is no solution that will be gladly accepted by either side of the fight, for they are both edging toward a battle believing fairness and righteousness is on their side.
The reality is, Donald Trump has no more control over his supporters than Bernie Sanders does over his. The movement is neither about Trump nor Sanders. They are merely in the right place at the right time, speaking the words of revolutionaries. There is a difference between Trump and Sanders though. Sanders is not prepared to see this through to its inevitable end. In other words, he is not an anarchist or a nihilist. He is an idealist, whereas Trump is an opportunist, which means Sanders is not willing to see this through regardless of the cost to himself, or society. In that respect, Trump is the more likely leader of a true revolution, because he simply doesn't care (or perhaps understand) what this means for society. He only cares what this means for himself. That isn’t a criticism. It is an observation.
Even if the moderates win this election cycle, it is unlikely Trump will go away quietly. We should expect him to continue stirring the hornets’ nest of extremism, because he recognizes that support for it will continue to build with or without him. Like any good opportunist, Trump will milk it for all its worth. Consequences be damned.
Further Bija Articles on the Subject From Global Economy’s 3rd Phase “I believe the global economy is in Phase 3. Sure, houses can still be built or swapped out for hotels, but the frenzy of activity is over. Those who have, are taking as little risk as possible. Those who don’t, have become disengaged, slowly coming to the realization that the odds are stacked against them. Even infusions of cash do little more than merely extend the game, for every transaction exaggerates the disparity adding to the wealth of the game’s leader who simply socks it away. No new transactions, no investments. Just one player building their savings while everyone else is reduced to financial ruin, and the game is over. The only way to reengage everyone is to begin the game again, from scratch. If you think about it, that’s how it happened in those two previous periods in recent history.”
From The Mother Lode of Political Intel “Take another look at the groups and you’ll see they can be broken into two simple categories, those who have something to lose, and those who don’t. Considering the findings of Messrs. Kahneman and Tversky, it is indeed significant, and goes a long way to explain how it is that a party with far fewer supporters is able to compete, and win so often. The answer, of course, is loss aversion.”
From I Was Wrong “Rather than this becoming an argument between two sides, we should be thinking about leaps forward in technological innovation as something akin to a natural disaster, or in insurance parlance, “Acts of God,” for their impacts are similarly disruptive, and equally unintentional.”
From The Coming Seismic Shift in American Politics “Why another radical shift in the two party political system is in the works, similar to what we experienced in the late 1800’s and the second quarter of the 1900’s. Of all the derivative effects, this one is the most important to understand and to watch for progress, because in the previous episodes, it was the one that triggered the reversal of the biggest trends. If we learned anything from the previous eras it is that the only thing that can be as disruptive as a leap in technological innovation is a decisive shift in political will.” From Rise of the Machines “Is this the end for mankind? The rise of the machines? In my opinion, the answer is an emphatic, "NO!", but just as farming led to the end of mankind as it had existed for millions of years before, so too will life as we know it be changed forever, and that change is happening, now. Unfortunately, we aren’t adjusting the metrics we’ve been employing to gauge its impact, because we’re at a loss as to how to go about it. That has implications for your entire macro economic dashboard, and those of the world’s policymakers.”
About the Author For nearly thirty years, Stephen Duneier has applied cognitive science to investment and business management. The result has been the turnaround of numerous institutional trading businesses, career best returns for experienced portfolio managers who have adopted his methods, the development of a $1.25 billion dollar hedge fund and 20.3% average annualized returns as a global macro portfolio manager.
Mr. Duneier teaches graduate courses on Decision Analysis and Behavioral Investing in the College of Engineering at the University of California. His book, AlphaBrain, is due to be published in early 2017 (Wiley & Sons).
Through Bija Advisors' coaching, workshops and publications, he helps the world's most successful and experienced investment managers improve performance by applying proven, proprietary decision-making methods to their own processes.
Stephen Duneier was formerly Global Head of Currency Option Trading at Bank of America, Managing Director in charge of Emerging Markets at AIG International and founding partner of award winning hedge funds, Grant Capital Partners and Bija Capital Management. As a speaker, Stephen has delivered informative and inspirational talks to audiences around the world for more than 20 years on topics including global macro economic themes, how cognitive science can improve performance and the keys to living a more deliberate life. Each is delivered via highly entertaining stories that inevitably lead to further conversation, and ultimately, better results.
His artwork has been featured in international publications and on television programs around the world, is represented by the renowned gallery, Sullivan Goss and earned him more than 50,000 followers across social media. As Commissioner of the League of Professional Educators, Duneier is using cognitive science to alter the landscape of American K-12 education. He received his master's degree in finance and economics from New York University's Stern School of Business.
Bija Advisors LLC In publishing research, Bija Advisors LLC is not soliciting any action based upon it. Bija Advisors LLC’s publications contain material based upon publicly available information, obtained from sources that we consider reliable. However, Bija Advisors LLC does not represent that it is accurate and it should not be relied on as such. Opinions expressed are current opinions as of the date appearing on Bija Advisors LLC’s publications only. All forecasts and statements about the future, even if presented as fact, should be treated as judgments, and neither Bija Advisors LLC nor its partners can be held responsible for any failure of those judgments to prove accurate. It should be assumed that, from time to time, Bija Advisors LLC and its partners will hold investments in securities and other positions, in equity, bond, currency and commodities markets, from which they will benefit if the forecasts and judgments about the future presented in this document do prove to be accurate. Bija Advisors LLC is not liable for any loss or damage resulting from the use of its product.