Do You Think The Economy Will Escape A Trump Meltdown?

From time to time I asked my financial advisor when she thinks the Trump Crash will come. She doesn't see one coming any time soon. I hope she's right. Do you know who Jim Rogers is? I used to see him on TV all the time when I watched financial news programs. Usually termed a "legendary investor," he was one of the founders of the Quantum Fund. He was just interviewed by Business Insider's Henry Blodget. He predicted "a market crash in the next few years, one that he says will rival anything he has seen in his lifetime." (He was born in 1942.)

He grabbed the first opportunity to make his prediction-- less than 30 seconds in: "Some stocks in America are turning into a bubble. The bubble’s gonna come. Then it’s gonna collapse and you should be very worried. But Henry, this is good for you. Because someone has to report it. So you have job security. You’re a lucky soul." Blodget, of course, asked when and why. Rogers said "Later this year or next... Write it down."

Well, it’s interesting because these things always start where we’re not looking. In 2007, Iceland went broke. People said, ‘Iceland? Is that a country? They have a market?’ And then Ireland went broke. And then Bear Stearns went broke. And Lehman Brothers went broke. They spiral like that. Always happens where we’re not looking. I don’t know. It could be an American pension plan that goes broke and many of them are broke, as you know. It could be some country we’re not watching. It could be all sorts of things. It could be war. Unlikely to be war but it’s going to be something. When you’re watching Business Insider and you see, ‘That’s so interesting. I didn’t know that company could go broke.’ It goes broke. Send me an email and then I’ll start watching.

So how bad will it be?

Rogers: It’s going to be the worst in your lifetime.

Blodget: I’ve had some pretty big ones in my lifetime.

Rogers: It’s going to be the biggest in my lifetime and I’m older than you. No, it’s going to be serious stuff. We’ve had financial problems in America-- let’s use America-- every four to seven years, since the beginning of the republic. Well, it’s been over eight since the last one. This is the longest or second longest in recorded history, so it’s coming. And the next time it comes-- you know, in 2008, we had a problem because of debt. Henry, the debt now-- that debt is nothing compared to what’s happening now. In 2008, the Chinese had a lot of money saved for a rainy day. It started raining. They started spending the money. Now, even the Chinese have debt and the debt is much higher. The federal reserves, the central bank in America, the balance sheet is up over five times, since 2008. It’s going to be the worst in your lifetime, my lifetime too. Be worried.

Blodget: I am worried.

Rogers: Good. Good.

Blodget:  Can anybody rescue us?

Rogers: They will try. What’s going to happen is they’re going to raise interest rates some more. Then when things start going really bad, people are going to call and say, ‘You must save me. It’s Western civilization. It’s going to collapse.’ And the Fed, who is made up of bureaucrats and politicians, will say, ‘Well, we better do something.’ And they’ll try but it won’t work. It’ll cause some rallies but it won’t work this time.

Blodget: And we are in a situation where Western civilization already seems to be possibly collapsing, even with the market going up all the time. Often when you do have a financial calamity, you get huge turmoil in the political system. What happens politically if that happens?

Rogers: Well, that’s why I moved to Asia. My children speak Mandarin because of what’s coming. You’re going to see governments fail. You’re going to see countries fail, this time around. Iceland failed last time. Other countries fail. You’re going to see more of that. You’re going to see parties disappear. You’re going to see institutions that have been around for a long time-- Lehman Brothers had been around over 150 years. Gone. Not even a memory for most people. You’re going to see a lot more of that next around, whether it’s museums or hospitals or universities or financial firms.

And not a whisper or even a hint about Trump causing anything. This morning, HuffPo's Zach Carter, writing about what Democrats can learn from Corbyn's big win in the U.K., was more insightful about the relationship between politics and financial (and economic) swings. "Financial crises," he wrote, "foment authoritarianism. This idea is not controversial in Europe, where authoritarian scars are still historically fresh. Stateside, many financial journalists intuitively grasp the connection between banking crashes and far-right politics, after witnessing the pattern in country after country... As Donald Trump surged in the Republican primaries, a flurry of academic papers began making the rounds highlighting the moderately high median incomes of his supporters. These are still trickling out. They continue to serve as feature fodder for centrist publications and continue to be largely irrelevant to the political landscape. It doesn’t matter how rich the authoritarians are. Their key feature is their authoritarianism."

We have had few financial crises in the United States since the Great Depression, and our political thinkers are accustomed to grappling with aristocratic conservatism, not authoritarianism. Aristocratic conservatism-- the type espoused by House Speaker Paul Ryan and establishment Republicans of the past 50 years-- seeks to protect the financial interests and social status of the wealthy. Banking elites want low capital gains taxes, but they are in many ways more protective of their position on top of the American social hierarchy. Even as he scuttled prosecutions for financial fraud and protected bonuses for bailed-out bankers, former President Barack Obama prompted hysterical denunciations from Wall Street by casually dismissing “fat cat bankers” in a single TV interview early in his first term.

The Democratic Party can sometimes defeat aristocratic conservatives by publicly shaming them as extremists. Aristocratic conservatives are sensitive to elite social pressure and respond to attacks on their dignity. This was a key plank of Hillary Clinton’s 2016 general election strategy, and in some ways, it worked: Clinton really did win over a big chunk of millionaires who had previously voted Republican.

But shame is a terrible strategy for defeating authoritarian candidates after a financial crisis. Banking meltdowns don’t unleash a wave of aristocratic sympathy. They cause widespread, unfair suffering and create tremendous uncertainty. People lose their jobs and homes through no fault of their own. Even working families who survived the 2008 crash relatively unscathed did not do so without having to confront new psychological strains. Millions of people who kept their jobs had to come to the aid of family members who did not. The prospect of economic ruin was always right around the corner.

Authoritarians exploit this uncertainty by promising stability, order and safety. This is not a mathematical equation guaranteeing higher incomes. It is a social rebellion against the governing aristocracy that has just failed and-- even in the most just and perfect bank rescue-- enjoyed the political prioritization of its own interests over the needs of the broader citizenry.

In the wake of a financial crisis, the public does not interpret centrist politics as an appeal to moderation or reasoned debate. It sees centrism as an attempt to rehabilitate the legitimacy of the aristocracy which has just pushed the country into disaster. “Countrymen, I have been approved by the finest minds of the old order as an eminently reasonable leader!” is a poor slogan when measured against “I will crush your enemies and restore your glory!”

A much better pitch? “I am on your team and will protect you.” This works very well with promises to expand and improve social welfare programs. “I will break the cheating aristocrats who did this to you” can also be effective. In 1932, Franklin Delano Roosevelt put the Democratic Party in power for only the third time since the Civil War by campaigning on a combination of both messages.

Whatever the slogan, anti-authoritarian politicians need to make a clean break with what failed and offer a psychological alternative to authoritarianism’s call for order through violence and suspension of civil liberties.

The specific policy agenda is important-- politicians need good ideas that people actually like. Corbyn appears to have significantly boosted the youth vote by promising to abolish college tuition fees entirely. But policy mostly functions as a guidepost for voters. A leader’s tone and presentation matter just as much-- the point is to project a sense of safety and community. Corbyn nailed that part, too. When May called the election, she and the Conservatives believed Corbyn’s left-wing priorities would alienate him from voters. His stump speeches did the exact opposite.

...Trump is the American strain of the authoritarian virus that has infected much of Europe. In France, its standard-bearer is Marine Le Pen. In Greece, it is the neo-Nazi Golden Dawn party. Finland has the True Finns; Hungary has Jobbik. In the U.K., this faction was represented by Nigel Farage and the U.K. Independence Party, which won 4 million parliamentary votes in 2015 and successfully mobilized a campaign to push their country out of the European Union by demonizing refugees and promising better health care for native Britons.

Farage is still at it. During a Fox Business interview with Maria Bartiromo last week, he raised the prospect of mass “internment” of “thousands” of terror suspects. But under May, the chief vehicle for authoritarian politics in the U.K. has become the Conservative Party. She has embraced Farage’s Brexit cause and floated the repeal of human rights laws in the name of stability in opposition to Corbyn’s “weak” approach to terrorism. On Thursday night, UKIP was decimated, its vote split between the new ethno-nationalist haven in the Conservatives, and the populist alternative offered by Corbyn’s Labour party.

The same union of authoritarian insurgents and the aristocratic old guard is taking place in the United States. After campaigning as an authoritarian populist, Trump has filled his administration with Goldman Sachs alums and is embracing the aristocratic economic agenda of Paul Ryan’s Republican Party.

And the Republican aristocracy, with a few Never-Trumper exceptions, is reciprocating. Just ask Paul Ryan about James Comey’s Senate testimony. Then ask him about Dodd-Frank.

Corbyn made significant gains where nearly every political expert in Europe expected him to march off an electoral cliff. He did so by abandoning dyed-in-the-wool aristocratic Tory voters, energizing new, young Labour voters with policy, and making a direct psychological challenge to authoritarian appeals.

There’s a lesson there for the Democratic Party. It can be the party of the Good Aristocrats, or it can be the Anti-Authoritarian Party. But it can’t be both.