Feeling Better and Feeling Worse: Part 1

By Dee Smith

My attempts to analyze what is transpiring in as objective and unbiased way as possible apparently come across to some as a counsel of despair. That is certainly not what I intend.

But I get paid to face and analyze facts, as far as facts can be discerned. Before and after the U.S. elections, I appeared on several webinars, podcasts and in-person talks. These were to various groups with attendees ranging across the political spectrum. I observed that most Republicans clearly believed that “if only Trump is elected things will be much better” (and they now believe they will), and Democrats similarly believed “if only Harris is elected things will be much better.” The desire for relief was palpable.

Unfortunately, it is not that simple. Let me explain why.

The amount of agency any of us has is much less than we believe—even if you are president of the United States. I mean this is a very specific way: the ability to produce the outcomes you intend and expect.

Many of the problems we face are deep and structural, which is bad enough, but the real rub is that the hyper-complex social, political, geopolitical, economic and environmental situation in which the problems exist is unpredictable as a fundamental property of its nature.

First of all, it can be extraordinarily difficult to instigate actual change. Some time ago, I was doing a project directly for the CEO of a Fortune 100 company. In a meeting, he expressed his intense frustration that “getting this company to do anything — to change anything — is like turning the Queen Mary . . . and I’m the CEO!”

Large systems, whether companies or countries, become highly resistant to efforts to nudge them to change. For example, for all his attempts to do so, over a decade and multiple terms in office, Victor Orban has actually changed the trajectory of Hungary as a country very little.

People who take a disruptive approach can initiate change better than those working within the guardrails of a system. Trump is such a disruptor, so he will be able to instigate many changes. But the nature of the world we live in means that neither he nor anyone else can actually predict and control the effects of such change for long.

And sometimes intended changes are just impossible within a certain situation. For example, both Trump and Harris promised to revive the American industrial working class. But this is almost certainly doomed to failure. Within a decade or two, automation, robotics, 3D printing and other technologies will produce nearly all factory goods. Automation — not offshoring — already accounts for more than 80 percent of job losses in the past 2 decades. Promising a job-rich manufacturing renaissance is meaningless and unfulfillable.

Rigorous analysis of how complex systems behave is one of the triumphs of 20th century science. The study of complexity has explained why, when change occurs, it is often abrupt and unpredictable. Complex systems are full of hidden links. The 2008 financial crisis offered many examples. Even small changes can produce enormous effects downstream. Many actions have unintended consequences: unanticipated knock-on effects (2nd-order, 3rd-order, etc.). Complex systems are full of tipping points. If you add grains of sand to a sandpile, it builds up until the pile reaches criticality — and then experiences a small avalanche. Such systems also exhibit cascading phenomena and non-intuitive inverse relationships.

We have created the most complex human civilization ever. The insuperable interconnectedness and complexity of the world have raised such unintended consequences and related effects to an immense level.

The 18th-century European Enlightenment formalized a belief system proposing that the world was generally linear, logical and predictively manipulable — that certain inputs would reliably produce certain outputs. That is of course what modern science and technology are based on. If you isolate phenomena — a smooth ball rolling down a smooth incline, or a closed electrical circuit — that view is generally true. But in the real world, the balls are seldom smooth, nor are the inclines.  

A good example is in the practice of “pro-forma” financial analysis. The rise of spreadsheets like Excel has led people to believe that they represent the real world and can predict real-world outcomes. But they are abstractions and seldom forecast what actually transpires, because there are too many variables and exogenous elements. The use of such spreadsheets and the illusion of comprehensibility and predictability they engendered were deeply involved in causing the 2008 financial crisis.

There is a term that originated in the cyber security world called “security theater.”  It involves putting in place measures that look like they will increase security but actually offer little protection, if any. They are there simply to make people feel better and to offer legal protection to the entities that deploy them.

Much of politics is analogous. As a species, we seem to most want from our leaders promises that make us feel better. That the promises are impossible to keep seems to matter little or not at all. But, as those promises are broken, we become very angry, and, if we are living in a democracy, “kick the bums out” only to vote more in to make and break more promises. Over and over and over.

Where does all that leave us? How do we move forward?

Into a New Era

A staffer in Donald Trump’s first administration once said that Trump sees unpredictability as one of his great strengths. Trump’s stern dismissal of the Heritage Foundation’s 900-page “Project 2025” blueprint during the campaign was one example of how a person would act if he did not want you to know his next move. Now that Trump is president-elect, businesspeople are understandably eager to find some predictability in the near future. For lack of any better option, “Project 2025” is again being looked at for clues following some statements from pro-Trump commentators that it is, after all, the real blueprint for the next four years.

The most interesting of these commentators is Steve Bannon. Bannon is doing now what he did in 2016: forcefully pushing an agenda and hoping people will believe it is Trump’s as well as Bannon’s. So it is worth remembering what happened with Bannon in the first administration: He rose quickly, he flourished briefly (7 months), and then he tumbled very far. For a leader who cherishes his own unknowableness, it is useful to have underlings claiming that they know his mind and generating ideas accordingly, but such people and ideas can be abandoned — indeed they must be abandoned occasionally, or the president’s power of unknowability will be lost. Trump has made a mark in a long and dramatic life by what he calls “weaving.” Having secured an extraordinary victory by such methods, he is unlikely to switch approaches now. Apart from his core belief in economic nationalism, Trump was a policy freelancer in his first administration. His own officials simply had to try to keep up. There is little reason to suppose this term will be different, at least until Trump becomes a lame duck and the Republican party, with a strong position in Congress and the justice system, begins to define its post-Trump identity.

In looking ahead to that day, several features of the recent election stand out. The first is that the hard-core view of malevolent liberal hegemony has been proved wrong. The electoral system worked perfectly well. There was no “steal.” There was no fraud. Conservative voices were not suppressed. Silicon Valley liberals did not control the information space to their advantage. None of the distinctively MAGA fears about the political game being rigged seem to have much, if any, basis in reality. Americans voted for Trump in the normal way, and then he won.

The prominent Soviet Communist official Georgi Arbatov famously said to a group of scientists in California in 1988, when he was a top advisor to Mikhail Gorbachev, that “our major secret weapon is to deprive you of an enemy.” Arbatov explained: “So much was built out of this role of the enemy. Your foreign policy, quite a bit of your economy, even your feelings about your country. To have a really good empire, you have to have a really evil empire.” Today, the election results have shown that the MAGA view of its enemies and their power was overblown. Where will the movement be without it?  

A second striking feature of the election was the shattering of the liberal view that voters of color were natural Democrats, if not natural liberals. As SIGnal readers know, this has been some time coming (see, e.g., “Vance Notice,” July 19, 2024). Trump appealed in 2016 to both white and non-white working-class voters; this year, he simply built on that appeal. The Democratic assumption seems to have been that people would vote their race rather than their class. That assumption was wrong. Key states like Texas and Michigan went for Trump not least on the strength of non-white votes.

A third and related feature was the central role of the Hispanic Republican vote. No doubt there are many reasons for Hispanic Republicanism, but surely one is that most Hispanic voters are on or near the front lines of economic competition with immigrants. Working-class opposition to immigration has a long history in the United States. Immigrants undermine the wage-bargaining power of the existing lower class. From a lower-class point of view, the first Trump administration, pre-Covid, was economically a good one. Post-Covid, the Biden administration presided over an economy that returned unemployment to the same low rate (~3.6%) that was achieved by the Trump presidency in 2019. However, it did so against a background of price inflation, which made wage gains seem precarious. Immigration threatened to make that worse. It is no surprise that so many working-class voters, regardless of their ethnic background, embraced a candidate volubly opposed to immigration, especially illegal immigration.

The irony is that the Republican party, which was once revived by its rather frank appeal (the “Southern strategy” of Barry Goldwater and then Richard Nixon) to white Americans whose social position seemed to be threatened by the civil rights movement, is now a party backed by an electorally crucial bloc of nonwhite voters whose politics are evidently driven much more by class than by race.

How will the Trump administration and the Republicans manage government, now that their dark view of American democracy (and liberal power) has been proved wrong and their electoral base has achieved a diversity, and a rootedness in the working class, unimaginable in the days of Goldwater, Nixon, and indeed Reagan? If a new enemy is needed, in Arbatov’s sense, it is unlikely to be a domestic racial one. A revival of the Southern Strategy seems highly unlikely. It would be self-destructive. “Trump’s America,” Kelefa Sanneh wrote in the exceedingly liberal New Yorker, “is a place that is more polarized by education than it used to be and less polarized by whiteness and non-whiteness—by race, broadly understood. This switch, if it holds, may be bad for Democrats, at least in the short term. But if one party no longer represents whiteness so specifically, isn’t that good for America?”

The Choices of a Generation

One hesitates to predict anything about the US presidential election save that it will occur and then someone will (eventually) take office. What happens afterward is hard to know. Both campaigns have laid out their policy plans, but those greatly depend for their implementation on Congressional election results and the subsequent priorities. Neither candidate will be able to do just what he or she wants when president.

However, there are a few things that might be counted on. In the case of Donald Trump, the odds are extremely high that his prospective administration will have just one term. The 22nd amendment to the Constitution holds that “no person shall be elected to the office of the President more than twice.” Beyond that, he will be the oldest person to have held the office — 7 months older than Biden in the current term. Biden himself has broken Ronald Reagan’s record by 5 years. Reagan was 77 when he left office. Biden will be 82, as would Trump (with an additional 7 months).

What effects might this have? We can assume that Democrats will be devoting themselves to crushing the life out of the Trump White House as best they can. Just as importantly, perhaps more, the Republican Congressional delegation after the inauguration on January 20 will be looking to possible transformative legislation between then and the spring. After the August recess, members will be focused on the midterm elections in 2026. What role Trump will play in the midterms, and whether he will be a boon or a liability, is impossible to foresee, but it is certain that after the midterms he will be a lame-duck president as well as the oldest in history.

Trump’s mesmeric, sometimes brutal hold on the Republican party has lent it vitality but, given the highly personalized nature of Trumpism, cannot also lend the party stamina. The GOP will need to find new ways to configure itself and explain itself as Trump’s power fades. It seems unlikely that the party will be able to continue to press “Make America Great Again” as it will have already had two terms to make America as great as it can. It cannot remain Trump’s party, but it cannot run against itself either. Will it become still more of a states’ rights party, as in its response to the repeal of Roe v. Wade? Will it become more culturally diverse, as its steady growth among non-white voters since 2016 would suggest? Will it continue to be protectionist?

The case of Kamala Harris is very different. She turned 60 this month and is impressively vigorous. (Tim Walz is just 7 months older.) At the same time, her command over the Democratic party is not clear. Certainly the party leaders and the rank and file seem very happy that she is the candidate. The salvage operation after Biden’s debate debacle was relatively swift, ruthless and well executed. The Harris campaign’s discipline was there from the beginning and has held. At the same time, if Harris wins it will be a victory for the party at least as much as for her. The octogenarian knife-fighting that brought down Biden — Nancy Pelosi turned 84 shortly before making the president face reality in July — led to Harris’s candidacy mainly because there was no way it could not. The party had neither the time nor the internal coherence to pass successfully through an open convention or some similar process. But it did have the discipline not only to line up behind Harris but to bend itself toward ensuring she campaigned effectively. Harris had not campaigned well in 2020. No doubt she learned from that experience. Yet the speed and thoroughness of the Democratic effort are owed to the party first of all.

For that reason it is especially important to look at what the Democratic campaign post-Biden has and has not been able to achieve. Perhaps the most striking result is that the Harris campaign has improved support among white voters without a college education, lack of a college degree being the somewhat misleading proxy for “working class.” The party has long known of its weakness among less-educated white voters, particularly women. (A massive effort to raise the party’s traditionally poor scores among white women without college degrees began in 2023.) The Harris campaign has managed to do something about it, however modest. Equally striking is that the Harris campaign has not done so well among nonwhite voters. The Harris campaign has had as little as half the percentages of nonwhite voter groups as Biden had against Trump in 2020. Harris has, however, polled strongly among the college educated, who are 35 percent of the electorate but 40 percent of likely voters. College-educated voters are disproportionately white and disproportionately wealthy.

So the Harris campaign, whether she wins or not, will likely mark a turn in the party’s understanding of the relationship between biology and political destiny. The nonwhite presidential candidate has helped with white voters while trailing her white predecessor among nonwhites. This is more or less the reverse of what was expected. Will the post-election Democratic party lean further toward racial diversity and class exclusiveness? Will it de-emphasize some forms of public identity? Will it emphasize policies that increase its support among the less educated? Would a President Harris simply preside over these choices, or will she shape them?

After next Tuesday, a victorious Republican party would begin the final chapter of Trumpism and the first chapter of its post-Trump future. A victorious Democratic party might or might not begin its Harris years. Both parties will be going through exceedingly complex post-boomer generational shifts that are already under way. Coverage of the presidential race has tended to frame Nov. 5 as the beginning of one or another Armageddon, but it is more likely to mark the intensification of generational change that will transform the American political landscape.

BRIC by BRIC

The coiner of the BRICs acronym, Jim O’Neill, has made a point of arguing that the bloc is for now little more than a platform for political posturing, even with its expansion over the summer from 5 members to 9. (O’Neill advocates a revivification of the G20 instead.) There was certainly posturing at the most recent meeting of the group, now known in its expanded form as BRICS+. As host, Vladimir Putin did his best to use the event to rebut the idea that Western sanctions and political enmity, due to Russia’s invasion of Ukraine, mean that he is isolated. But most of the meetings and readouts were exceedingly practical, focused on currency issues and security. SIG’s view is that there is an inescapable political momentum behind de-centering the West and particularly the United States. This political trend is increasingly an economic one, as continuing US dominance of global financial institutions (IMF, World Bank) and American use of the dollar’s global indispensability for political purposes combine to alienate a large portion of world markets: the new BRICS+ dwarfs the industrialized G7 not just demographically but also in GDP terms. Even if it is not yet doing it very well, BRICS+ answers a genuine need.

The biggest BRICS+ news was the announcement by Xi and Modi that India and China had reached an agreement of sorts about their border dispute, which shredded India-China ties in 2020. Negotiations had been ongoing and will continue. It is not clear what the two leaders were really agreeing to. What was clear was that Modi and Xi wanted to use the BRICS+ venue to highlight their diplomacy and an easing of tensions. In that sense, BRICS+ proved its worth.

From the Russian perspective, the big push was for a set of policies with a single goal: freeing the global financial system from its vulnerability to US political pressure. These included alternative ways for setting grain prices, the increased use of national currencies to settle trade, and the use of digital currencies by national central banks. In the short term, as ING noted in an excellent paper, none of this is very plausible, but in the long term the use of digital means to depoliticize international transactions by de-centering the US dollar is highly likely.  

What BRICS+ showed was that such a de-centering would itself happen along political lines. The goal is not to “displace” the dollar but to escape its political hold — for political reasons. It is not a neat business. Western sanctions against Russia have led to the sinification of Russian finance. Chinese payments for Russian resources, for example, are often in Chinese currency and parked in Chinese banks, which, with state support, are using Russian events as an opportunity for an experiment in financial innovation. Even Putin does not want Russia to become a ward of China, but sanctions have made that unavoidable. China, for its part, is not about to share any control over its own accounts. “De-dollarization,” in other words, means different things to different states, but they mostly come back to wanting to preserve financial sovereignty, not to share it with some alternative entity that is not the US government.

Meanwhile, Donald Trump in his campaigning has caused near panic in Europe. His comparison of Europe to China is extraordinary. When combined with his and his team’s views on Ukraine — which amount to cutting a deal and insisting Europe do as much of the work as possible — Trump’s tariff threats begin to appear as part of a larger move to split the West. There is no indication at all that this is a deliberate choice, but it is likely to be a real effect. At that point BRICS+ will not look so eccentric.

Trade Policy's Brave New World

As SIGnal readers will recall, the American shift away from free markets to government-guided industrial policy began with President Trump’s “economic nationalism” policies and became bipartisan dogma during Biden’s 2020 campaign. Its public face at the time was Jake Sullivan, a foreign-policy Wunderkind (and famously nice guy) in Hillary Clinton’s State Department who spent the Trump years leading a crack team of Obama administration exiles in search of a “foreign policy for the middle class.” Their boss at the Carnegie Endowment for International Peace was State Department legend Bill Burns, now with four years as CIA director under his belt, just as Sullivan has spent those years as national security adviser. A middle-class foreign policy might even be best understood as a Democratic re-conception of economic nationalism. In both cases, it is security, a/k/a China, that is driving economic policy, which is why the guiding principle for both parties has become economic dominance and supply-chain security rather than efficiency of production within a global market.

It is worth pausing to consider what a profound change this is proving to be. At the Council on Foreign Relations yesterday, Benn Steil, who is no one’s idea of a socialist, crossed the Rubicon and affirmed that the post-Cold War dogma of free trade, based on the venerable theory of maximal production rooted in the pursuit of comparative advantage, has had its day. As he put it, “competitive advantage can be manufactured by a government.” The government he had in mind was that of the Chinese Communist Party. His example was electric vehicles.

The New York Times’s economy reporter Lydia DePillis rather pointedly asked what took so long. Hadn’t free-market purism been dead for a while already? The CFR discussion was occasioned by an article Steil co-wrote with Columbia Law School tax professor Alex Raskolnikov. The latter responded to DePillis’s question by lightly acknowledging that the experts, attached as always to their theories, had lagged behind reality. Steil took a different tack, arguing that economists had been misled by their ingrained assumption that technological change is “exogenous” to an economy and therefore to economics. Steil believes that is not quite the case, and CCP investment in electric-vehicle technologies was the illustration. In that sector and others, China had “manufactured” its comparative advantage rather than acquiring it by the more “natural” (or “endogenous”) means that have underpinnned economic theory since David Ricardo (1772-1823) and Britain’s definitive embrace of free trade over protectionism (1846). Technological change, or innovation, has always been the joker in the pack of mainstream economics. Now the world’s major economies are playing that card. Who knows where it will lead?

One answer can be found in a contest co-sponsored by Jordan Schneider’s indispensable substack ChinaTalk. (The other sponsors were the Federation of American Scientists, economics blogger Noah Smith, and the Fletcher School’s Chris Miller, author of Chip Wars). The contest challenge was to develop policies to counter China’s manufactured competitive advantage in making basic semiconductor chips — “trailing edge” technologies as distinct from “leading edge” ones. As with EVs, batteries, solar panels and much else, China is grabbing market share in basic semiconductors through state-led policy even as the U.S. labors mightily to prevent its advance in leading-edge innovation. As ChinaTalk explained, the problem is that Chinese trailing-edge chips are ubiquitous in today’s products and the microelectronic networks that tie together the digital world. That presents at once a security and an economic vulnerability.

The contest winners generated a fantastic set of out-of-the-box policy options. They include “weaponizing” the U.S. advantage in electronic design automation (EDA) software and imposing an “open design” framework for basic semiconductor production. It would undercut China’s pricing power and be enforced through a production cartel dominated by the U.S. and politically like-minded states together bending their tech sectors to strategic purposes. The long arc of technology innovation that began with the Cold War policy milieu that birthed transistorization, semiconductors and the Internet in the 1960s, then ran through the Silicon Valley privatization of digital networks in the 1980s, ’90s and 2000s, is returning to its public-private roots. This is perhaps not quite what Trump and Steve Bannon had in mind with economic nationalism circa 2016, but it is what we have got.

The ChinaTalk proposals are both arresting and somewhat disturbing. Would the Austrian School philosopher-economist Friedrich Hayek — referenced as a touchstone in Steil and Raskolnikov’s article — have embraced a Free World software-design cartel? Is the expansion of freedom and open societies really served by such market-manipulating strategies? An important article earlier this month by CFR’s new president (and former U.S. trade representative), Michael Froman, makes clear that this is the question of the day.

The economics answer is probably still no. The security answer seems to be a reluctant yes. There remains the sphere of retail politics in leading democracies. (Autocracies like China and Russia have long since decided that free global markets were an imperialist trick to secure first-mover advantages circa 1890. CCP policy can be seen as a descendant of the McKinley Tariffs of that year.) Voters cannot be expected to have the ins and outs of Ricardian theory at their fingertips as they weigh whom to choose for president. Kamala Harris, advocating subsidies rather than tariffs, has tried to portray Donald Trump’s tariff proposals as a tax hike. Economics is on her side; as Froman wrote, “the costs of tariffs are ultimately born by the purchaser,” and disproportionately by poorer consumers. But simply calling your opponent’s tariff a tax and standing pat is unlikely to register with many voters.

Economic policy will always be made by experts. As Raskolnikov said, experts are now catching up with reality. But their willingness to accommodate economic nationalism will only go so far. For now, politics is likely to continue to run ahead of policy.