My Review of Victor Shvets' "The Twilight Before the Storm"

 The Times They Are A-Changin* 

Viktor Shvets, an investment strategist at Macquarie Bank, doesn’t like the baby boomers, especially the neoliberal order that generation brought into being. Drawing on the work of Neil Howe and others ( https://shulmaven.blogspot.com/2023/09/my-review-of-neil-howes-fourth-turning.html ) wherein generational changeovers drive history he argues that the neoliberal order of 1980-2010 is over and we poised enter a turbulent era with the Gen-Z and millennial generations taking power. He analogizes the coming epoch to that of the 1930’s where communism, fascism and social democracy fought it out for global supremacy which set the world on fire in the 1940’s.

To Shvets the change is being brought about by the merger of financialization with the technological revolution which is creating an unsustainable income distribution that has given rise to populism on both the Right and the Left. He calls this the Fujiwhara effect where two tropical storms merge to create a monster storm. I would note that his view of fairness is horizontal equity as opposed to vertical equity where people are free to enjoy the fruits of their labor and talents.

I am a big fan of Neil Howe and I have written a thus far five part series on “Reliving the 1930’s” (See: https://shulmaven.blogspot.com/2023/11/reliving-1930s-part-5.html ) As result a read Shvets’ book with some sympathy, but in my opinion he gets more than a few things wrong. I lived the 1960’s through the rise of neoliberalism as a hippy protestor to working on Wall Street. I know I am far from being the only one. However, his boomers are the ones who went to college, not the ones who fought in Vietnam, went to work in a factory, and suffered through the divorce epidemic of the 1970’s. 

 

While Shvets is critical of the individualism of the boomers in the economic realm, he fully supports their individualism with respect to sex, drugs, and racial tolerance. Basically, the rebels of the 1960’s won a complete victory in the culture war and lost the economic war. To me it was no accident that economic freedom went hand in hand with personal freedom, although you can certainly argue there are excesses in both areas.

 

Connecting our era to that of the 1930’s, Shvets’ believes that ideally, we would have a rerun of 1930’s America along a path toward Roosevelt-style social democracy that would include a universal basic income. However, that path might not be viable and it is not the only path. The social democratic path faces the fundamental reality that in the “Blue” cities of America that are far down the road toward social democracy we see abject governmental failure in the form of high taxes coupled with poor services, failed public education, fiscal bankruptcy, governmental fraud and the widest gaps between rich and poor. That future is hardly enticing.

 

Instead, the fourth turning could lead to a major cultural revolution towards a new religiosity in society. Where the Gen-Zers and the millennials have substituted environmentalism, socialism, feminism, and new ageism for religion, in place of the market fundamentalism of the Boomers, they may ultimately turn to the real thing. It won’t be the first time America has had a religious awakening, and it won’t be the first time that history surprises.

 

*-With apologies to Bob Dylan

My Review of Ray Dalio's "How Countries Go Broke: The Big Cycle"

 Paying the Piper

Ray Dalio, the founder of Bridgewater Associates, which became the world’s largest macro hedge fund, has written an important book on the inexorable reality that accumulated debts have to be extinguished one way or another. He utilizes a host of international examples and aside from the U.S. he focuses in on Japan and China. No matter the country, the piper has to be paid. Dalio’s big cycle lasts approximately 80 years, and it is in many ways similar to the long cycles discussed in Neil Howe’s “The Fourth Turning.” (See: Shulmaven: My Review* of Neil Howe's "The Fourth Turning is Here: What the Seasons of History......" ) It seems that we are on the precipice of Dalio’s big cycle joining  the crisis point  of Howe’s generational cycle. If that is the case, the turbulent time we are now living in is only in its early stages.

 

Dalio’s debt/credit/economy cycle big cycle is made up of a series of short cycles where credit expands and contracts. However, overtime debt increasingly accumulates because it does not generate the revenue needed to service it. The monetary authorities accommodate the increase in debt by going from MP0 where money is tied to a fixed standard, like gold to MP1 where policy is tied to a policy rate to MP2 where through quantitative easing money is printed. At the end of the day when the debt can no longer be serviced at reasonable interest rate, the debt is either directly repudiated or inflated away in order to deleverage the economy. If the debt is not denominated in local currency, it will be repudiated.

 

Overlapping the credit cycle are two other cycles and exogenous events such as acts of nature and the introduction of major innovations that spur growth. The cycles are an internal political cycle evolving around order/disorder and an external cycle similarly revolving around order/disorder. Today the confluence of the big credit cycle with disorder in both internally and externally means Howe’s fourth turning is upon us. What can mitigate this eventuality or make things worse will be the impact of innovative artificial intelligence on our society.

 

Dalio’s solution to the big cycle calls for reducing the federal deficit as a share of GDP from the current 6% to 3% by increasing taxes, lowering spending and lower interest rates. Similar to the 1990’s deficit reduction, if credible, would work to lower interest rates. Some of these nostrums sound similar to what the Trumpies are arguing, except the part about tax increase, tariffs aside. The Trump way of lowering the debt/GDP ratio relies heavily on much lower long-term interest rates that would bring with it other issues.

 

Dalio is clearly worried, and he makes a compelling case to be worried. My criticism of the book is that although he highlights his main points in bold, it still is way to repetitive and because I read the book on my Kindle, the numerous charts were too difficult to read. I therefore would recommend the hard copy.