1. The Storm Before the Calm
America's Discord, the Coming Crisis of the 2020s
and the Triumph Beyond

by George Friedman Source  
 
Summary/Analysis by Walter Antoniotti 10/29/24

 
 
 

   

1. Three Political Institutional  Systems

Federal and State Relationships no longer work.
A difficult, painful restructuring of how institutions work and interact results.

Executive Summary


Index

Born in Battle, Forged in War

Institutional Systems

3rd System Ending

2. America's Socioeconomic Periods

Five Socioeconomic Periods
 

Born in Battle, Forged in War
War exposes institutional weakness leading to a shift

1. Emerged with the Drafting of Constitution,
ended with the Civil War 1787-1865
Cycle established a Federal Government,
but left its relationship to the states unclear.


2. From Civil War through WW2 1865-1945
Cycle established authority of the FEDs
 over State Government
.

3. Post WW2 to end this decade. 19452025
Authority of technocratic FEDS expanded
to include economy and society wellbeing.

4. 4th Cycle will redefines FEDs Institutional Framework
 in relation to itself.

Infrequent institutional framework changes are 
usually driven by war.
When socioeconomic stresses collides
under the added stress of war,
 institutional failure results.
The US then experiments to change and improve
 the existing-no longer working institutional framework.

As wars changed, so the framework must change.
Civil War and WW2 caused massive institutional change.
Now, stress of being the world's sole superpower
is added to the continuous 21st century conflict,
the old institutional framework is not working well.
Turbulence will remove old powerful institutional forces.
It will not be pleasant.

See Updates PDF

The Continuing Storm Newsletter George Friedman 1/7/22

 

Institutional  Cycle Framework  

1. Constitution in 1787 to winning of the Civil War

Institutional concern: Weak Articles of Confederation

Outcome: US began the continuous development of a Federal Government Institutional Framework.

Unanswered Question: Relations with the very important state governments was unclear
 

2. Civil War Amendments of 1865 through WW2

Institutional concern: Slavery.

Outcome: US Federal Government would be the predominate. national institution.

Unanswered Question: Accommodating the intersectional differences among states, the economy, and society

3. Post WW 2 expanded federal authority through end of globalization

Institutional concern: Winning WW2

Outcome: Expanded federal government size and power to mitigate the Depression and win WW 2.

Unanswered Question: Solutions to the ever increasing gulf within and among participants.

Note: There was no Federal Institution during the War for Independence.  

Third Institutional System Ending
Post WW 2 Expanding Federal Authority
Through the End of Globalization

Our WW 2 victory was achieved with large federally directed projects
managed by experts in science, business...
Technocrats slowly took command of government and business.
The new system worked very well.
Then the 1970's oil price increases and Asian/German competition
began affecting many aspects of our socioeconomic environment.
 

Communication issues grew between governments and citizens.
Average data looked good so technocrats ignored individual issues.
Business had similar issues with employees and customers.
Competition forced business to maintain profit
 by lowering manufacturing investment.
Investment returns were maintained by
investing in finance and investing overseas.
Participants who did not adopt were in Deep Doo Do
 pain in the pooper!

Now, unhappy citizens are forcing US Government institutional change.
Vested interest will fight to maintain their control of the current system.

"Last week, the Trump administration released its 2021 budget request,
which would cut Department of Education outlays by 8 percent while
proposing dramatic change in how federal school dollars are allocated."
Vested interests consisting mostly of education experts and
technocrats with extensive credentials will attack these changes.

Turmoil lasting about ten years could reach 1970's levels.
Trump supporters are leading the nation. They are the vanguards of change.

Summary

2. America's Socioeconomic Periods

Every fifty years or so the American economy and society pass through a painful cycle where it often feels that both were collapsing. Existing policies no longer work. A financial crisis often precedes the coming political/cultural crisis. Current leaders say nothing is wrong, but protecting their vested interest causes them to lose control of difficult events. Failed old thinking presidents are replaced by new more flexible presidents. 

Think FDR and Ronald Reagan replaced . They were successful because they allowed for the beginning of unknown TBD changes. Politics are not the problem. The problem is a significant deep social and economic dislocation. Political strife and noisy are not the engines of change. Change is pushed by the need for a new system that works.  Over time a new common sense is put into place and America flourishes.

 

 

Five Socioeconomic Periods

Instigator: Articles of Confederation Instigator: Slavery. Instigator: Winning the War  

1. Constitution in 1787
to winning of the Civil War

2. Civil War Amendments of 1865
 through WW2

3. Post WW 2 expanded federal authority through globalization   

 
1.Washington-
Adams 1783-1828

2 Jackson-Grant
 1829-1878

3. Hayes-Hoover
1878-1932

4. FDR-Carter
1933-1980

5. Reagan-
1981-202_?

Quarrel between a Federalist and a Republican in the House of Representatives Begin Polarization
 

Prelude: Northern Business Aristocrats and Southern Planter Aristocrats triggered and financed a revolution. Unlike the French and Russian revolutions, stability was maintained and America's leaders remained in place.

Political Tensions began 1801 when the election ended in an Electoral College tie. Receiving votes were 2 Federalists , Adams(65) and Pickney(64) plus 2 Republicans Jefferson(73) and Burr(73), and John Jay(1). the election went to the House of Reprehensive. Hamilton, who he felt was a less-dangerous than Burr, worked behind the scenes for Jefferson. The runoff was tied for 36 ballots and finally on number 37, Jefferson was declared the winner.

ElectoralCollege1800.svg

Rising tensions began when a trade war with England created the massive 1807-09 recession. Then came the War of 1812. To keep pace economically and militarily, the US needed more industrialization and a new social structure.  A larger capital base and increased population would be needed.

Innovation Growth came from the Louisiana Purchase. A need for Northwest Territory settlers brought new roads through Appalachia. Increased immigrants from Ireland were loathed as illiterate violent drunks. Ben Franklin said the Germans immigrants were stupid and swarthy.

Large numbers of immigrants challenge the stability of society and locals would, as always, reacted negatively. This eroding of the existing social order causes much consternation.

Forced into Appalachia, immigrants quickly questioned the apportionment and sale of land controlled by absentee English landlords. The controlling local politicians claimed to be the people's government but they were controlled by a local developing pseudo aristocracy.

The private Bank of the US allowed lots of inflation which made themselves and existing land owners rich, but it hurt most others including settler immigrants. Then a 1819 European financial panic caused large Eastern US bank losses. Investments in foreign Napoleonic War debt lost much.  The in control Founding Fathers were motivated by self-interest. Their political future was in Deep Doo

Political trouble came when the Second Bank of the US. lowered the money supply. Western land values tanked, causing settlers farmers whose mortgages were now greater than farm values, to lose their property. Resulting lower farm production raised Eastern food prices. Depression resulted. 

Hamilton's banking system no longer worked. In 1824 election, Adams II  representing  the English elite tied Jackson, a member of the Scotch-Irishman lower class. The House elected Adams and his inability to allow needed institutional change created his failed presidency.

Summary:
Geopolitics change
came with the Louisiana Purchase. This created a need for more settler immigrants.
Ethic change
came with the  additions of different immigrant cultures.
Economic change
occurred when the Hamilton bank system no longer fulfilled the nations needs. We would have a system reboot or the nation would fragment.

Jacksonian Democracy was next.

 

A "mob" descended upon Andrew Jackson at the White House to celebrate his victory in the election of 1828. Public parties were regular occurrences during Jackson's administration.

Tensions rose from 1819 to 1836, but ended somewhat when the Second Bank of the United States  bank finally dissolved after Jackson's reelection. The continuing need for stable money with stable credit was a cause of the US Financial Panic of 1837. Other causes were a poor wheat crop and another British Financial Crisis. Transitions to new cycles are often long-lasting and cause economic pain.

 

Red is editor's opinion  
Second Bank of the United States 

ANDREW JACKSON
 fights the Bank of the U.S.   

Andrew Jackson and the Bank war - from Tony D'Urso

See Panic of 1857

Before the Civil War, the South could not afford a tariff war and the North wanted tariffs to protect infant Industries. The war destroyed the South while Northern industry increased dramatically. The Midwest had become America's Hartland with many small towns to service American agriculture.

Radical cultural changes were caused by the massive import of foreign labor.

The Civil War, financed by the fiat Greenback, eventually led to the Coinage Act of 1873. Greenbacks, not backed by Gold or Silver, supplemented the gold/silver backed dollar.

Metallic backed currency soon left circulation for safe keeping. Confederate debt was worthless  Greenback was almost so. Inflation helped those in debt, but devastated their. Many were seriously hurt.

Innovative Technology
resulted in massive
RR growth.

Prosperous immigrants had clustered in rural areas. Small town merchants replaced Irish/Germans immigrants as the leaders of commerce. These small towns became, a symbols of the virtuous life, But they were stuck with old, now mostly irrelevant, Jacksonian era guidelines. Meanwhile, northern industry was creating new, more appropriate urban guidelines.

Eventually, excess Rail Road growth caused stockholders, many located in Europe, to be wiped out. Many  small  rural banks were also wiped out.

Summary:
Change was needed.
The Jackson era focus on cheap land with moderate inflation was no longer appropriate. Big cities were bringing more immigrants and with them new, more appropriate guidelines.

 

 

Tensions Increased as a  corrupt Grant presidency and Southern efforts to remove Northern war controls made the 1878 election one of the most tumultuous in history. Hayes received fewer votes and won the electoral college vote through complex chicanery. He would have to preside over the new cycle by managing two emerging technologies.

The Coinage Act of 1873 decreased the money supply and exacerbated the Panic of 1873 which increased workers fears cheap foreign labor. Known as the Long Depression, a name that would last 60 sixty years.

Innovative Technology Growth
1) electricity would
illuminate the night and spin off into communication.
2) internal combustion engines would radicalized the auto and aviation industry plus create the need for the oil industry.

All needed immense capital, but the 1873 financial crisis hampered capital formation. Treasury Secretary Jackson dropped Jackson's bimetallic standard for a Gold Standard. This instilled confidence that there would not be substantial inflation. Investment capital flowed into the US capitalistic system as Gold backed dollars came out of savings and European Investor augment the supply of financial capital.

The Gold Standard decreased currency supply causing rural credit to  disappeared. Small farms were lost to foreclosure. Buyers were banks and larger farmers. Trying to help the resulting disposed rural poor was presidential hopeful Williams Jennings Bryan. Famous for his Cross of Gold Speech, he wanted more credit which required a return to a bimetallic money standard.

Small town now set society norms by providing community and morality standards. They relied on hard work and needed order to maximize trade. Bigotry toward Blacks, Jews and Roman Catholics replaced the past eras bigotry towards Scotts/Irish, Germans and Scandinavians.

Big cities wealthy industrialist and a large immigrant workforce replaced small town merchants as the center of commerce. This increased industrial success only exacerbated rural distrust.

WW 1 set the stage for a cyclical shift. The fall of exports created the need for customers. America's credit based consumerism was how capitalism adjusted. The 1920's roared, but the consumer bubble ended with a thud. The Great Crash lowered employment and aggregate demand spiraled downward. The periods high level of production simply could not be sustained.

The Gold Standard era with stable currency was over. Credit had created consumer demand. Now, consumers were disappearing. Hover only understood the past era where a balanced budget and sound money were the answer to economic malaise. Now, more spending based on credit was the solution.

Hoover's sent troops to disband a veterans army that had settle in Washington hoping to receive early WWI 1945 bonus checks. Soldiers attacked veterans and their families. Four, including children, died.

Tensions rose during the 1920's due to the First Red Scare and  social conditions exemplified by the Ku Klux Klan reemergence.

The era's social foundation
1) an urban industrial class of migrants and their children.
2) Southern whites who suffered from the depression had really never economically recovered from the Civil War. Unions allied with big city Democratic  Machines to
demand a transfers of wealth from rich to the poor. All this appalled Republicans.

Roosevelt necessary programs caused larger deficits, but they were insufficient. Unemployment remained high until even larger WW 2 deficits substantially increases aggregate demand enough to win the war. Then, the war created large industrial plant and a skilled work force went to work satisfying war-caused pent-up demand. Consumer credit dramatically increased American Consumerism.

Innovative Technology Growth  The war had crated a method of thinking about and controlling large organizations. This class of Technology Management  Technocrats was practical and wanted to get things done They would control most of American life.

A technocratic had expertise in a certain area and credentials to certify their expertise. They rose in power because of merit and they had no ideology other then their expertise. Efficiency was their ideology. The manager, not the hands-on worker, were praised.

The system worked well until the early 1970's when experts allowed inflation to grow out of control. Nixon instituted price controls did not work very well. Then he and his economic experts suffered a dramatic loss of prestige  when an Arab oil embargo created the economic disaster of Stagflation.

 

This era had focused on consumption and a high 70% tax rates. Some feel entrepreneurs disappeared because of the high risk/reward imbalance.

The US old industrial base had been built during and after WW2. It could not easily compete in both cost and quality with products built with newer, more efficient German and Japanese factories. The result was Americans were  increasingly consuming more imported goods. US companies tried to maintain high profit with lower product quality and by using fewer workers.

The usual end of cycle political turmoil began with the social unrest caused by the murders of Presidential candidate Robert Kennedy and Civil Rights leader M.L. King. Social unrest finally slowed after Watergate.

Then high inflation, slow growth and Iran Hostage failures of President Carter signaled a new seriocomic cycle.

Iran, history of: Iranian hostage crisis [Credit: AP]

 

Tensions slowly ease in 1973 when the military draft ended. Then tension from long-gas lines ended with odd-even gas allocations. The Iran Hostages were release just as Reagan took office. Morning in American had begun.

Reagan began curing 1970's economic stagflation with lower taxes for the investor class. This would  increase their reward and make them eager to expand the economy. Also, RR allowed the FED to continue Carter's tight money policy eventually lowering both inflation and interest rates. Together, they improved  risk/reward causing growth to return.

Innovative technology growth centered on the microchip and would last until the 2008 financial crisis.

When auto industry rapid manufacturing profit growth ended, GM looked to GMAC for profit growth. It quickly expanded to many areas and soon became GM's most profitable product. Financial Manager experts took the place of manufacturing experts. Other product lines dramatically expand. GM had decreased their auto manufacturing focus. When added to an old inefficient plant, competing in the their core markets with the German and Japanese was difficult. An increased management bureaucracy was lowering Return on Capital.

Increased management complexity and loss of focus increased inefficiency. The solutions:
1) reduce labor cost. Many were  to lose their job in middle aged and would never find an equal pay replacement job. Also, lost were communities service jobs. Many rural communities died.
2) Production facilities relocation to less expensive, often foreign locations. These inexpensive areas also provided product parts and services like customer call centers.

The high growth microchip industry caused job losses, companies to fold, and industries to disappear. Anxiety increased. What were the new job requirements? When would the creative destruction end?

The increased Wealth of Nations from globalization raised two issues:
1) How long will the process take?
2) How will the increase wealth be distributes?

In the abstract world of free market capitalism, this price of creative destruction must be paid. People will be hurt. But in the real world of society and politics, where the deposed have more power, the process is often destabilizing. Destabilization peaked in the middle 2010's. Just like there was no way out of the Roosevelt cycle without the Reagan cycle changes so to will there be change out of the Reagan Cycle.

GDP growth has not been reasonably distributed. Too much went to the very top. Change to solve this and other problems was required.

Success of the early Regan cycle led to a surplus of financial capital. Disposition of these excesses went  toward  unproductive, often third world, investments.

Micro chip innovation also took some of ths excess savings, but some remained causing lower interest rates. But these lower interest rates were often not available to small business after the 2008 financial crisis.

 

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Wage Stagnation Causes and Solutions
 

How Democracies Die
 
4p, 4 videos

 

 

 

 

 

 

Low interest was paid to savers and when coupled with increased deposed industrial workers, an economic crisis was brewing. Eventually it led to a social crisis as tension between the declining class-those receiving less interest on savings-and those who benefited, and the class of technocrats who had gained as entrepreneurial investors.

More importantly, the driving edge of this cultural crisis may be a divergence in values. The existing political crisis increased with the Trumps Presidency as social forces intensified. The next decade will see our last  declining years president methods that will not work.   A more open to change president will be elected. They will not know what to do, but it will be new and is required to continue the American Experiment.

 

g

Education block grants are a good idea.
Give x dollars with no restrictive guidelines
on how to improve
underfunded programs.
But, make sure funds for program y do not go to football.
Use the Brandeis Laboratories of democracy
 to fund state development of many sound,
and flexible education programs.
 Hopefully, success will be copied.

Force the WW 2 large project, expert driven,
complicated, hard to manage
Institutional management out of government.

See America's Democratic, Federalist, Capitalist Republic

Inspired by Storm Before the Calm.