Oh no, friends — the Dow crashed: cue hysteria, over everything from gold to retirement accounts to Bitcoin to Trump. Hold on a minute. What does it really mean?

Here’s a tiny principle to bear in mind. Investing in a collapsed society, where people have little left to be preyed upon for, and even those meagre morsels of returns can be snatched away in a heartbeat by an authoritarian, is a foolhardy bet. We’ll get to what that means, if it’s opaque.

First, let’s start with what you probably know. The stock market isn’t the economy. The market’s boomed — but real incomes have stagnated, for decades now. But even that’s not really “the economy”. The economy is how well people’s lives are doing, and on that score, America’s in uniquely bad shape among rich nations: falling life expectancy, rising mortality, mass killings, stress, rage, misery, loneliness, distrust.

So, funnily, ironically, it appears to me that Americans speak of The Market as something Soviets spoke of The Party. Just as the Soviets might have said: “The Party is in fine shape!”, so today Americans say: “Comrades!! The stock market is booming!!” Both are myths that deflect from reality, protecting us from the harder work of seeing things as they are. Just as the Party was not Soviet society — just a twisted caricature of it — so the stock market is not the American economy: just it’s bizarre, upside-down mirror image.

Now while I am sure you have had similar thoughts, here is what you might not have gotten to yet. This shell game — a stock market booming while an economy and the lives in it crater — cannot go on forever. An economy based on such a trade is a Ponzi scheme of prosperity conducted on a mass social scale. And one day, the bill must come due.

Perhaps you think: what could be better for capitalists than a nation of neo-peasants? — but the truth is a little more more subtle.

The stock market booming while life falls apart reflects a kind of very real economic transfer: the average person’s quality of life, his stability, security, opportunity, and of course his income and savings, given up for the future profits of predatory entities, whether they are banks, corporations, hedge funds, or so on. Where a truer capitalism — if such a thing exists — might focus on providing value, these self-evidently don’t —hence, life falling apart.

Now, how long can all that go on? There must be something to prey on. But the average American does not have much left to give. His income is shrinking. He has less than $1000 in savings. He has no real vacation or leisure time, working longer and harder hours than his peers anywhere else. He will never retire, be able to educate his kids, or afford decent healthcare. He has even given his life — to the point where his longevity is now declining. What is left for monopolistic predatory capitalism to take? Not much. This game cannot not just go on forever — it cannot go on much longer at all.

What happens when markets understand all that? They will fall, hard and fast. The market isn’t the economy — at least until there is nothing left to siphon off, and then, suddenly, kaboom. Markets must ultimately reflect the economic, social, and political reality of a failing nation, too — just as they had to before the Depression, reflecting inequality, stagnation, and predation.

What does that all mean, at root? Markets must price in risks. But the greatest risk of all for America now is one that has not yet been priced in — which is to say, considered, valued, and accounted for. That is political risk. Just as markets discount, for example, Latin American or Eastern European economies, in perpetual tumult, so now they will have to do the same for America.

It is not just American life that is falling apart, you see: American democracy is too. A (literal) Nazi is running unopposed for Congress in Illinois. That is a tiny example of the trends that daily headlines reveal all too well — America is imploding from an imperfect democracy, to an authoritarian klepto-state. The nearest parallel is probably Russia. But one does not put one’s money into Russian investments without carefully considering political risk.

What does “political risk” of “autocracy” really mean? Why do markets care? Well, think of it as a country run by and for mafias. Mafias run protection and extortion rackets for small enterprises — and the same is true for kleptocrats, only on a national scale. They grant favours to whomever will pay them off the most. They give shares in privatized industries to their cronies. They use every trick in the book to make already tilted playing fields ones which players cannot enter at all unless there is money being paid, whether in the form of soft or hard bribery. Whomever is not part of the organization, the family, will be mercilessly extorted — just as in Russia, Venezuela, and so on.

Now. Let us say you are an investor, looking at America. How far away is it from such a scenario? Already, nationalist sentiments have gone all the way to the top. Trade deals are being ripped up. Favourites are being chosen. CEOs, instead of doing business, are trying to curry favour — though they may hold their noses at the stench. You would be very foolish, going forward, not to begin pricing in all this risk: that one day, at the whim of a single authoritarian leader, all your money might simply disappear, be expropriated, be seized — and the first step in most such situations is that you must give a portion of it to his family, friends, allies, just to do business at all.

So. There is a steep political risk now for money flowing into America, just as there is and has been for other fallen states. But the difference is that markets have not priced in this risk yet. They have been coasting on two comfortable illusions. One, that American democracy will magically fix itself. Two, that the gains from preying on its imploded middle class outweigh the rising costs of autocratic politics. But those gains, as we have explored, are drying up — and all that is left, now, are the costs: strongmen, extremism, and authoritarianism.

Now. All that points to a very simple conclusion. The American stock market is in for an historic crash. It cannot go on being a perverse mirror image of economic reality forever. It will go up, it will go down. But at some point, it will fall, and fall mightily, because investing in a a collapsed society, where people have little left to even be exploited for, and even those dwindling returns an authoritarian can snatch away from you in the blink of an eye, is a foolhardy bet.

Of course, that is not a “prediction”. Markets always suffer crashes. It is only a way of understanding what the next crash will be about.

The market boom of the 2000s was, perversely, due to riches gained from the implosion of American life. But the crash to follow will be about what happens after a society implodes: the loss of American democracy, prosperity, confidence, and growth, replaced by despair, cruelty, authoritarianism, and collapse.

Umair

February 2018