When the mind is in a state of uncertainty the smallest impulse directs it to either side.” - Terrence

As we start 2017, uncertainty sinks deeper. After an eventful year, nobody is quite sure what to expect for the next 365 days. It is probably safe to assume more of the same. If we project the trends of weak economic growth and growing inequalities, we naturally end up with increased politically and geopolitical instability. This is not encouraging, if not outright depressing.

Europe stands out as one of the most pressing challenge: under pressure from a destructive monetary union, politically despised, heavily indebted, economically weak, facing a wave of refugees… The anger from citizens is legitimate, palpable and politically potent. Yet so far only marginalized political parties have asked the right questions. One may argue that they offer the wrong solutions, but the point is that ‘mainstream’ parties have been oblivious to these concerns, even scornful.

What is defined as ‘the elite’, a nebula of well-to-do people with various degrees of influence, has been described as out of touch with the rest of the people. This is probably true, given that they have every day experiences completely different from the rest of their compatriots. Living in large cities, insulated from the others, they have a hard time understanding why the later reject the values they uphold: diversity, open-mindedness, internationalism…

In one of this week’s article, Martin Wolf, one of the journalists we esteemed, makes such an error: he explains how free movement of capital and globalization was ‘successful’. He uses different metrics such as poverty reduction and average income per capita increase. But this is fallacious: while on average is laudable, many lower working classes in Western countries feel that their living standards was diminished to increase those of people in foreign countries.

In fact, one of Martin Wolf’s graph helps us understand the ‘Angry White Male’ phenomenon: while mortality rates for the 45-54 age group of Hispanic Americans decreased dramatically, these of White Americans increased over the same period. In 2012, some 60% of the population was classified as ‘white’. This means (very roughly speaking) that on average, the living standards of 60% of the Americans decreased.

Unfortunately, this fact is used to stir racial tensions when the main culprit is economic inequalities. We have more in common with people with different skin colours but similar social class than we have with those with similar skin colours but different social class. This is why some citizens coming from immigration actually vote for nationalist parties: among other things, they feel that immigrants are a threat to their job and current social condition.

To conclude, our previous analysis still holds: as long as mainstream parties refuse to address the issues frontally (with a focus on mass immigration and economic inequalities) they will lose to the more extreme alternatives. Then, they will only take up the rhetoric without delivering effective solutions. Finally, when they will have understood the size of the problem, they will have lost legitimacy and effectively paved the way to extremist parties by having brought their issues into the mainstream discourse.

Science, General Knowledge & Environment

The Great A.I. Awakening – (Hat tip Lao Ho) – “The most important thing happening in Silicon Valley right now is not disruption. Rather, it’s institution-building — and the consolidation of power — on a scale and at a pace that are both probably unprecedented in human history.

Robots, Universal Basic Income, and the Welfare State – “I argue that the Universal Basic Income debate should focus on the strengthening of business’ economic power over labor over a more than three-decade period. Rather than a historically unique event, advanced technology may just be the latest factor impeding both labor’s ability to bargain, and overall macroeconomic performance, by contributing to weaker overall demand and growing inequality.

Inequality and Skin in the Game – NN Taleb. “True equality is equality in probability and Skin in the game prevents systems from rotting.

The Oil Supply Glut Is Here To Stay In 2017 – “If someone cheats and/or if prices fail to reach the levels that most participants in the agreement are happy with, chances are that the cut won’t be prolonged into the second half of the year. All of this means that supply is going to exceed demand for yet another year–the fourth in a row, in fact, as 2013 was the last year when demand was higher than supply. And this does not bode well for price trends over the next 12 months.

History & Geopolitics

The long and painful journey to world disorder – Martin Wolf “By succumbing to the lure of false solutions, born of disillusion and rage, the west might even destroy the intellectual and institutional pillars on which the postwar global economic and political order has rested.

2017 Annual Forecast Preview – [Video] – “Stratfor Vice President of Global Analysis Reva Goujon highlights the key geopolitical trends for the coming year.

The Soviet Union’s Collapse, 25 Years Later – [Video] – “Stratfor Senior Eurasia Analyst Lauren Goodrich discusses how Russia is once again forcing the United States to contain it.

Can Trumpian Triangular Diplomacy Work? – “But this vision of a grand strategic bargain rests on faulty premises. The geostrategic conditions that led to the Sino-Soviet split do not hold today, and the U.S. would pay much more and receive much less from Russian assistance against the Chinese than it did from Chinese assistance against the Soviets.

Finance & Economics

Trump Effect Won’t Stop Credit Crunch – “So, I’m not saying that a credit crunch won’t happen in 2017. And I do worry markets have gotten ahead of themselves in the Trump reflation rally. But, I’m wondering about the wisdom of basing your expectations on being certain about what Trump will and won’t do.

Picture of the day: The year 2016 in pictures: Part II


About Carlito Riego

"Great perfection may appear imperfect, but its usefulness is inexhaustible. Great abundance may appear empty, but its usefulness cannot be exhausted. Great correctness may appear twisted, great skills appear crude, great eloquence appear awkward. Activity conquers cold; inactivity conquers heat. Clear serenity governs the world." - Lao Zi