(Episode of the Belgian Revolution of 1830, Gustaf Wappers)
“…Indeed, what do increasingly frequent shooting rampages have to do with polarization in Congress? Or falling life expectancies for large segments of the American population? Is there a connection between too many multimillionaires and more filibusters in the Senate?
“In this book I will argue that the trends listed above, and many others, are indeed interrelated. Analysis…of historical states shows that complex, large-scale human societies tend to go through cycles of alternating integrative and disintegrative phases. Long periods of relative equity, prosperity, and internal peace are succeeded by periods of inequity, immiseration, and political instability, frequently ending in state collapses, revolutions, and civil wars.”
-Peter Turchin, Ages of Discord
According to a new breed of quantitative historian, the United States has entered a disintegrative phase of its political development, and the potential for widespread civil unrest is currently very high. Using “Structural-Demographic Theory,” a powerful tool for explaining historical processes, these researchers conclude that the American polity today has much in common with Stuart England during the 1630s, with Ancien Regime France just before the French Revolution, and with the Antebellum U.S. on the eve of the Civil War.
Peter Turchin, one of the pioneers of Structural-Demographic Theory, has developed a fascinating model for generating insights into the trends and cycles that can be found underlying an alarmingly broad range of human civilizations, from Rome to the United States of today. In this report, we introduce Turchin’s “Political Stress Index” model and unpack its components.
THREE HORSEMAN OF POLITICAL INSTABILITY:
LABOR OVERSUPPLY, INTRA-ELITE COMPETITION, AND THE FISCAL CRISIS OF THE STATE
Turchin’s model incorporates three major assumptions about large-scale social behavior. The first, the “Labor Oversupply Principle,” simply recognizes that when the supply of labor exceeds its demand, the price of labor will fall. This has two effects: depressed wage growth for a significant percentage of the population, but simultaneous gains in economic efficiency in terms of lower prices for labor inputs.
When efficiencies are passed on to consumers in the form of lower prices, the Labor Oversupply Principle’s negative effects on wage growth can be softened, at least for a time, by a lower overall cost of living (“sticky” wages can be masked by falling consumer prices, creating a wealth effect). Unfortunately, this is not the case today: workers are being besieged by higher prices on a number of critical fronts.
Note that the globalization of the labor pool, digital platform companies that can be run by small teams (such as hedge funds and tech start-ups), and automated production technologies all contribute to falling demand for all but the most technically-proficient workers. As a result, average American real wages have been stagnant for four decades.
The loss of diversified manufacturing capability in the United States (which we described in our recent, pre-election discussion of the rise of Donald Trump, July 2016) has created enormous pressure to enter the ranks of the elite “knowledge economy” vis-à-vis a college education. It has also practically necessitated the presence of two-earner households in the middle class, which in turn has limited the supply of childcare workers, raised the demand for such services, and thus contributed to the devastatingly high cost of childcare as experienced by the majority of Americans.
(College Tuition, Health Care, and Home Ownership Costs far outstripped the Consumer Price Index over the last 40 years)
(Child Care costs have actually outstripped those of Health Care and represent a “Third Crisis” in Popular Immiseration)
With stagnant wages and precarious part-time work on the revenue side, and grossly distorted bubbles in education, health care, and child care (and a housing bubble being deliberately re-engineered to support home prices) on the expense side, the average American worker is feeling the full impact of the Labor Oversupply Principle.
The second component of Turchin’s model for political stress is the “Elite Overproduction Principle.” This represents the tension that forms between elite special interest groups, as the economic malaise that formerly was borne by the masses now creeps up into higher levels of the socio-economic system.
There are several fascinating metrics used to uncover signs of tensions within elite populations. One such measure of gridlock within the corridors of power is a chart tracking the use of the filibuster in Congress.
Source: The Week
(Use of the filibuster method to block legislation is an indicator of rising elite tensions and the inability of special interest lobbies to find common ground. It presages an adversarial, uncooperative, zero-sum mentality among members of the polity)
Turchin also tracks the percentage of military veterans in Congress (this being a proxy for the perceived value of military experience among members of the elite, which in turn is rooted in the value of shared or common experience of suffering, sacrifice, and discipline among broad demographic slices of society).
Source: The Washington Post
(Falling rates of military service among members of Congress reveal an increasing rift between those who set foreign and national security policies and those who most dramatically pay the price for the consequences of these policies. Turchin’s research reveals high levels of danger when such rifts become pronounced, as patriotism itself becomes increasingly scarce/unpopular)
By virtually any measure used, Turchin and other members of the Structural-Demographic School find evidence of serious intra-elite conflict.
The third and final component of the political stress model is the “Fiscal Condition of the State.” Structural-Demographers use a highly innovative combination of techniques to explore the state’s vulnerability to economic upheaval. While the ratio of public debt to GDP is a very familiar input, the Stuctural-Demographers go a step further by comparing debt/GDP to longitudinal survey data illuminating citizen attitudes about the trustworthiness of the Federal government.
Consider the following pair of charts:
Source: Oregon Office of Economic Analysis
(U.S. debt to GDP was considered dangerously high in the late 60s due to the combined expenses of the “Great Society” welfare state programs and the Vietnam War. It has more than doubled in the decades since; the country runs chronic structural deficits rather than contingency-limited, temporary wartime spikes)
In addition, public attitudes regarding faith in the trustworthiness of the U.S. government have collapsed over much of the same time frame.
(At the same time that the public sector balance sheet has deteriorated, public trust in government has fallen from the euphoric days of the Mad Men era to a level of cynicism that is historically unprecedented. In fact, it is lower today than it was during either the Watergate or Lewinsky scandals. The decline appears to be secular.)
COMPUTING POLITICAL INSTABILITY
To operationalize the Labor Oversupply, Elite Overproduction, and State Fiscal Health principles of Structural-Demographic Theory, Turchin has built a mathematical model of political stress. Each of the three principles becomes a subsystem (“Masses, Elites, State”) and an equation is derived:
Political Stress = Mass Mobilization Potential (MMP) x Elite Mobilization Potential (EMP) x State Fiscal Distress (SFD)
The subsystems can be defined as follows:
(1) Mass Mobilization Potential rises when relative real wages are stagnant or declining; when more of the population is urbanized (urban centers act as pressure-cookers for political discontent, and violent mobs and demonstrations are clearly more practical in such locations); and when those in the age 20-29 demographic cohort are disproportionately affected by poor economic prospects (the young are more easily radicalized, particularly young males who may find themselves locked out of the “mating market” when their money-earning potentials are diminished).
(Arab Spring protestors in Yemen, The Christian Science Monitor, May 12, 2011)
(2) Elite Mobilization Potential combines two measures of intra-elite competitive pressure: the relative size of the elites’ share of the economic pie vs. the number of aspirants to elite socio-economic status and competition for high government office (including the cost of successful political campaigning).
(3) State Fiscal Distress measures the fiscal condition of the state by national debt scaled against either GDP or tax revenues. This is then combined with a measure of “state legitimacy” (i.e., stated public trust in state institutions). High levels of State Fiscal Distress would be correlated with high debt/GDP ratios combined with poor attitudes towards state legitimacy.
It is important to note here that increased tax revenues to repair damaged state balance sheets must one way or another be supported by elites: as Turchin notes, members of the elite essentially tax themselves. The willingness of elites to make sacrifices in support of a national common good is thus reflected in superficially unrelated matters such as the rates of military service among members of Congress.
The unexpected statistical link between elite attitudes towards military service and state tax revenues has a number of important ramifications, most important among them being the increasing vulnerability of the nation-state to both external and internal security threats. Turchin:
“…success in war requires a high degree of cooperation within the society. At the very least, the elites will have to pull together and bury their differences. In more significant conflicts the elites need to mobilize the rest of the population. Winning a major war requires that elite and commoners be unified and equally willing to sacrifice blood and treasure for the sake of victory.
“During the disintegrative phases, by contrast, it is very difficult to generate the cooperative action needed to win a major war. The elites are fragmented into interest groups feuding among themselves. …The prevailing “partisan” social mood is not conductive to shared sacrifice.…The political elites do not send their children into the military….The legitimacy of the state is low and patriotism is trumped by sectarian attitudes.”
FLASHING RED: THE POLITICAL STRESS INDEX TODAY
Source: Peter Turchin
The Political Stress Index is currently the highest it has been since the Civil War. In Turchin’s own words:
“Unfortunately, understanding of the dynamics and functioning of societies is nowhere near the point where it can be used in practical applications. In fact, our interventions to solve particular societal problems at times just make things worse. As I pointed out earlier, the American political leaders who allowed the Civil War to happen had no idea about the magnitude of the disaster they were about to experience.
“…Something happened to American society during the 1970s. Several previously positive social, economic, and political trends suddenly reversed their direction. Each of these turn-around points has been noticed and commented on by social scientists and media commentators. However, what is not broadly appreciated is that these trend reversals were related. A human society is a dynamical system, and its economic, social, and political systems do not operate in isolation.
“In the 1860s, Americans learned that large-scale complex societies are actually fragile, and that a descent into a civil war can be rapid…Today, 150 years later, this lesson has been thoroughly forgotten. …The degree to which cooperation among the American political elites has unraveled during the past decade is eerily similar to what happened in the 1850s, the decade preceding the Civil War. The divisive issues are different, but the vehemence and the disregard for the consequences of failing to compromise are the same. Of course, nobody expects another Civil War. But the political leaders of antebellum America also could not have imagined in their wildest dreams the eventual consequences of the choices they made during the 1850s.”
WHAT HAPPENS NEXT…? COMPLEX SYSTEMS AND THE SCIENCE OF REVOLUTIONS
According to Jack Goldstone, an authority on political instability who has also served as one of Turchin’s personal mentors and the founding father of Structural-Demographic Theory, revolutions generally require five conditions to be present. The conditions alone do not cause a revolution; rather, they create an “unstable social equilibrium” from which a revolution may arise (the specific event catalyst may be unpredictable — a series of shocks might be absorbed until a final, relatively minor incident, precipitates widespread convulsions in the now-sensitized system).
1) The first condition is a national economic or fiscal strain. These strains cause elites to raise taxes, take on debt, or cut back on programs (austerity).
2) The second condition is “growing alienation and opposition among the elites.” As a general rule, revolutions are led by counter-elites who manage to mobilize popular resentments, rather than by the masses themselves.
3) The third condition is popular anger over injustice. According to Goldstone, “This popular anger need not be the result of extreme poverty or inequality. Rather, what matters is that people feel they are losing their proper place in society for reasons that are not inevitable and not their fault.”
4) The fourth condition is that the popular and counter-elite grievances become united in a single ideology. The zeitgeist creates a “persuasive shared narrative of resistance.” This dogma provides what cultural theorists have termed a “meme,” a unit of cultural transmission or idea that has high cognitive fluency and thus can spread rapidly from individual to individual, in a pattern best modeled using epidemiology. The ideology normally will have the characteristics desirable for mass consumption: simplicity, lack of nuance, a clear story depicting a Manichean struggle of perfect good against perfect evil, mythopoetic heroes and martyrs, a hopelessly naïve and romantic “Happily Ever After” vision of the future or a return to some supposedly golden age past.
5) The fifth and last condition is that a revolution frequently requires anti-establishment international relations. Foreign support for a given status quo elite may be part of that elite’s claim to legitimacy; the withdrawal of foreign support may mean that those currently in power find themselves particularly vulnerable to internal attack.
“When these five conditions coincide — economic or fiscal strain, alienation and opposition among the elites, widespread popular anger at injustice, a persuasive shared narrative of resistance, and favorable international relations — the normal social mechanisms that restore order in crises are unlikely to work. Instead, societies where these conditions prevail are in an unstable equilibrium, where any untoward event can trigger escalating popular revolts and open elite resistance, producing a revolution.”
After 150 years of silence, the Political Stress Index is now sounding an alarm. From the standpoint of political risk, this may be the most dangerous time for the country since the Civil War. Historically high stock and bond valuations, while of great concern, are dwarfed by potentially more destructive structural-demographic trends in American society. Given the ramifications, portfolios should be constructed with the possibility of a true “Black Swan” event in mind.
-Fourth Quarter 2016
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