perceptions of the economy, binaries, and plans.

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“Policy is not just about ‘intervening’. It is about shaping a different future: co-creating markets and value, not just ‘fixing’ markets or redistributing value. It’s about taking risks, not only ‘de-risking’. And it must not be about levelling the playing field but about tilting it towards the kind of economy we want.”
 Mariana Mazzucato

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“Economy is not baseball, where the game is always played by the same rules.”
Nate Silver

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As I’ve noted in the past the United States, in particular, is fairly in a state of perpetual dissatisfaction with regard to the direction of the country and the economy. But here we are in the fall of 2023 and there is one of the largest disconnects between perception and reality of the economy. The state of the economy, regardless of whether you look at long term structural aspects or short term activity or anything in between, looks pretty good. In fact really good.

Which leads me to some realities nudging perceptions.

There certainly are some realities nudging perceptions. One would be context driven and another would be inflation.

Let me begin with context. It’s almost like we have forgotten that there was a pandemic that almost demanded a redesign of the global economic structure not just in the United States, but everywhere.

In the image above I’ve tried to simplistically outline how the context has changed over time – focusing solely on supply and demand. The reality was prior to COVID any inefficiencies or fragility in the economic system were embedded. What the pandemic did was it uncovered all of the inefficiencies and all of the fragility at exactly the same time. In addition to that what had been a constant stream of demand became incredibly asymmetrical as needs and wants changed due to the pandemic. The easiest example of that, of course, was toilet paper. Anyway. I think it’s fair to say that while the pandemic provided a shock to the overall global economic infrastructure and the way it was structured, the majority of countries and, in particular, the United States responded incredibly well. That being said. Post COVID, while many things had been fixed or at least restructured during the pandemic, the system has never had the opportunity to settle due to war and some relatively significant climate change events – all of which have impeded smooth restructure of supply chains and an interconnected global economy. My point with regard to understanding this context is that the context creates some localized effects – asymmetrical price fluctuations. That is reality, but a reality better understood if one understands the context.

Which leads me to the second aspect: inflation. Sometimes I believe we conflate inflation with basic cost of goods sold. What I mean by that is while there certainly was a period of high inflation, the reality is that much of what we are considering inflation in today’s world are isolated cost of goods sold increases. Those cost of goods sold tend to be referring back to my simplistic chart supply issues, i.e., supply and demand (supply, in this case, are ingredients within a specific good). For example, because today is Halloween it seems appropriate to talk about candy prices. If you are buying candy for Halloween this year you will notice significantly higher prices on the bags. The normal everyday sane shopper will pick up a bag, look at the price, and say inflation. However, weather is the main culprit for the higher prices. Cocoa prices are trading at 44-year highs after heavy rains in West Africa caused limited production in the harvesting season. In addition, El Nino conditions are making the region drier and are likely to linger well into the spring. This is more a supply issue rather than an inflation issue. So, what I am suggesting is that while the economy reflects temporary situations, people’s perceptions suggest they are non-temporary and reflective of either poor policy or poor governance. All that said, there are mesa realties which nudge people on a daily basis which craft a mesa narrative perception in their head.

Which leads me to (maybe) why our perceptions are out of whack.

Reality suggests the United States economy is not only healthy now, but embedding some healthy aspects for the future. If we follow through with all the long-term structural investments as well as the smaller behind the scenes restructuring the United States is going to be in really great shape as it maneuvers within a new global economic structure. That said. Perceptions suck. Let me posit two reasons.

1.  Binaries.

The normal everyday schmuck society in general is stuck in a binary world. I could suggest it’s a reflection of divides conservative versus liberal Republican versus Democrat MAGA versus reality. But at its core I think we’re stuck in a simplistic binary world. It’s almost as if we can’t really understand the complexities of a global economy in a large intricate national economy being woven together to create a network of progress and prosperity. It’s China versus the United States. It’s Russia versus the United States. It’s the United States do this or do that. All of those things don’t help us to understand a complex system. And the truth is the current administration the Biden administration appears through all available information to understand the new global world and economy is being restructured in a completely non binary way. What I mean by that is it isn’t simplistically the United States versus China and in recognizing that they’ve recreated the TPP they’ve created a SE Asia coalition and they have diplomatically and militarily embraced a boundary around China with Japan south Korea and the Philippines. It isn’t simplistically the United States versus Russia and no matter how hard Russia tried to make the Ukrainian war a direct war against the United States the Biden administration has been particularly good at maintaining an arm’s length and let the true conflict unfold between Europe the EU and Russia. Binaries eliminate the nuance between within a coalition world. Just as in Europe in the 50 years or so prior to World War one the major powers recognized that no one individual major power could win by themselves. So they created coalitions. Poor coalitions with poorly implemented treaties but coalitions nonetheless. The United States is replicating that grand strategy with economic coalitions as well as military coalitions. None of that can capture be captured in binaries. And yet the everyday citizen and of course the politicians reside in a binary world. So to conclude my first thing binaries I think are embrace of binaries has strangled the perception versus reality dialog and understanding.

2.  Plans

I tend to believe almost everyone has a plan. An economic plan to be specific. Those plans could span across simply surviving, i.e., paying the bills and basics, to more grander plans of how to be able to relax in the future. Different people will have different plans and approach their plans in different ways. Some will have a strict plan that they will adhere to and others will have a looser plan where they’ll justify their actions regardless of whether those actions contribute to their plan or not. But my point would be is that everybody has a plan. And this is where the larger economy comes into play. It’s not that the people want the government to pay for their plan, but they believe that the government should create an economy (a context) where their plan can come to fruition and certainly have expectations that the ’government’ develops an economy where their plan doesn’t become impossible. To be clear some of these plans are unrealistic. In fact, plans are slippery sonuvabitches. What I mean by that is if the plan works; it’s because, well, you had a good plan. If the plan doesn’t work out; its usually because of that damn president, that screwed up system, or one of any number of ‘commonsense’ reasons. That said. At the core of this unrealism typically resides the belief that once you have something you should never accept less. Simplistically, this is part of the reason why empty nesters struggle to downsize their homes and even their lifestyles in preparation for retirement. It is just psychologically difficult to accept less when you have had more. It doesn’t feel either fair or good. I would suggest this is the insidious underbelly of a growth societal mindset, but suffice it to say individual plans feed into the perceptions of how the economy is performing. A core psychological underpinning of plans is usually more, and growth, with less emphasis on being happy with what you have. Anyway. Just to conclude this section, thinking in simplistic binaries and an un-objective ability to assess our plans feed into some unhealthy, and unhelpful, perceptions of economic realities.

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Middlegame: the part of the game that follows the opening phase. It is the most difficult and the most beautiful part, where a lively imagination has great opportunity to create wonderful combinations.”

Nathan Divinsky

So, what’s the plan for the US.

To me it seems like we speak of the economy, free trade, and free market in a relatively odd way. What I mean by that is economies work the way that human beings create them. in other words, economies are not ‘free’ of humans. I imagine I would suggest whatever a human being makes can be unmade. Anyway. One could argue that in order to cope with the challenges of the changing times societies and people need to develop the capacity to be able to envision a different pathway forward then the path of the past. And while I began this piece by pointing out how healthy the us economy is, I would be remiss if I didn’t point out that if you were to look across all the systems in place, economically spanning across society and communities, it is not a stretch to say that we collectively produce results that few people actually want. I imagine the question that we all need to ask is how can we approach the issues at hand in ways that don’t repeat the failing patterns of the past.

So, permit me to dip into the complexity of an interconnected global economy, foreign policy, diplomacy, and offer a plan. Fundamentally September 11^th 2001 changed America’s view of its global purpose. At that time it seems like we shifted from being the central economic coordinator and global policeman to one of more a global ideological military interventionist. The challenge within this is that this was a decision made by the United States almost ignoring the larger context of what was happening in the world. Novel changes and challenges were occurring in the 21^st century and as they were emerging it was almost like the United States was ignoring them. By ignoring it USA lacked the understanding that there was going to be a new strategic landscape within which the nation needed to embrace a new domestic and foreign approach with the intent to revitalize an American global role. The current administration has embraced this challenge leaning into a redesigned globalization rather than more simplistic nationalistic isolationist actions. That said. This creates a dual challenge. America needs to talk to the larger world in order to talk about our changing relationship of America to the changing concerns globally but we also need to have a conversation with the American people directly about its changing role in the world and the implications and demands associated with it. Just to finish up with binaries before I move into global policy and strategic construct, let me point out if the American public remains stuck in the simplistic binaries of things like “individual freedom, limited government, the rule of law, peace through strength, fiscal responsibility, free markets, and human dignity,” it will remain stuck in domestic squabbling over what those things actually mean and what we should do about growing the economy as we proceed. The reality for America’s new role is that no one power can any longer seek to dominate let alone rule any specific area of the world and therefore have the ultimate command. The future is found in a subtler and more responsive strategic structure to the new realities of decentralized power where coordination, cooperation and agility offers the most fruitful path to increased stability, resilience, and prosperity (and, of course, power). The American public needs to understand that domination by a single state, no matter how powerful, is no longer possible especially given the emergence of new stronger, smarter, regional players. This means that the objectives change and that there should be a deliberate longer term grand strategy effort by America to create a broader geopolitical stability which accommodates the needs of the old powers and the watts of the new powers. For example, one of the shifts that’s currently occurring has to do with NATO and the responsibility of the EU for their own security. Well, some people may view this as receding American power the reality is having the EU opt in to serious commitments of their own with regard to their own collective security simply creates new dynamics in global stability of critical economic (supply) needs and wants. America should view that as an opportunity to be viewed less of a global policeman or even a global interventionist, but more one of a facilitator and protective ally. In addition, with the United States increasingly left without the ultimate responsibility for not only Europe’s security, but for any country’s security, this should be viewed as an opportunity for the United States to redesign and redefine its role as the central power amongst powers. This strategy can be seen if we take a closer look at the coalition building that the current administration is putting in place. This structure is strategically designed to not only enhance the United States security, economically and militarily, but also to constrain possible global powers who do not have similar interests. Hearkening back to my comments on binaries, I believe it is better to view the developing economic strategies not as partnerships, but rather coalitions – it will look more like a molecule than one-to-one alignments.

The Southeast Asia Coalition the coalition, the five eyes relationship, the increasing coalition that America is building in the Caucasus amongst ex-Soviet states, increased support with the EU coalition even the attempts to be able to create a coalition with Latin American countries. In addition, USA is currently pursuing an aggressive industrial policy with the objective of rebuilding some critical aspects of the USA economy – including manufacturing, innovation and technology. It appears this effort is meant to augment the global economic strategy. All of these concepts are reflective of how to navigate a more emergent, dynamic, global economy and global structure. It permits some agility and yet is grounded in stability of critical economic needs and wants. I would be remiss if I didn’t point out that America’s global standing in the decades ahead will depend on the successful implementation of these purposeful efforts to overcome its drift towards obsolescence and to shape a new and stable geopolitical equilibrium globally of which the USA will benefit, maintain its centralized power position, and constrain competing interests. As noted a little bit earlier the key to this future is actually in the hands of America itself. If we can significantly upgrade our domestic condition in combination with redefining its central international role within multiple coalitions with new objectives in conditions for the world, we will be successful. I will say, as I said with regard to binaries, in order to achieve this it is essential that America undertake a national effort to enhance our understanding of America’s changing global circumstances. An American decline is neither certain nor irreversible, global irrelevance is not a given, but the public ignorance of the growing overall vulnerabilities, simultaneously with its overall opportunity, must be tackled deliberately head on and discussed. In this increasingly complex geopolitical environment, the goal is not supremacy it is about being significantly relevant to the global common good and the need to pursue a new strategic vision crucial to helping the world in totality avoid a dangerous slide into international turmoil.

In the end global stability will demand an active American role – everywhere – within a number of different coalitions. I imagine the domestic debate is going to be what defines active in terms of actions. But I would suggest the objective remains the same no matter what your perspective is with regard to any specific activity or policy. That is to create circumstances in which global stability evolves peacefully and cooperatively, where there are wide ranging global interconnected partnerships, where America can progress and prosper. Historically America has shown that it rises to the occasion when challenged. The challenge in that last sentence is the word “historically” because the world of the 21^st century presents far different challenges than those in the past. The entire world, every country (not just traditional ‘West’ countries) has awakened politically, economically, and socially. It seems like all 8 billion people are restlessly stirring in the pursuit of a better future. At exactly the same time the world is experiencing a dispersal, and fragmentation, of power. The reality is today’s world is significantly less susceptible to domination by a single power even one as militarily powerful and geopolitically influential as the United States. And yet a stable global order ultimately will depend on America’s ability to provide that stability. In order to do that America needs to recognize a new role in a new world and I believe economic policy will define that role. Ponder.