From "Dissensus" To "Democrazy": A Warning From Deutsche Bank

Last October, Deutsche Bank’s credit derivatives expert Aleksandar Kocic, one of the best stream-of-consciousness, James Joyceian writers among the Wall Street sell-side, penned what was at the time the best summary why the existing politcal system was fracturing with every passing day. As Kocic put it, the most likely origin of the anti-global sentiment expressed in the past year, in the UK with Brexit and in the US with Donald Trump – incidentally, Kocic wrote his essay three weeks before Trump won –  was the result of a “buildup of discontent due to failure to develop a convincing response to economic slowdown in the last years.”

Kocic said that having been repeatedly ignored for years as central banks took the reins in hopes of fixing the global economy, only to leave a world that is vastly better for the 1% and starkly worse for everyone else, “this has recently emerged as the main theme of public discourse.” More relevant, however, to the current presidential campaign, is the dead-end which as Kocic frames it, show “to what extent the Change is as necessary as it is politically impossible.”

While the Deutsche Banker did not explicitly phrase it, the reality is that it is indeed globalization – with its focus on “global economic interests” – that has left ordinary people, affected by local issues, disenchanted and increasingly angry, to wit: “The underlying problem can be traced back to the fact that economic interests have become increasingly global while politics, the ability to decide, remained passionately local and, as such, unable to operate effectively at the planetary level.”

Finally, on the topic of the culprit, not even the Deutsche Bank strategist could hide who was responsible: “global oligarchies.”

Politics is viewed as a problem, instead of a solution while social costs caused by this state of affairs are being recognized and articulated by the emerging populist wings, whose main novelty has been their hostility to global oligarchies.

He summarized his arhectype of civilization and its discontents to “global oligarchy” archetype in the following diagram:

The resulting, and very angry, popular response to these oligarchies, is the reason why Sanders (on the left) and Trump (on the right) emerged, in the process unleashing “a “transverse” direction which represents the antagonism between the local and the global.”

Less than a month later, Trump won. Call it the “price of dissensus” as Kocic titled his October essay (which we urge readers to skim at the following link).

* * *

Fast forward 6 months later, when having set the stage for the “who” and “why”, Kocic then breaks down the “what”, and specifically what happens once those candidates who oppose the global oligarchies, are put in power. The Deutsche Banker’s assessment is less than glowing.

First, he points out what we have said for over 8 years, namely that the “great unwashed” and angry middle-classes of the developed world will confuse the great wealth transfer inspired by central banks as the “globalism” to which they are responding by electing fringe non-politicians such as Trump,  or voting through Brexit, in hopes of a “creative destruction” cleanse, that will restore normalcy:

The initial embrace of populism has gained traction based largely on a belief that political disruption, as a mode of change, deserves the same status that creative destruction used to have in the post industrial era with resulting political entropy becoming one of the main sources of market volatility.

What this means in practice is that “in the months following Brexit and the US elections, we learned that on this new socio-political landscape the skill set required to win the elections seem to be quite different (and not necessarily overlapping) with the skills required to govern. It has gradually become clear that candidates’ appeal which arises from their outsider’s position does not necessarily carry over beyond their victory: While being confrontational and anti-establishment might create an advantage during the campaign, it becomes an impediment once the elections are won and the candidate is in the office.

And so the DB strategist – who correctly explained the appeal of outsiders in October – looks back at the post-globalist revulsion, and finds that it leads to an even more problematic place, to wit.

… in the UK there seem to be signs of the “buyer’s remorse” whose overtones are difficult to ignore. In the US, on the other hand, we have accumulated some, albeit limited and preliminary, data about the convertibility of the populist narrative – the link between populist promises and policies and actual deliverables. In the last month, the market has been taking a pause and reassessing the preelection enthusiasm. The new “data points” warrant a recalibration of the convertibility of he populist narrative. 

While Deutsche Bank’s warning is certainly applicable, we would disagree with a part of it, for the simple reason that the underlying catalyst for the pent up wave of populist anger – the broken process of wealth creation and distribution itself – remains unchanged, and dominated by central banks (as Citi discussed just earlier today).  In other words, the population has once again been fooled into believing that by voting for Trump, or Brexit, they are “fixing” the underlying problem, i.e., the “creative destruction” discussed by Kocic, when in reality nothing real changes. The only tangible change is for purely theatrical, and optical purposes, i.e., a “political disruption” which recent events have demonstrated is not even a disruption, but merely a continuation of existing policies.

Meanwhile, “independent” central banks (which are not at all independent, recall “Bernanke’s Former Advisor: “People Would Be Stunned To Know The Extent To Which The Fed Is Privately Owned“) continue to operate in the background, layering even further resentment to the broken status quo.

We do, however, agree with Kocic’ conclusion that the “new “data points” warrant a recalibration of the convertibility of he populist narrative. This recalibration is likely to create political headwinds for the advancement of populism in Europe and force a reassessment of its merits and future success in general.”

In which case a critical question is required: if, as Kocic implies, the political process itself is broken, and as anger and resentment continues to pile up after the recent “populist” disappointments, just how will the massed millions express their frustrations and anger with a system which is more broken – both politically and economically – by the day?

Unfortunately, the all too obvious answer is most likely the correct one.

We reproduce his full essay below.

Democrazy, by Aleksandar Kocic

 

Parliamentary elections in Western democracies are defined by the existence of two similar mainstream parties and a numerically dominant center. The elections are won through defections between the left and right center, while the role of the fringe and populist voices was effectively aimed to re-center the center. As a consequence, democratic elections were (most of the time) peaceful and nondisruptive with hardly any market volatility around them.

 

This has been the case until last year. The increasing visibility and the following mobilized by alternative populist parties in recent years alone has destabilized the political process with politics has becoming one of the main sources of market volatility. As early as 2013, political poll results began to show patterns which unambiguously indicated that people in developed democratic economies were growing increasingly disenchanted with the ruling elites. The data seemed to suggest a high chance of an outsider candidate or party winning the elections. This has had a nontrivial impact on the subsequent political campaigns, political landscape and the democratic process in general.

 

The populist narratives that emerged in the last years are a result of the new identity politics with strong indication of their disruptive character in the context of the existing market functioning. Their intrinsically protectionist backbone with an emphasis on borders and boundaries, with increasing economic rigidities, implies suboptimal allocation of capital and is not constructive for economic growth. The initial embrace of populism has gained traction based largely on a belief that political disruption, as a mode of change, deserves the same status that creative destruction used to have in the post industrial era with resulting political entropy becoming one of the main sources of market volatility.

 

In the months following Brexit and the US elections, we learned that on this new socio-political landscape the skill set required to win the elections seem to be quite different (and not necessarily overlapping) with the skills required to govern. It has gradually become clear that candidates’ appeal which arises from their outsider’s position does not necessarily carry over beyond their victory: While being confrontational and anti-establishment might create an advantage during the campaign, it becomes an impediment once the elections are won and the candidate is in the office.

 

Although in the UK, it is still premature to talk about the long-term consequences of Brexit, there seem to be signs of the “buyer’s remorse” whose overtones are difficult to ignore. In the US, on the other hand, we have accumulated some, albeit limited and preliminary, data about the convertibility of the populist narrative – the link between populist promises and policies and actual deliverables. In the last month, the market has been taking a pause and reassessing the pre-election enthusiasm. The new “data points” warrant a recalibration of the convertibility of he populist narrative. This recalibration is likely to create political headwinds for the advancement of populism in Europe and force a reassessment of its merits and future success in general.


Source: ZeroHedge