Reflections on the 4th of July

I love the 4th of July for being the quintessential American holiday with barbecues, fireworks, friends, and family. At the same time, I can’t help but reflect on the Declaration of Independence, the American story that followed, what’s happening now, and where the United States is going.

As you know, I am focused on what's happening in light of the Big Cycle. In my book Principles for Dealing with the Changing World Order, I laid out a very detailed archetypical template of the Big Cycle that I compare with actual developments to help me understand what’s happening and to look ahead to try to anticipate what might happen. While I look at 18 different measures,?I focus most closely on three main forces: 1) the large debt and money creations and the effects they produce (e.g., stagflation), 2) the internal order shifts and conflicts that we are seeing within countries, especially in the United States, and 3) the world order shifts and the conflicts they are causing between the great powers and their emerging allies and enemies.?I recently offered my observations about how the first of these forces is causing stagflation. Below, on this 4th of July, I’m sharing some reflections on the second and third forces.

The Domestic Order and How It’s Changing

Like most creations of new domestic orders, the one that began on July 4th, 1776 was due to a revolutionary war led to documents about how the new governance system would work (in this American case?the most important statements were the Bill of Rights and the Articles of Confederation and finally the Constitution.) The remarkable leaders who designed the governance system and laid it out in the?Constitution created both a principled and practical approach that thus far has lasted for nearly 250 years.

To build out this constitution, the founding fathers?naturally drew upon existing rules of governance (which were European, primarily English) and adapted them to their beliefs and circumstances. Representatives of various interests negotiated among themselves to come up with both rules for how the system works and rules?for amending the rules.?This system/order lasted so long because 1) the rules were relatively clear and practical with specified provisions for interpreting them in the case of disagreements (e.g., via Supreme Court decisions), 2) the rules could be amended?to reflect changes (via the constitutional amendment process), and 3) the rules were respected because the population was willing to place rule of law above individual interests and individual power (e.g., by abiding by the results of votes rather than using power to fight for control).?

As a result of this well-designed system/order and the long history of it working well, most Americans now take?for granted that it will continue to work well forever, even though no domestic order has gone on forever and some of the essential elements that are required for?representative democracies to work well are now being called into question?(e.g., abiding by election votes and rulings of the Supreme Court). With increasing conflict between populists of the right and populists of the left, growing numbers of people are inclined to fight for what they want and what they believe is right rather that work themselves through the rules-based system of consensus and compromise that our founding fathers designed. One of the principles I learned from studying history is "when the causes that people are behind are more important to them than the system, the system is in jeopardy,” which is increasingly the case.??

So naturally, I wonder whether the principles that bind Americans together are now stronger or weaker than those that divide them. As I compare actual developments with those in the archetypical template (and the various other cases of the Big Cycle rises and declines of internal orders), I?am now watching how the Supreme Court decisions will and won’t be respected and I will be very interested?to find out how the November mid-term elections go in either reaffirming or undermining the existing domestic order. ?

The World Order and How It’s Changing?

As far as the changing world order due to the great powers conflict, there are three things that I (and some important government leaders) expect to learn by watching how the conflict in Ukraine is going. They are:

1. Whether Russia will “win or lose.”?As previously explained, by win I mean?a) controlling the eastern part of Ukraine, b) not having intolerable declines in Russian economic conditions (i.e., a 10 to 15% of GDP would be tolerable while a 30 to 40% decline would not) and c) Putin staying in power and remaining on the world stage (e.g., attending the G-20 meeting).?Thus far, it looks like Russia is winning, though maybe “lesser loser” would be a better way of describing Russia’s position, which has also been terribly damaged by the war.?Also, because the devastation in Ukraine has been so much greater than it has been in Russia, and because this will be economically costly to Ukraine and/or those countries that will pay to have it rebuilt, the war looks like it will be even more costly to NATO countries, so that also will be relative win for Russia.?
2. The Powers and Cost of American-Led Sanctions?Another?question?I had before and still have to a lesser degree is a) would US-led sanctions inflict intolerable harm on Russia and cause it to abandon its goals (the answer appears to be no)?and b) how costly would it be to the US, NATO countries, and the rest of world due to?disruptions in markets (like oil, gas, other commodities, shipping, etc.) that the sanctions would create? My tentative answer is that America-led sanction have been moderately costly for Americans and for non-sanctioned?entities because of inefficiencies that are worsening stagflation and weaponizing the dollar and American capital markets.
3. How Would the Sides/Countries Line Up,?and Would the United States Use Secondary Sanctions to Try to Pressure Other Countries to Take More Pro-NATO and Anti-Russia Actions.?I explained how this lining up is happening before by country (you can find the explanation here), so I won’t repeat it. However, I will say in summary that it appears that few countries are lining up strongly against Russia and behind NATO countries, and it appears that support within NATO countries for war is weakening due to its relatively high costs.?It also looks less likely that the US will impose significant secondary sanctions because of the very high costs they would have.??

In summary, by and large, it appears that actual developments are broadly continuing to follow the archetypical Big Cycle template, and I hope that we will cherish and take care of what we are celebrating today. As I learn more, I’ll pass it along. But for now, I hope that you are savoring and reflecting on the July 4th holiday.??