Trumpism and the “Barbarian Invasions”

I have discarded the belief that men make history. Conditions make history. History rhymes as conditions repeat. Although I admit exceptions, there is nothing new under the sun. Leaders only reflect the prevailing mood of those being led.

This runs counter to the prevailing “Modernism” that is the hallmark of Western thinking. Modernism at its core considers what is happening here and now as unique and special. The inner angst felt in the current modernism is qualitatively different than any angst felt before. Events that surprise and run counter to our expectation are seen as wildly extreme tail risks.

Living in a data-rich environment where nearly everything is measured and quantified to some degree conditions us to think of history in pre-data-saturation-point and post-data-saturation-point eras. In fact all this is just a function of sample size. The modern period is where the sampling starts in a lot of cases. But that doesn’t mean that the logic and mechanisms driving history are different now. We just didn’t start sampling our systems until recently. Regardless of measurement, there is a deep continuity to history.

So it is easy for us moderns—indeed it is our collective default mindset—to consider the millions of refugees from Pakistan, Afghanistan, Syria, India, Bangladesh, and Africa that are migrating by boat, foot, and pick-up truck to the EU as completely unprecedented in history. It’s not.

Over the last four thousand years, there were several times when massive migration of tribes and peoples completely re-drew frontiers, nations, and cultures. Sumerian civilization was largely rewired by Semitic-speaking peoples in the space of about 90 years. There were persistent waves of Germanic, Bulgar, and Magyar refugee settlement into the later Roman Empire in 3th-5th centuries. There were mass migrations of Mongols and Tartar tribes in the 12th-14th centuries. At the turn of the century, at least 15 million European immigrants entered the United States. The growing wave of refugees in late 20th and 21st centuries (primarily from Africa and parts of South and West Asia is just another check on the list. What the EU calls refugees or economic migrants, the Roman Imperium called barbarian hoards.

In most cases the key drivers of migration were and remain economic necessities, prompted by climate change and shifts in technologies (military and/or civilian). Historically barbarians were not aiming to destroy their new countries (though clearly there was a lot of pillaging and looting) but to preserve their own customs and cultures in their new surroundings while finding new homes. Integration was not a word that anyone used no either side.

There has never been any meaningful ability to stop people from migrating from war-torn areas of poverty and desolation to areas of stability and wealth. Roman galleys patrolling the Rhine and Danube guarding against never-ending barbarian incursion stopped nothing. Putting garrisons in the hinterland marches did nothing to stop an entire army of people. Current attempts to slow down the flow of immigrants and refugees are unlikely to be any more successful than past efforts.

Nothing new, this. Rare, but not new. So what causes it?

In short, disruption. Social disruption translates into higher volatility, higher risk premium, and rising counterparty risk. Significant climate change-induced migration of Germanic barbarians in 3th- 5th centuries and similar climatic conditions prompted Mongol and Turkish tribes to be on the move in 12th-14th centuries was the proximate cause of those instances. The change in food production potential and carrying capacity of the environment of the migrants led to an inability of countries to generate economic growth rates. This in turn led to a shift in returns from cooperative exchange to coercive exploitation. The outcome was war and accompanying social dislocation, which causes waves of refugees and large-scale immigration, then and now.

There are differences, or at least granularities, we see today that we can’t detect in historical periods. The “spike” in the number of refugees and displaced people entering the EU coincides with the end of an accelerated pace of global leveraging as well as the growing impact of the declining intensity of trade links and some atrophy of supply and value chains as well as erosion of cross-border capital flows and funding. If this declining intensity of trade and slower, more erratic growth rates is a permanent feature of the over-leveraged global economy, then migration will escalate and continue for generations.

Over-capacity and significant structural shifts are a natural part of deleveraging and the formula for stability is breaking down. Evolution is going into reverse: from decentralized, adaptive, networked connectivity to hierarchical, control-based, sparse networks.

Business cycle dynamics and frequent sharp contractions have been short-circuited by allowance of perpetual expansion of debt and reserves through central banking. The net outcome of consistently and persistently subduing business and financial cycles was rapidly rising financial leverage. Increasingly aggressive public sector interventions in “smoothing cycles” through leverage foster an explosion of financial innovation as well as relaxation of prudential and capital controls. The result is that over the last thirty years, the massive increase in debt levels (both public and private) led to accelerated consumption levels (as future consumption was brought forward) and the construction of facilities and supply networks to accommodate what was perceived to be sustainably growing demand.

Deregulation of labor markets in developed countries incentivized major corporations to arbitrage costs that prior to deregulation was not feasible. This was the beginning of a massive wave of employment offshoring that picked up pace in the 1990s and crested in 2007/08. Through various stages of GATT and WTO talks, the global economy witnessed broad elimination of quotas and other crude measures of controlling trade as well as a significant decline in tariffs. This was the key requirement if the above-outlined offshoring had any chance of succeeding. The successful business model through 1980s-00s was to exploit the above changes by positioning one’s country to integrate with rising tide of trade, offshoring and capital flows.

The strong response by the public sector and Central Banks to the forces of deleveraging that disrupted this business model leads to the private sector having no solid guess as to likely end-user demand and hence neither consumers nor businesses spend and invest to an extent expected by Central Banks and implied in their zero interest rate policies. This makes the inevitable rate increases and normalization of debt levels all the more difficult to absorb.

Trump is doing nothing more than reflecting the prevailing mood as people process and adapt to this devolution. The Great Wall of Mexico, the collapse of US involvement in TPP, and harping about unfair trade by US trading partners is a way to give shape to concerns about the changing nature of the world in which we live. Deglobalization is the line of least resistance in dealing with a phase of massive migration.

In the short term, de-globalization will not deter economic migration. In the short term, it will quickly destroy the most competitive global companies and destroy the ability to boost global demand from middle class creation in less developed countries. As less developed countries become poorer, the incentive to migrate to areas of higher wealth will only intensify. In the longer term, de-globalization will slow the tide of migration. Poor people don’t migrate to equally poor or repressive areas.


Follow Us
  • Twitter Long Shadow
  • Google+ Long Shadow
  • Facebook Long Shadow
  • LinkedIn Long Shadow
Search By Tags
 
Emerging Markets
High Yield
Complexity
Tail Events