I read every book I could get my hands on. I do not exaggerate in saying that understanding the crisis became an obsession—for two reasons. I wanted to better myself, of course, but I was also confident a revisionist narrative would eventually get baked into society’s understanding of the crisis. Sadly, I was all too right.
Alongside my journey to better understand the crisis, I became sensitive to the intuitions and impulses of those around me regarding its circumstances. In social circles, I saw questionable behavior justified as a rational response to questionable behavior by other institutions enmeshed in the financial crisis. Already polarized political lines darkened considerably. What I observed validated a thesis I had, by then, developed: the financial crisis was not the cause of, but a symptom of a broader cultural crisis of responsibility.
The actors in this crisis were not limited to any one group. The cast in the escapade included people of all walks of life—lenders, bankers, politicians, central bankers, policymakers, and homeowners themselves. All discussions of the financial crisis turned into a blame game, with only one common thread: the target of the blame would be whatever culprit you were most conditioned to dislike in the first place—your own personal bogeyman.
I set out to write a book about the financial crisis. At that point, I fancied myself one of the most well-read people in the country on the topic, having read well over seventy books and thousands of pages of periodicals, journals, and white papers on the subject. I spent hours upon hours talking to hedge fund managers, elected officials, and other thought leaders to pick their brains. What I discovered was that I had a rather unique perspective on the crisis, one that carried not only helpful economic and historical commentary, but also a valuable lesson regarding our cultural addiction to blame.
As the years went by, I brought my wealth management business out of the aforementioned Wall Street firm (to be independent), but the impact of the financial crisis and the need for a more coherent societal lesson remained vitally important to me.
Then 2016 happened. A populist uprising took place. I don’t refer only to the presidential election in the United States, but to a broader reality both here in the U.S. and abroad. At the movement’s root was a deep dissatisfaction with the status quo. In the aftermath of the financial crisis, successful people had seen their balance sheets significantly restored, housing prices had recovered and then some, stock markets and bond markets were generating unprecedented returns, and the top end of the income scale was skyrocketing.
Yet culturally, things weren’t quite so copasetic. Significant socioeconomic divides existed with entire segments of the U.S. population feeling abandoned and ignored. Previous years had seen a lot of concentrated angst about the crisis, but 2016 saw the catalysts to those tensions diversify. The financial crisis had not exited the stage; instead it was now joined by trade agreements, immigration challenges, government malfeasance, income inequality, student loan debt, geopolitical pacts, educational discrimination, and a plethora of other political, economic, and cultural issues driving a wedge deeper into our society.
All of it disrupted the American dream I believe in deeply. I shelved the financial crisis book, but maintained its underlying thesis. I turned my attention to evaluating the broader stressors at work in our society. My analysis of that distress—and beliefs about those issues—became the subject of this book. The motivation behind this book is the same desire I had when I set out to draft a book about the financial crisis. I offer a counter-narrative to the recent developments and significant events, and I propose a constructive path forward by which we can learn from past mistakes and create better opportunity in the future. As has been the case with the financial crisis, many events dominating the headlines today are symptoms of an entirely different problem, a deeper problem with disturbing cultural implications.
In the pages that follow, I identify that problem and suggest a path forward to a better destination—a free and virtuous society. But to get there, we must first overcome this present challenge—our cultural crisis of responsibility.
1
BUILDING WALLS
A New Era
There are more ideas on earth than intellectuals imagine. And these ideas are more active, stronger, more resistant, more passionate than politicians think. But it is because the world has ideas (and because it constantly produces them) that it is not passively ruled by those who are its leaders or those who would like to teach it, once and for all, what it must think.
– MICHEL FOUCAULT
In the case of everything that belongs to the realm of sentiment, religion, politics, morality, the affections, and antipathies, etc. The most eminent men seldom surpass the standard of the most ordinary individuals. From the intellectual point of view an abyss may exist between a great mathematician and his boot-maker, but from the point of view of character, the difference is often slight or nonexistent.
–GUSTAVE LE BON
June 23, 2016—the voters of the United Kingdom went to the ballot box to express their views on a controversial referendum to exit the European Union. Although Brexit, the shorthand term for the vote, had taken hold in American media, the substance of the referendum, and certainly the true implications, meant very little to the average American.
For one thing, the referendum was not expected to pass. Polls had fluctuated a bit, with some showing it modestly leading and some showing it modestly failing. Betting markets consistently showed the referendum likely to fail. Despite being averse to any form of uncertainty, U.S. stock markets rallied dramatically the week before the vote. Clearly, few believed something as dramatic as a world superpower (Britain) leaving a core global institution (the European Union) was likely to happen. As the Dow Jones Industrial Average advanced 500 points in the week before the vote, pundits proclaimed that cooler heads would prevail. Rational, mature voters would override the temper tantrums of the ignorant few.
I had an uncommon opinion about the vote. I was (and remain) convinced that a British exit from the European Union would be the right decision for Britain. And yet, I was also convinced it would not prevail. Polls, betting markets, and, most significantly, the ruling elites of most institutions agreed it simply would not pass, regardless of the merits of the arguments.
Yes, there was some angst among the masses to be addressed. Sure, the more liberal posture on refugee immigration had created complexities in Britain (and across Europe) that were proving to be a bit of a nuisance. But, at the end of the day, the esteemed wisdom of the elites would prevail. The people would fall in line, the elites told us. The advanced and cosmopolitan population of Britain wouldn’t dare cross the wisdom of unaccountable bureaucrats in Brussels.
The elites had it all wrong.
Brexit was less about the arguments for and against and more about what the vote itself revealed. The vote revealed a paradigm shift taking place around the world that transcends the United Kingdom.
Yes, the voters of Britain stood against global authoritarianism, and, yes, they stand to benefit from reclaiming their sovereignty on matters of immigration, trade, and geopolitical policy. But the Brexit vote revealed something real and profound—a growing sense of distrust toward and dissatisfaction with the institutions of modern society. It gave voice to the growing belief that the cultural elite—long believed to be the responsible ones in society—have lost their way.
To be fair, elitist arrogance that Brexit would not pass was forgivable. Even supporters of the move, like myself, predicted failure. I appeared as the “pro-Brexit” advocate in a May 2016 debate sponsored by the World Affairs Council and British-American Business Council. My “anti-Brexit” debate opponent, former Allergan CEO David Pyott, argued passionately that the move would be a disaster to British economic opportunity. I argued in defense of Britain’s sovereignty and the opportunity to enhance their economic standing outside the European Union. After two hours of debate, the moderato
r asked for a show of hands as to who believed the Brexit vote would pass. Almost no one raised a hand—not even me—in spite of nearly half the audience agreeing with me by the end of the evening.
Ironically, the arrogance with which elitists predicted the disintegration of British society discredited the ruling class. I appeared as a special guest on CNBC’s Squawk Box the morning after the referendum vote to discuss the stock market outlook in light of the Brexit surprise. Stocks were indeed pointing downward that morning. Financial Times managing editor Gillian Tett appeared on the show just before me. She pontificated that the Brexit impact would be on the scale of the Lehman Brothers bankruptcy of 2008—the precursor to the largest financial crisis of the last eighty years!
Her prophecy of market collapse and economic catastrophe stood in stark contrast to my claims on the show minutes later. Famed economist Jim Grant joined me to insist Brexit not only was not a systemic event, but also was likely to create incredible buying opportunities if market prices dropped enough. To be candid, neither one of us could have guessed the market drop would end in a few days. The ensuing post-Brexit market sell-off would last only forty-eight hours. Markets would fully recover and even set new highs just days after the vote.
Nevertheless, behemoth financial institutions said they would be forced to withdraw thousands of jobs from London if Brexit were approved. To date, no such job relocations have taken place, and superpower financial firms have walked back such Chicken Little forecasts. In the face of such fearmongering, the vote of the British people to exit the European Union was quite the declaration. They no longer only questioned the legitimacy of “the establishment”—they questioned its very credibility.
Trumping Brexit
Not to be left out in 2016, America also demanded a seat at the table of unexpected political transformation. The contrarian reality of the Donald J. Trump candidacy and eventual election to the presidency made Brexit look like a sideshow. Campaigning as a sort of conservative Huey Long, the billionaire real estate developer and Fifth Avenue Manhattan resident ran the first populist campaign since Ross Perot—and the first successful one in a century or more.
Initially dismissed as a publicity-seeking reality TV star (including by this author), his campaign quickly morphed into one of the most historical political events of our lifetimes. His road to the Republican nomination first had to go through some of the most qualified and recognizable Republican candidates ever assembled. From the extremely well-financed, former successful governor of Florida, Jeb Bush, to the young conservative stars Marco Rubio and Ted Cruz, each member of the sixteen-person field tried and failed to block the nomination of Donald Trump. The candidates were not considered weak conservatives or questionable Republicans. They were mostly traditional Reaganite conservatives, strong on Republican orthodoxy and untainted by scandal or personal damage to their candidacies. But in 2016, traditional Republican orthodoxies weren’t generating massive crowds or blowout primary wins. The broad policy platform that has always served the Republican Party well—tax cuts, smaller government, balanced budgets, entitlement reform, and the hope of a more restrained Supreme Court—were not enough. In fact, they were not even necessary.
A sort of poetry took over the 2016 election cycle. It was decidedly sociological, populist in nature, and struck a unique chord in the national psyche. Time and time again, enthusiasts for Donald Trump claimed they were attracted by his “outsider” status and commitment to change the way business is done in Washington, DC. Trump complained about Wall Street; the business-friendly GOP base ate it up. He criticized the Left, not for being too liberal but for being ineffective. He didn’t campaign on making government smaller; he campaigned on making it more productive (more “businesslike”). He didn’t try that hard to reach out to the social conservative wing of the Republican party; he reached out to all in the party who were tired of media bias and political correctness. He donned a red ball cap and filled arenas with thousands of people as he promised to undo the damage caused by the “establishment”—lumping the media, the Beltway insiders, and the GOP leadership all under one broad tent.
A fair and charitable interpretation of the Trump movement, and certainly of his successful bid for the presidency, is that Trump was an imperfect candidate who crafted the perfect message for a key constituency—a certain middle-class and lower middle-class economic group that had not participated in the economic growth of the last two decades.
The message was simple: the system had been rigged against them. Regardless of the messenger, that message resonated. From free trade deals such as the North American Free Trade Agreement (NAFTA) and the proposed Trans-Pacific Partnership (TPP), to the rising number of immigrants who crossed our southern border illegally, to the war in Iraq which cost unfathomable dollars without a clear win for America, to the way China managed its currency, to American companies sending jobs offshore—Donald Trump tapped into a list of frustrations.
Most importantly, all of them provided reasons for this frustrated and neglected constituency to feel like victims. All of them provided bogeymen, problems that President Trump promised to confront and resolve. All of them fed a powerful narrative that establishment forces had enjoyed their fun for far too long. A new sheriff was coming to town.
This political phenomenon would never have happened if this target voting market hadn’t been frustrated to begin with. Although the phenomenon hit its peak in 2016, resulting in the nomination and eventual election of Donald Trump, the reality is that it had been building for at least an election cycle or two before it. Rick Santorum, a perfect encapsulation of social conservatism and economic populism, came extremely close to winning the Republican nomination in 2012. In the cycle before that, Mike Huckabee, an early representation of that same blend, was the near spoiler. While neither Santorum nor Huckabee crossed the finish line, their unlikely and extraordinary showings demonstrated that populist angst was brewing.
Many perspectives exist about each of the 2016 campaign issues, and, indeed, this book will parse some of those issues with what I hope to be precision and fairness. But like the Brexit vote, the media and punditry class simply could not believe what they were seeing take place. I’m not referring merely to those who didn’t believe Donald Trump would prevail in the race (that included the vast majority of Americans). I’m referring to those who could not see the movement, did not understand the pent-up generational resentment, and were not convinced any cultural divide existed in the first place.
The 2016 Trump win revealed that a large segment of the country had no clue what an even larger segment of the country felt. As with the Brexit tale, myopia was most prevalent in large cities, coastal enclaves, and the big media and financial firms. Sociological disparity more than partisan differences caused them to miss the reality that a significant bloc of Americans felt left behind.
Understanding that angst, the reasons for it, and the cultural implications of it on our economy is the subject of this book. I don’t intend to address the question of whether or not Donald Trump represents the solution to specific campaign issues. At the time of this writing, he is the president of the United States. In due time there will be a political and historical record of his presidency and the impact of his policies. That is not my aim here.
I want to go deeper, into the cultural substrata, to discover what has gone wrong for so many in this new era of the American experiment. I’ll candidly consider the implications of what we find and identify the chief malady keeping us from confronting what I call a crisis of responsibility—our cultural addiction to blame.
Someone Blame Somebody for Something
I focus on economics, not only because of my financial expertise, but because economics matter a great deal in assessing the lay of the land. Since the U.S. financial crisis of 2008, GDP growth has underperformed its own trend growth by at least 1 percent per year (see Fig. 1.1).1 As a result, our economy is estimated to be $2
.8 trillion less than it otherwise should be.
A series of cultural and economic factors contributed to this break from trend line growth, creating a negative feedback loop. Consequently, the growth disruption itself has exacerbated the cultural and economic malignance that helped create the underperforming trend in the first place. Serious analysts must be careful not to miss the vicious, cyclical nature of this effect.
Figure 1.1
*Strategas Research, 2017
However, the angst-filled population bloc that revolted against globalism and institutionalism of all stripes is probably not parsing distinctions about GDP growth, economic causation, and other such academic nuance. Hundreds of millions of people worldwide have simply lost faith in the “smartest people in the room,” the alleged gatekeepers of the economy, key institutions, and political structures in society. Much of their lack of confidence is wholly justified, even if the frustrated don’t fully understand what has caused the problem.
But they want someone to blame for it. As I’ll demonstrate throughout the book, what has emerged in our culture is a “scapegoatism” run amok—a victim mentality that is dangerous to all, regardless of political affinity or socioeconomic class.
Our stalling GDP growth didn’t cause the current unrest, although it has accelerated it. Many other economic data points enter the fray, but the break from trend line growth captures nearly all of them. Wage growth has continued to stagnate. The income inequality conversation seems to have transcended normal class-warfare rhetoric. While many of the economic forces behind the present era are abstruse, a paycheck that isn’t growing is simple to understand. Human nature being human nature, people watching their paychecks decline tend to become resentful toward those experiencing income growth. Trade deficits are not easy to comprehend (quite frankly, as I’ll demonstrate in later chapters, even many professional economists do not understand trade deficits), but the general feeling is that most people are now on the outside looking in at the real opportunities.
Crisis of Responsibility Page 2