The Storm Before the Calm
America's Discord, the Coming Crisis of the 2020s, and the Triumph Beyond
by George Friedman  Source  Summary/Analysis by Walter Antoniotti 

1. Institutional Cycles: US Federal Government   Three Federal Institutional Cycle History   Latest Institutional Cycle Ends  

2. America's Socioeconomic Cycles   Five Socioeconomic Cycle History

See Generations and The Fourth Turning 2p

1. US Institutional Cycles: Born in Battler, Forged in War

1. Emerged with the Drafting of Constitution, ended with the Civil War 1787-1865
Cycle established a Federal Government, but left its relationship to the states unclear.

2. Emerged after the Civil War and lasted until after WW2. 1865-1945
Cycle established authority of the FEDs over State Government.

3. Emerged after WW2 and will end this decade. 19452025
Cycle expanded authority of FEDS to include economy and Society as a whole.

4. Cycle will redefine the FEDs Institutional Framework in relation to itself.

Institutional framework changes are infrequent and driven by war.
When socioeconomic stresses collides under the added stress of war, institutional failure results.
The US then experiments to change and improved the existing, no longer working, institutional framework.

As wars have changed, so the framework needs to change.
We have had many wars, but the Civil War and WW2 caused massive institutional change.
Now, with the stress of being the world's sole superpower
 added to the continuous 21st century wars,
the old institutional framework is not working.
Years of turbulence needed to remove old powerful institutional forces.
It will not be pleasant.

History of Federal Institutional Cycles

Institutional concern:
Weak Articles of Confederation
Institutional concern:
Slavery
.
Institutional concern:
Winning the War
 
1. Constitution in 1787 to winning of the Civil War
2. Civil War Amendments of 1865 through WW2

 
3. Post WW 2 expanded federal authority through end of globalization
Outcome: US began the continuous development of a Federal Government Institutional Framework.
 
Outcome: US Federal Government would be the predominate. national institution.
 
Outcome: US expanded federal government size and power
to mitigate the recession and win a war..
    
 
Unanswered Question: Relations with the very important state governments was unclear. Unanswered Question: Accommodating the intersectional differences among states, the economy and society Unanswered Question: Solutions to the ever increasing gulf
within and among participants.
 
 

Note: There was no Federal Institution during the War for Independence.  

   

Latest Institutional Cycle Ends
Post WW 2 Expanding Federal Authority Through the End of Globalization

Our WW 2 victory was achieved with large federally directed projects managed by experts in science, business...
Technocrats slowly took command of government and business. The new system worked very well.
Then the 1970's oil price increases and Asian/German manufacturing competition
began affecting many aspects of our socioeconomic environment.
 

Communication issues grew between governments and citizens.
Average data looked good so technocrats ignored individual issues.
Business had similar issues with employees and customers.
Competition forced business to maintain profit by lowering manufacturing investment.
Investment returns were maintained by investing in finance and investing overseas.
Participants who did not adopt were in Deep Doo Do
pain in the pooper!

Now, unhappy citizens are forcing US Government institutional change.
Vested interest will fight to maintain their control of the current system.

"Last week, the Trump administration released its 2021 budget request,
which would cut Department of Education outlays by 8 percent while proposing
dramatic change in how federal school dollars are allocated."
Vested interests consisting mostly of education experts  and
technocrats with extensive credentials will attack these changes
.

Turmoil lasting about ten years could reach 1970's levels.
Trump supporters are leading the nation. They are the vanguards of change.

 

Editor Switching to education block grants is a good idea.
Give x dollars with no restrictive guidelines on how to improve underfunded programs.
But, make sure funds for program y do not go to football.
Use the Brandeis Laboratories of democracy to fund state development
of many sound, flexible education programs. Hopefully, success will be copied.

Force the WW 2 large project, expert driven, complicated, hard to manage
Institutional management out of government.

See America's Democratic, Federalist, Capitalist Republic

Inspired by Storm Before the Calm.

 

2. America's Socioeconomic Cycles

Every fifty years or so the American economy and society pass through a painful cycle where it often feels that both were collapsing. Existing policies no longer work. A financial crisis often precedes the coming political/cultural crisis. Current leaders say nothing is wrong but protecting their vested interest causes them to lose control of difficult events. Failed old thinking presidents are replaced by new more d\flexible presidents. Think FDR and Ronald Reagan replaced . They were successful because

they allowed for the beginning of unknown TBD changes. Politics are not the problem. The problem is a significant deep social and economic dislocation. Political strife and noisy are not the engines of change. Change is pushed by the need for a new system that works.  Over time a new common sense is put into place and America flourishes.


Five Socioeconomic Cycle

End of the Current Socioeconomic Cycle Coming Soon

 

Instigator: Articles of Confederation Instigator: Slavery. Instigator: Winning the War  
1. Constitution in 1787 to winning of the Civil War 2. Civil War Amendments of 1865 through WW2 3. Post WW 2 expanded federal authority through globalization     
1.Washington-Adams II 
 1783-1828

A Quarrel between a Federalist and a Republican in the House of Representatives

2. Jackson-Grant
 1829-1878

3. Hayes-Hoover
1878-1932

4. FDR-Carter
1933-1980

5. Reagan-
1981-3031

Quarrel between a Federalist and a Republican in the House of Representatives
 
Foreign influence on Domestic Politics

Prelude: Northern Business Aristocrats and Southern Planter Aristocrats triggered and financed a revolution. Unlike the French and Russian revolutions, stability was maintained and America's leaders remained in place.

Political Tensions began 1801 when the election ended in an Electoral College tie. Receiving votes were 2 Federalists , Adams( 65) and Pickney(64) plus 2 Republicans Jefferson(73) and Burr(73), John Jay had one vote. The election went to the House of Representing. Hamilton worked behind the scenes for Jefferson who he felt was a less-dangerous than Burr. The runoff was tied for 36 ballots and finally on number 37 Jefferson was declared the winner. .

ElectoralCollege1800.svg

Rising tensions began when a trade war with England created the massive 1807-09 recession. Then came the War of 1812. To keep pace economically and militarily, the US needed more industrialization and a new social structure.  A larger capital base and increased population would be needed.

Innovation Growth came from the Louisiana Purchase. A need for Northwest Territory settlers brought new roads through Appalachia. Increased immigrants from Ireland were loathed as illiterate violent drunks. Ben Franklin said the Germans immigrants were stupid and swarthy.

Large numbers of immigrants challenge the stability of society and locals would, as always, reacted negatively. This eroding of the existing social order causes much consternation.

Forced into Appalachia, immigrants quickly questioned the apportionment and sale of land controlled by absentee English landlords. The controlling local politicians claimed to be the people's government but they were controlled by a local developing pseudo aristocracy.

The private Bank of the US allowed lots of inflation which made themselves and existing land owners rich, but it hurt most others including settler immigrants. Then a 1819 European financial panic caused large Eastern US bank losses. Investments in foreign Napoleonic War debt lost much.  The in control Founding Fathers were motivated by self-interest. Their political future was in Deep Doo Doo.

Political trouble came when the Second Bank of the US. lowered the money supply. Western land values tanked, causing settlers farmers whose mortgages were now greater than farm values, to lose their property. Resulting lower farm production raised Eastern food prices. Depression resulted. 

Hamilton's banking system no longer worked. In 1824 election, Adams II  representing  the English elite tied Jackson, a member of the Scotch-Irishman lower class. The House elected Adams and his inability to allow needed institutional change created his failed presidency.

Summary:
Geopolitics change
came with the Louisiana Purchase. This created a need for more settler immigrants.
Ethic change
came with the  additions of different immigrant cultures.
Economic change
occurred when the Hamilton bank system no longer fulfilled the nations needs. We would have a system reboot or the nation would fragment.

Jacksonian Democracy was next.

 

 

 

 

 

 

 

 

 

 

A "mob" descended upon Andrew Jackson at the White House to celebrate his victory in the election of 1828. Public parties were regular occurrences during Jackson's administration.

Tensions rose from 1819 to 1836, but ended somewhat when the Second Bank of the United States  bank finally dissolved after Jackson's reelection. The continuing need for stable money with stable credit was a cause of the US Financial Panic of 1837. Other causes were a poor wheat crop and another British Financial Crisis. Transitions to new cycles are often long-lasting and cause economic pain. 

Before the Civil War, the South could not afford a tariff war and the North wanted tariffs to protect infant Industries. The war destroyed the South while Northern industry increased dramatically. The Midwest had become America's Hartland with many small towns to service American agriculture.

Radical cultural changes caused by the massive import of foreign labor.

The Civil War, financed by the fiat Greenback, eventually led to the Coinage Act of 1873. Greenbacks, not backed by Gold or Silver, supplemented the gold/silver backed dollar.

Metallic backed currency soon left circulation for safe keeping. Confederate debt was useless and the Greenback was almost useless. Inflation helped those in debt, but devastated their creditors. Many were seriously hurt.

Innovative Technology
resulted in massive
RR growth.

Prosperous immigrants had clustered in rural areas. Small town merchants replaced Irish/Germans immigrants as the leaders of commerce. These small towns became, a symbols of the virtuous life, But they were stuck with old, now mostly irrelevant, Jacksonian era guidelines. Meanwhile, northern industry was creating new, more appropriate urban guidelines.

Eventually, excess RR growth caused stockholders, many located in Europe, to be wiped out. Many  small  rural banks were also wiped out.

Summary:
Change was needed.
The Jackson era focus on cheap land with moderate inflation was no longer appropriate. Big cities were bringing more immigrants and with them new, more appropriate guidelines.

 

 

 

 

 

Tensions Increased as a  corrupt Grant presidency and Southern efforts to remove Northern war controls made the 1878 election one of the most tumultuous in history. Hayes received fewer votes and won the electoral college vote through complex chicanery. He would have to preside over the new cycle by managing two emerging technologies.

The Coinage Act of 1873 decreased the money supply and exacerbated the Panic of 1873 increased .workers fears cheap foreign labor. This period would be known as the Long Depression for sixty years.

Innovative Technology Growth
1) electricity would spin off into communication and illuminate the night
2) internal combustion engine would radicalized the auto and aviation industry plus  create the need for the oil industry.

All needed immense capital but the 1873 financial crisis had hampered capital formation. Treasury Secretary Jackson dropped Jackson's bimetallic standard for a Gold Standard. This instilled confidence that there would not be substantial inflation. Investment capital flowed into the US capitalistic system as Gold backed dollars came out of savings and European Investor augment the supply of capital.

But with less currency and rural area credit disappeared. Small farms were lost to foreclosure. Buyers were banks and larger farmers. Trying to help the resulting disposed rural poor was presidential hopeful Williams Jennings Bryan. Famous for his Cross of Gold Speech, he wanted more credit which required a return to a bimetallic money standard.

Small town now set society norms by providing community and morality. They relied on hard work and needed order to maximize trade. Bigotry toward Blacks, Jews and Roman Catholics replaced the past eras bigotry towards Scotts/Irish, Germans and Scandinavians.

Big cities with wealthy industrialist and a large immigrant workforce replaced small town merchants as the center of commerce. This increases industrial success only exacerbated rural distrust.

WW 1 set the stage for a cyclical shift. The fall or exports created the need for customers. America's credit based Consumerism was how capitalism adjusted. The 1920's roared but the consumer bubble ended with a thud. The Great Crash lowered employment and  aggregate demand spiraled downward. The periods high level of production simply could not be sustained.

The Gold Standard era with stable currency was over. Credit had created consumer demand. Now, consumers were disappearing. Hover only understood the past era where a balanced budget and sound money were the answer to economic malaise. Now, more spending based on credit was the solution.

Hoover's sent troops to disband a veterans army that had settle in Washington to receive early WWI 1945 bonus checks. Soldiers attacked veterans and their families. Four, including children died.

Tensions rose during them 1920's due to the First Red Scare and  social conditions exemplified by the reemergence of the Ku Klux Klan.

The era's social foundation
1) an urban industrial class of migrants and their children.
2) Southern whites who suffered from the depression. They had really never economically recovered from the Civil War. Unions allied with big city Democratic  Machines to demand a transfers of wealth from rich to the poor. All this appalled Republicans.

Roosevelt necessary programs caused larger deficits, but they were insufficient. Unemployment remained high until even larger WW 2 deficits substantially increases aggregate demand enough to win the war. Then, the war created large industrial plant and a skilled work force went to work satisfying war caused pent-up demand. Consumer credit dramatically increased American Consumerism.

Innovative Technology Growth The war had crated a method of thinking about and controlling large organizations. This class of Technology Management  Technocrats was practical and wanted to get things done They would control most of American life.

A technocratic had expertise in a certain area and credentials to certify their expertise. They rose in power because of merit and they had no ideology other then their expertise. Efficiency was their ideology. The manager, not the hands-on worker, were praised.

The system worked well until the early 1970's when experts allowed inflation to grow out of control. Nixon instituted price controls did not work very well. Then he and his economic experts suffered a dramatic loss of prestige  when an Arab oil embargo created the economic disaster of Stagflation.

 

This era had focused on consumption and a high 70% tax rates. Some feel entrepreneurs disappeared because of the high risk/reward imbalance.

The US old industrial base had been built during and after WW2. It could not easily compete in both cost and quality with products built with newer, more efficient German and Japanese factories. The result was Americans were  increasingly consuming more imported goods. US companies tried to maintain high profit with lower product quality and by using fewer workers.

The usual end of cycle political turmoil began with the social unrest caused by the murders of Presidential candidate Kennedy and Civil Rights leader M.L. King. Social unrest finally slowed after Watergate.

Then high inflation, slow growth and Iran Hostage failures of President Carter signaled a new seriocomic cycle.

Iran, history of: Iranian hostage crisis [Credit: AP]

Tensions slowly began to ease in 1973 when the military draft ended. Then tension from long-gas lines ended with odd-even gas allocations. The Iran Hostages were release just as Reagan took office. Morning in American had begun.

Reagan began curing 1970's economic stagflation with lower taxes for the investor class. This would  increase their reward and make them eager to expand the economy.. Also, RR allowed the FED to continue Carter's tight money policy lowering both inflation and interest rates. Together they improved  risk/reward causing growth to return.

Innovative technology growth centered on the microchip and would last until the 2008 financial crisis.

When auto industry rapid profit growth from manufacturing ended, GM looked to GMAC for profit growth. It quickly expanded to many areas and soon became GM's most profitable product. Experts in Process Manager took the place of manufacturing experts. Other product lines  dramatically expand. GM had decreased their auto manufacturing focus. When added to an old inefficient plant,  competing in the their core markets with the German and Japanese was difficult. An increased management bureaucracy was  lowering Return on Capital.

Increased management complexity and loss of focus increased inefficiency. The solutions:
1) reduce labor cost. Many to lose their job were middle aged and would never find an equal pay replacement job. Also. lost were communities service jobs. Many rural communities died.
2) Production facilities relocation to less expensive, often foreign locations. These inexpensive areas also provided product parts and services like customer call centers.

The high growth microchip industry caused job losses, companies to fold, and industries to disappear. Anxiety increased. What were the new job requirement? When would the creative destruction end?

The increase in the Wealth of  Nations from globalization raised two issues
1) How long will the process take?
2) How will the increase wealth be distributes?

In the abstract world of free market capitalism, this price of creative destruction must be paid. People will be hurt. But in the real world of society and politics, where the deposed have more power, the process is often destabilizing. Destabilization peaked in the middle 2010's. Just like there was no way out of the Roosevelt cycle without the Reagan cycle changes so to will there be change out of the Reagan Cycle.

GDP growth has not been reasonably distributed. Too much went to the very top. Change to solve this and other problems was required.

Success of the early Regan cycle led to a surplus of financial capital. Disposition of these excesses went  toward  unproductive, often third world, investments.

Micro chip innovation also took some of ths excess savings but some remained causing lower interest rates. But these lower interest rates were often not available to small business after the 2008 financial crisis.

Low interest was paid to savers and when coupled with increased deposed industrial workers, an economic crisis was brewing. Eventually it led to a social crisis as tension between the declining class-those receiving less interest on savings-and those who benefited, the class of technocrats who had gained as entrepreneurs and investors.

More importantly, the driving edge of this cultural crisis may be a divergence in values. The existing political crisis increased with the Trumps Presidency as social forces intensified. The next decade will see our last  declining years president methods.  that will not work.   A more open to change president will be elected. They will not know what to do, but it will be new and is required to continue the American Experiment.