Democracy or Autocracy

                                 We discuss political economics. In this essay and

                                             in a subsequent one we will discuss the political

                                             system that has made globalization possible.



In 1776, Adam Smith published “The Wealth of Nations.” It contained this notable quote:


“To found a great (commercial) empire for the sole purpose of raising up a people of customers may at first appear a project fit only for a nation of shopkeepers.”


Consider the daily concerns of a shopkeeper. He has to please his customers, stock the appropriate inventory (a use of funds), and turn a profit when all is said and done. Such underly the flexible concerns of capitalism that has grown to encompass almost the whole world, resulting in the promise of corporate brands, sophisticated supply chains, and the facilitating discipline of free markets.

But to persist, a social system has to address three major human concerns: Economic Efficiency, Moral Appropriateness and National Security. What does pleasing one’s customer mean? In general, it depends upon the proper alignment of the goals of the organization with the personal goals of the people in them. However, the core motivations of the capitalist system, a product of the Enlightenment, are generally positive and ultimately pertain to the flourishing of the individual.

It is at this moral crux that societies differ greatly. In the democratic British system, the principle of, “everything in its place,” likely governs, in an order that protects the freedoms of the individual. The American system is in danger of backsliding into created chaos and finally into authoritarianism. The Economist estimates that 31% of the world’s GDP is now produced by authoritarian, non-democratic countries.

The difference between modern democratic and authoritarian systems is the locus of power. Democratic systems operate upon the principle of shared power, power shared among different organizations and people: such as church and state, producer and consumer, executive and legislative, civil society and government, and so on. These societies maintain both modern and traditional elements, people pursuing their own goals, unified by the legal rules of society. Power in modern authoritarian, and of course totalitarian societies, is highly centralized in the person of the leader who simply exercises it, or who lays claim to a superior knowledge of some historical process. In such societies, the control state, aided by technology, is predominant; and, as recent events in Ukraine have demonstrated, they can tolerate a pathological leader with delusions of empire.

We have a preference, of course, for a congruence between a society’s political and economic systems. In developing countries, the two systems may become highly incongruent, with the differences swept under the rug until they emerge or explode over the issues of rights, corruption, or the dominance of the political over the economic. Such societies, lacking independent corrective mechanisms, become worse, because everything becomes political and therefore not based on facts and reality.

But freedom to do what? We think it is now to preserve the freedom to adapt in their own ways. As a value investor, we believe in intrinsic value; but we will have to contend with different forces than previous. The capitalist economy is efficient, because it mimics the nature of life itself. As a stock market analyst confessed, “The stock market is like life, it cannot be predicted.” The nature of life, as a biologist would say, is “punctuated equilibrium,” that is things stay the same for a long time until they suddenly change. The natural forces driving such change on earth, and which have driven four of the five past extinctions, is increasing levels of atmospheric CO2. The same is true of financial markets, they stay the same until something drastically changes.

The prior era of rapid globalization ended in 1914, with an assassin’s bullet in Sarajevo. That precipitated the fall of empires and the rise of the nation-state in 1945. The international system, set up by the Congress of Vienna in 1815, as classical scholar Donald Kagan (1995) suggested, had become increasingly rigid, failing to contend with changes, including the rise of nationalism - a "force multiplier." Peace, he concluded, requires continual active effort, planning, and the expenditure of resources. The present fact that Putin has shut down communications with the U.S. military, according to James Stavridis, former Commander of NATO, is “concerning.” Putin is trying to maximize FUD; fear, uncertainty, and doubt.

The current issue of Foreign Affairs Magazine contains an article titled, “The End of Globalization?” Bloomberg contains an article by Micklethwait subtitled, “Unless the U.S. and the allies mobilize to save it, the second great age of globalization is coming to a catastrophic close.” CNN contains an article headlined, “BlackRock (the world’s largest asset manager) says Russia’s war in Ukraine is the end of globalization.” Our way of putting this is that economic efficiency will take a back seat to considerations of moral appropriateness for society, lifting more groups than previous; and to national security, with shorter supply chains closer to home. The driving forces for change will be higher inflation, reflecting shortages of food and energy (higher petroleum prices will also facilitate the shift to renewables), increased transportation costs, and lower asset prices (already reflected in the bond market). This means a diminution, but of course we hope not the severing, of the ties created by globalization.

In democratic societies, people have to be first convinced of the rightness of a political action. Consider these two quotes:

1) “…if the people are to be sovereign – as democracy says they should be – (concerns with wages and profits, taxes and debts, trade and capital) are not optional. Their complexity is such that it is unjustifiable to abandon them to a small caste of experts. The contrary is true. Precisely because they are complex, only broad collective deliberation, based on reason and on the past history and experience of every citizen, can lead to progress resolving these issues.” Thomas Piketty; economist; Capital and Ideology (2020).

2) “Interests are formed by interpretation as much as by brute fact, and so they are shot through with ideals. Environmental imagination has always been a blend of the two….This is where taking responsibility for nature and taking responsibility for democracy come together. The democratic responsibility is the responsibility of making a world...” Jedidiah Purdy, law professor, After Nature (2015).

Interests are formed by both fact and value. In “The Wealth of Nations,” Adam Smith noted that the ultimate source of wealth is the skills of the people. Particularly in the economy of future, in the knowledge economy that must happen, people matter, not fossil fuels in the ground.


In a crucial 3/16/96 article, The Economist discussed the Enlightenment basis for the market system described above. It concluded:

“It ought to be obvious but evidently it needs saying: to the everyday lives of hundreds of millions of people, western liberalism has brought standards of material and emotional well-being unimagined in earlier times. The daily portion of all but the rich was once ignorance, injustice, fear, pain and want. On every dimension-health, education, physical security, economic opportunity-conditions have been utterly transformed, and for the better. As catastrophic failures go (for the critics), the Enlightenment has served mankind quite well.”

By opening up new markets and new suppliers, the liberal system also opened up new opportunities for many around the world, but left frayed traditional social ties such as family, community, and nation for others. In developed countries, as has been seen, that can be expressed as group anger. In developing countries, as in Russia or in some other countries, that can also be expressed as elite anger. The result, as MIT Nobel Economics Prize Winners, Banerjee and Duflo note in their very practical book, “Good Economics for Hard Times (2019)”, “…facts or fact-checking don’t seem to make much of a dent on people’s views, at least in the short run….It remains possible that in the longer run, when the initial “How dare you challenge my beliefs?” reaction fades, people will adjust their views. We should not stop telling the truth, but it is more useful to express it in a nonjudgmental way.”

The authors further note, “…the fact that preferences (values) are not necessarily internally consistent makes attaching ad hominem labels…‘racist’- to other human beings suspect because…expressions of prejudice are often expressions of pain or frustration. Those who voted for Obama and then Trump may be confused about what each candidate stood for, but to dismiss them as racists after they voted for Trump is both unfair and unhelpful.”

Politics in the U.S. is highly polarized and therefore not based on common facts. We discuss the common political facts presented by the Ukraine, common natural facts presented by climate change and then suggest a common set of facts applied to the United States. Appropriate adaptions to these common facts are crucial; for the risks are now short-term to intermediate.




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What began as an opportunistic land-grab by an out-of-touch Putin has now become an Allied effort to preserve the freedom and independence of the European nations from brutal Russian influence and rule. Although not presenting a direct threat to Putin’s rule in Russia, Administration and allied efforts to help Ukraine should remain unified in order to permanently weaken Russia, so this never happens again. To let Putin win in the Ukraine would be to give him substantial commodity power; he would then control 21.6% of the world’s traded wheat supplies and is now the world’s largest natural gas exporter and its second-largest crude oil exporter.


Climate Change


  click here  (Branch of the Loire, Franck Dubray, Ouest-France)  


The effect of climate change on the earth has become increasingly, but not perfectly, understood.

A 4/6/22 Gallup poll found that, “Extreme Weather (from hurricanes, blizzards, and forest fires) Has Affected One in Three Americans,” in the past two years. Although the earth should otherwise by experiencing a cooling trend, in the past two years, the United States has suffered through at least 20 incidents of extreme weather in each of the two years, costing $1 billion or more. In comparison, “Between 1980 and 1999, only one year (1998) recorded as many events.” The climate is getting much more extreme.

In its most recent 2022 report, The Intergovernmental Panel on Climate Change now recommend a “strong urgency” in climate action and an enhanced focus on risk. A warming of 1.5ºC (currently around 1.2ºC) above the preindustrial level is considered the upper limit where life for people will remain substantially unchanged. With CO2 levels increasing at the current rate, that upper limit will likely be reached between 2030 and 2052. (After that, conditions will become unbearable at the 2.5ºC level. The earth will do fine, but will humans?) “Global net anthropogenic (caused by humans) CO2 emissions (should) decline by about 45% from 2010 levels by 2030, reaching net zero around 2050 – to maintain a 1.5ºC temperature level.

But furthermore, this modeling does not take into account tipping points, the unknown points where different climate interactions cause the earth’s climate to run away – between snow cover and heat absorbed, the melting of glaciers causing more melting thus further raising sea levels, the melting of permafrost in the Arctic releasing CO2 trapped in organic matter, warming forests becoming carbon emitters, and the loss of biodiversity. Engineers design bridges with safety factors. Doesn’t the earth deserve the same regard? According to Johan Rockstrőm, professor of environmental science at the University of Stockholm, the years of this decade, 2020-2030, will be decisive for humanity’s future

Here is what’s happening now

An 8/18/22 NYT article wrote, “It has been a summer of heat and drought across Europe, affecting nearly every part of the economy and even its normally cool regions, a phenomenon aggravated by human-caused climate change. France has been scarred by vast wildfires, and its Loire Valley is so dry the river can be crossed in places on foot. The Rhine in Germany is inches deep in parts, paralyzing essential commerce….Italy is drier than at any time since 1800, and the growers of its iconic rice used for risotto now risk losing their harvest.” (noting what this means for inflation and interest rates)

Chandni Singh, climate researcher, “In India, higher temperatures are coming earlier and staying longer every year.  The most vulnerable are bearing the impacts of this prolonged heat now. Those who can cool will cool; those who can’t, cope. (NY Times, 5/24/22)

Here is what could happen

Kim Robinson, sci-fi novelist, “'Go to the lake! Get in the water!’…He tasted the hot lake water, tasted how foul it was, filled with organics and who knew what.” (The Ministry for the Future, 2020)

NYT 6/8/22, “Salt Lake City – If the Great Salt Lake, which has already shrunk by two-thirds, continues to dry up, here’s what’s in store: The lake’s flies and brine shrimp would die off - scientists warn it could start as soon as this summer – threatening the 10 million migratory birds that stop at the lake annually to feed on the tiny creatures….Most alarming, the air surrounding Salt Lake City would occasionally turn poisonous. The lake bed contains high levels of arsenic and as more of it becomes exposed, wind storms carry that arsenic…” Regarding the environment, Utah’s congressional delegation seems not to be concerned. *

For the politics of climate change to be effective, people in democratic societies need to organize; and that will bring pressure upon decision makers, provided these occur in a timely manner. The trend in social innovation and change is to ask those most directly affected – and then to elect the people who can pass the necessary laws.


*According to a NYT 6/13/22 article by economist Paul Krugman, “It doesn't take fancy analysis to show that there is a persistent upward trend in temperatures, but many people aren’t convinced by statistical analysis of any kind, fancy or not, only by raw experience.” (Sounds like momentum investors.) It is this “raw experience” that offers some hope to get action on the climate. The nature of climate change is that it does not affect the planet, uniformly. Due to local conditions, there will be those much more affected, for instance in Utah, than others.

 An analogy might be made to gun control. Finally, Congress seems ready to act (somewhat) by the latest mass shooting outrage in Uvalde, Texas. Those most affected by the toxic climate change in Utah are also likely to put political pressure on their legislators to finally do something. This is another reason for democracy. It is, ultimately, responsive to the local conditions faced by those most affected.


The Liberal Market System


   click here  (US Port, BBC, Reuters)


Foreign policy is not an item of great interest for most people. Yet, whether a people are called upon to defend themselves, whether they have products and commodities available, whether they feel their cause or country is significant in the world, all depend upon a well functioning system of sovereign states rather than a condition of anarchy and chaos.

At the end of WW II, the United States and its allies won a military victory, thus achieving the power to establish a system of free sovereign states tied together by international institutions such as the United Nations and the IMF. At the center of this new system was the United States, running the international system, as one writer described, like a benign ambling elephant, carrying with it a flourishing ecosystem of birds and plants. Coalitions of states against this system did not arise, because all benefited.

The primary danger to this system now arises from within the nation-state, from groups who feel that they have been disadvantaged by the workings of the liberal market system, that by design, creates inequalities. This is acknowledged in trade theory, the winners then theoretically compensating the losers. In fact, as Banerjee (2019) points out, this barely happens, “(Economists) looked at the extent to which the government stepped in to help the regions ill-affected by trade with China. They found that while they received somewhat more money from public programs, it was much too little to fully compensate for the lost incomes. For example, comparing the residents of the most affected commuting zones to those of the least affected, incomes per adult went down by $549 more in the former, whereas government welfare payments went up by only approximately $58 per adult.”

Further and most important, as Gray (1998) noted, the theory of comparative advantage becomes inequitable regional economics if there is mobility of capital. In her new book, Foroohar (2022) notes, “The laissez-faire case for free trade made more sense when entire supply chains couldn’t be outsourced to myriad countries (in the interest of lower costs) and when international capital was far less mobile. Ricardo thought that all the risks…(of travel and war in the early 19th century) would prevent British financiers from simply outsourcing the entire industrial supply chain to Portugal…. He also suspected that national patriotism would be a limiting factor in the outsourcing of entire production systems.…Ricardo himself realized that if capital were entirely mobile, his own theory (of comparative advantage) wouldn’t hold up, and excess offshoring would lead to job loss and economic decline. For a long time, the ‘laissez-faire’ approach held. But with the invention of the telegraph, the steamship, the limited liability company, and global banking his theory began to break down. Between 1870 and 1900, the United States surged ahead of Britain in nearly every sector.”


If you are a liberal, the obvious answer to the last two problems is, “Why not change?” If you are a conservative, then you might consider the words of English statesman Edmund Burke (1790). In “Reflections on the Revolution in France,” he wrote, “A state without the means of some change is without the means of its conservation.” Its time to start talking about common facts, and about a way to productively sort out disagreements,

How to sort out disagreements? Professor Vaclav Smil, Professor at the University of Manitoba, notes, “…the real world works on the basis of natural law and thermodynamics and energy conversions….We need less politics to solve our problems. We need to look at the realities of life and to see how we can practically affect them.” But, in democracies, politics is necessary to make things happen; because people have different time horizons and interests. (So do investors.)




You can tell the character of a society by how it treats its enemies.

The following is an image of (a somewhat) authoritarian Egyptian society, from around 1300 B.C. It shows a pharoh trampling his enemy.



The following reproduces a Hellenistic Thracian (now Northern Greece and Southern Bulgaria) panel, from around 335 B.C. Note how the Greek sculptor depicts the Persian, fighting manus ad manum, with the Greek. The sculptor recognizes the humanity of both, and furthermore shows an audience with the Persian king on the shield.



 At the end of W.W. II, German Army units had a choice of surrendering to the Americans or the Russians. Guess which side they chose.

Now about the American elections of 2022… In the 11/22 elections, the voters turned an expected Republican red wave into a ripple. The American voters clearly signaled that they don’t like political extremism, the politics of discord and division. What they want is collaborative government, where both parties bring their own perspectives to solve common problems. The U.S. government is supposed to work by maintaining a balance of powers, ensuring a balanced viewpoint, dating back to Madison and The Federalist 51.

President Obama once wished (the loyal opposition) luck, but not too much.