December 11, 2017

Is America Approaching Civil War?

The United States may be closer to massive civil unrest than at any time since at least the 1960s civil rights movement and Vietnam protests.

That’s the best case scenario.

The worst case is that the United States is approaching a scenario that could match that of the 1861-1865 American Civil War.

This probably comes across as alarmist, but this is the direction we are headed.

Just a few years ago, could you have imagined a political divergence strong enough to tear families apart? Yet, today, there is a huge portion of the population that has ceased communications with anyone on the other side of the political spectrum.

The chart below (Source: Pew Research Center) demonstrates the growing divergence of political views between 1994 and 2017. Today’s median Democrat and median Republican are so far apart that they can no longer relate on any level.

This divide is no longer about simple policy disagreements. Today, people are fundamentally and ideologically hostile to those of the opposite political affiliation. People no longer empathize with opposing views. More and more people simply cannot understand – and no longer tolerate – opposing views, instead believing that people of the opposing political affiliation are simply fanatical and/or destroying the country.

Every single policy move made since Donald Trump took office is viewed from a ‘do’ or ‘die’ position from both sides of the aisle. There is no compromise. Each political initiative is simultaneously seen by opposing party members as either the redemption of a nation under duress or as a threat to life and liberty. Whether it’s taxes, trade or immigration each proposal is now a figurative red vs. blue fight to the death.

The institutions of American democracy are either under attack or being freed from political burden, depending on your view of the world. However, in the end, it doesn’t really matter who is right or wrong. What matters is that the nation is divided, and a divided nation is brittle.

This article is not about politics. What people should remember though, is that politics is the cousin of power. Power is is born of money. This article is about the driving force behind today’s politics: economics.

American prosperity arguably peaked sometime around the late 1990s. Prior to that point, the standard of living rose across the board due to the proliferation of inventions tied to the fundamental discoveries like electricity, chemistry, plumbing and the combustion engine. Inventions throughout the 20th century massively improved our productivity in the home and at work. Our world in 1950 would be mostly unrecognizable to the average family in 1900. Similarly, America in the late 1990s had experienced great advances during the fifty years prior.

These productivity gains are important. They drive middle class wealth over the long run, as worker real wages are dependent on worker productivity.

If you plot post-war productivity growth in America, it becomes apparent that it has slowed. Until 2000 productivity grew at an average annual rate of 2.2%. Between 2001 and 2016 productivity growth declined to 1.8%. Since 2010, productivity growth has clocked only 1%.

Since productivity gains throughout the economy have slowed, so too have worker real wage gains.

While average worker productivity – and average worker wage gains – have declined, the top earners and corporations have flourished. What’s left is a growing disparity between the rich and the masses. Indeed, the share of American wealth controlled by the top 1% has grown steadily since the mid-1970s.

The two charts (Sources: The Wall Street Journal and Saez & Zucman, UC Berkeley) below show the distribution of income gains and the share of wealth accruing to the top earners.

 

 

Unfortunately, this is more likely to worsen than it is to improve. Automation, machine learning, robotics and artificial intelligence will likely benefit the owners of capital – the wealthy class - but not the average worker. Undeniably, the average worker across many industries will be displaced by faster, smarter, cheaper technology over the next decade or two. UBS recently suggested that about 30% of its workforce could be replaced by technology within a few years. Competitive forces will guarantee that other companies follow suit.

I recognize that massive technological shifts – such as the industrial revolution - have eventually benefited the average person, but our view of history is compressed. The reality of the industrial revolution was that many people were left in the cold and it took decades until the average person saw a benefit. This is just as probable today - it is not easy to retrain a 50 year old truck driver to become a programmer.

History has shown time and again that wealth disparity leads to revolt. Revolutions have consistently followed the same narrative: the downtrodden masses violently displace the rich, powerful and corrupt oligarchs and monarchs.

Today, western civilization has been placated by 24/7 entertainment, leading to greater complacency. But as the situation worsens anger among the masses will rise. It already is rising.

This is precisely why the British voted to abandon the European Union. This is precisely why Americans elected Donald Trump. People didn’t vote for these things because they particularly liked the outcome. They were simply expressing a giant protest to the system they felt was keeping them down.

The reality is, however, that the system still exists and, as I suggested above, wealth disparity will continue to widen. When people realize this cannot be solved via the democratic system they will revolt.

Revolt could take many shapes and sizes, and I hope that it is nothing worse than what America experienced during the civil rights movement. But these are uncharted waters, and no matter your personal opinion on the matter you must recognize the range of possible outcomes.

I recognize that this reads like a dystopian fantasy describing some far-off banana republic. But things are currently happening in America that just 5 years ago were unthinkable. Who knows what could happen 5 years from today.

Perhaps it all turns out for the best. Still, I don’t see the harm in being prepared for the worst. I buy fire insurance for my house even though there’s a minuscule chance it ever burns down. The aim is to help protect against the catastrophic consequences of potential events.

In the end, perhaps we muddle through this mess and learn to compromise with our neighbors again. We will never share the same opinions as everyone we meet, but hopefully we can get back to celebrating our differences, because that’s what truly makes America great.

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