The Great Decentralization

May the forces of history be with you

(Source: Getty Images)

Joel Bowman, appraising the situation from Buenos Aires, Argentina...

Welcome, dear reader, to a new year and another Sunday Session... that time of the week where we pull back from the granular and ponder the grander, all with the abiding help of a glass or two of Bonarda. Today, we widen the lens even further...

Inflation and deflation... tyranny and liberty... bulls and bears... Betty and Veronica.

History is full of epic matchups. Apparently equal, yet wholly opposing forces wrench at the heart... the brain... the wallet... and other vital organs... tearing us in impossible-to-reconcile directions.

The story is the same in markets, in politics, in love and in life...

Take, for example, the economy, our primary area of concern in these here pages.

On the one side, innovation and competition tend to exert downward pressure on prices over time. It is the natural outcome of competition, of creative destruction, where weaker hands and lesser ideas are weeded out over time. Lessons are learned... skills acquired... processes bettered. The resulting price deflation should deliver, as Jim Grant once phrased it, a kind of "dividend for the working man."

And it would... but for the dead weight on the other side of the fulcrum: the unnatural, para-market meddling of the State. Subsidies, grants, taxes, fixes, quotas, manipulations, infernal obfuscations and, perhaps above all, flagrant counterfeiting on the grandest of scales; all these nuisances collude to exert tremendous upward pressure on prices.

Destination: Oblivion

Despite the great leaps of mankind, in other words, against his best efforts to economize, optimize, progress, streamline and advance, prices tend to float higher upon a steadily rising tide of liquidity: inflation. At the end of the day, the average Homo Credulous is left with less... and the State that rules him with more.

Of course, no one force holds sway for eternity. Abused currencies eventually collapse under the mass of their issuers' hubris. The clock is reset. And the battle begins anew.

Down here on the Pampas, for example, the local peso is accelerating towards oblivion. When we arrived, a dozen years ago, the exchange rate was 3 pesos to $1. Today, it’s 350-1. Here, just look at what we found under the sofa cushions over the weekend. Almost enough to buy a cup of coffee!

(Source: the couch)

We've covered the inflation vs. deflation saga at some length in these pages already. Suffice to say, the struggle continues.

Today, however, it is another Titanic battle that occupies our thoughts, one that manifests itself in almost every realm you can imagine, from the political to the financial to the economic and beyond. We refer, of course, to that great inhalation and exhalation of power: centralization versus decentralization. 

Read on for more...

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The Great Decentralization

By Joel Bowman

A quiet insurrection is underway, dear reader. Participants already number in the hundreds of thousands. Perhaps millions. Some are only vaguely aware they are even part of it. Others think of little else. The rebellion grows, regardless. Hour by hour... day by day...

As for the movement's modus operandi...

No shots will be fired. No soldiers conscripted. No taxes levied. In fact, this revolution will not be televised... mostly because it is not a revolution at all.

By definition, revolutions simply return us to our point of origin. It's why they say history repeats... or at least rhymes. Kings are toppled, tsars slain, prime ministers ousted and presidents assassinated. And what changes? One gang of thugs is marched up the scaffold... just in time for another to take its place... on the throne, in the White House, the Casa Rosada, Downing Street.

To repeat: This is NOT a revolution. It is an evolution.

First, a little background...

The Passing Parade

Seining through the pages of history, we come to discover cycles great and small. Some, like news cycles or fashion cycles, pass by in an instant. Unless you're paying close attention, these fads and distractions can pass right by without you even noticing them. In one season, out the next. 

We're talking about background chatter... cocktail party banter... the ho-hum white noise of a workaday existence. 

Other cycles, like stock market cycles or election cycles, occur over a slightly longer period of time. At three... four... five years, they are small enough to remain vaguely comprehensible... intellectually digestible... available even to our poorly evolved, mammalian brains. 

The average bull market in stocks since the Great Depression, for instance, ran for about 4 1/2 years. The average bear market, being of roughly equal and opposite force, lasted about the same time. There have been 21 bear markets since 1928, averaging 330 days. The current bear market – which began June 13 of last year, is ~185 days young. (In case you’re plotting our present coordinates: the shortest bear market in history, in the Spring of 2020, lasted just 33 days. The longest, when the dot com bubble burst, dragged out over 929 days...)

Monitoring these cycles, armchair analysts can reasonably expect to see many ups and downs during their own lifetimes. Bears follow bulls; donkeys succeed elephants. For those of us in the cheap seats, it's all part of the entertainment, the passing parade.

Grander cycles require a still wider lens. We have to stand further back, to broaden our scope, just to view them. Take, for example, bond-market cycles. Most economists reckon on about 30 years for a typical downtrend (like the one from 1920 to 1949) followed by about the same for the upswing (from 1949 to 1981). The last bond market bull celebrated its 40th birthday in September of 2021... before turning in its worst performance on record last year. If history is any guide, and this is the beginning of a new downtrend, many of us reading (and writing) these words will not live to see it turn again. 

All in all, it takes two whole generations for a bond-market cycle to complete its journey, from Ithaca to Troy and home again. A bond investor might go his entire professional career without seeing the market return to one or the other extreme (low to high to low... or high to low to high). And like Odysseus’ gallant oarsmen, many will perish along the way.

In the grand scheme of things, however, this too is a relatively short cycle. Zooming out still further, we come to notice even larger, super cycles... great movements that lay hidden in plain sight from our granular, daily focus. Here we refer to the inhalation and exhalation of great political powers over time.

Dealing with the Devil

At one moment - the height of an empire, say - we find that it coagulates, congeals, coalesces. Power consolidates. It centralizes. We watch it swirl around the drain of a capital city... a Rome or a London or a Washington, D.C. While mighty militaries patrol the distant frontiers, wealth and influence are sucked toward the center. Sensing the direction of the loot, degenerates, sociopaths and the morally depraved gravitate in the same direction. 

Power brokers. Power meetings. Power players. Power lunches. Power mongers.

Bribing... conniving... contriving...

Muckraking... phone hacking... unashamed Faustian pacting.

Politicking.

The District of Columbia - and surrounding area - is an obvious example of this centralizing, centripetal trend. Just look at the grafters and opportunists lining its lucre-paved avenues. Witness the lobbyists scurrying hither and thither up and down K Street. Count the dollars sloshing around at feeding/election time.

The website opensecrets.org set for itself the impossible, presumably thankless task of tracking special-interest spending in the nation's capital. According to the non-profit’s data, more than 12,191 lobbyists shelled out a record $3.8 billion in 2021, currying political favors and courting preferential treatment on behalf of their paymasters. That's two and a half times the $1.4 billion spent in 1998, when the organization began keeping score.

Trawl around the site for a while – if you can stomach it – and follow the literally thousands of millions of dollars passing from one greased palm to another. Finance... insurance... real estate... defense... construction... labor... transport... health... there is nary a sector of the economy absent from the table. 

Even so, you can be sure the funds you see and hear represent a mere fraction of the actual amount actually shuffled around, so called “dark money.” Both behind closed doors and on telescreens across the world, political actors dance for the camera. The show goes on. Bread and circuses for all. 

For the poor outsider, it seems as if the game is consciously rigged against him. It is as though a guiding hand is working the machine, ensuring that he is kept out of the loop. An omnipotent director is posited to account for the direction for the current. But no such operator exists...

No doubt there are nefarious actors involved, rabid parasites feeding at the system's rotten core. A dozen soft euphemisms spring effortlessly to mind, from “defense contractors” (war/armament/munitions factories) and “security specialists” (hired guns/mercenaries/hitmen), to pharmaceutical “consultants” (drug dealers/pushers) and environmental/ESG “experts” (climate alarmists/anti-human death cultists), to mis/disinformation “advisors” (propaganda ministers) and the rest of the unholy, symbiotic alliance between State and crony-corporate interests...

But these are merely byproducts of centralization, odious symptoms of a trend already in motion. 

As the cycle of centralization continues, the cesspool at its dark heart gains in both mass and weight. Unable to move as quickly as it once could, it becomes taut... rigid... ill-adapted to absorb stressors... susceptible to disruption.

It is at this point, when the center can no longer hold, when the heaving political apparatus is laden with crushing financial debt and malignant public doubt, that we hear history cry out for a catalyst... a stimulant... an agent of change.

It's been over half a millennium since the last such catalyst reshaped the world around it. Might the next moment already be upon us?

Stay tuned for Part II, next Sunday...

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We’ll be back with some more Fatal Conceits tomorrow, with the very first episode of our show for the new year. We spoke with Edwin Dorsey, author of the popular newsletter The Bear Cave, about all things over in the short world. Be sure to catch his excellent insights tomorrow.

Meanwhile, we’re off to dine at Brasserie Petanque, said to be the most authentic French restaurant in the city, over in the historic San Telmo barrio. We met Pascal, the owner, by chance earlier this week and he promised us the best foie gras outside of Paris. We’ll let you know how it goes.

As always, please like and share our work and feel free to drop your own thoughts into the comments section below.

Whatever you’re up to this fine weekend, be good… or be good at it.

Until next time...

Cheers,

Joel Bowman