2013-09-27

Why Radicals With Crazy Ideas Win During Negative Social Mood

One of the themes I have been returning to again and again is that at peak social mood, many of the mainstream and politically popular ideas (not necessarily popular with the public, but with the ruling elite) are radical ideas. For example, short of open borders, Western immigration policies were very open over the past 30 years and in the U.S., unlike the rest of the West where the borders are closing, the elite are still pushing for further immigration. If one takes a look at the historic record on culture, politics, immigration and other matters, one can find the government's policies at peak social mood tend towards extreme end of the potential options. It doesn't matter what one thinks of the issue, if you look at it objectively, you will place it outside of the normal range for much of recent history.

At peak social mood there are a lot of extremist ideas that are mainstream because everything is positive mood to the limit. Positive social mood is generally correlated with positive feelings that lead to positive policies, while negative mood is associated with negative feelings that lead to negative policies. At peak social mood, however, the saying "too much of a good thing" takes effect. Way too much debt is taken on because optimistic growth forecasts paint a rosy future. Openness goes beyond interacting with other cultures, to denigrating one own's culture and even seeking to destroy it. Trade policy becomes very open such that global supply chains are at their greatest risk from a serious military conflict (likely during negative social mood). Governments move from alliances and voluntary associations towards dissolving the nation state or national sovereignty to higher authorities as seen in the EU, or to global governance through institutions such as the UN, IMF or World Bank. Welfare policies may be extended to unsustainable levels that lead to a guaranteed cut when hard times hit.

Other examples include: gay marriage, tax rates on the wealthy/capital, capital controls and zero tolerance towards drugs/misbehavior in schools. Now economists will say that capital should be unfettered, or conservatives will say tax rates on the wealthy are still too high, or liberals will say gay people deserve equal rights, but in each case the policy itself is at the far end of policies seen over the past 50 or 100 years. It may be that the policy represents progress, but when social mood turns we will know for sure because many policies will be reversed.

When social mood turns very negative, people opt for radical solutions. In some cases there is a generally consistent approach (such as communism) to matters, but in other cases there may simply be a strongman with a hodgepodge of populist ideas. Some policies may be good, some terrible, but with negative social mood as the backdrop, it will be very hard for leaders with failed ideas to turn the ship around.

These radicals have one thing working in the favor though: peak social mood policies. Radical policies may already be in effect such that rolling them back or reversing them has positive results.


The chart above shows the wealth gap (lower is better) above immigrants as a percentage of the population. Labor's share of national wealth peaked in the 1970s when the foreign born population hit its nadir, but things were already changing as the immigration reforms of the 1960s were taking effect. Adding to the growing number of foreigners in the labor pool were working women, who joined the labor force en masse in the 70s. Or for a much simpler explanation, many immigrants, particularly illegal immigrants, have much lower levels of education. Adding a large, poorly educated population will create a wealth gap directly by increasing the number of poor people in a country. The reverse policy, a ban on immigration, will very likely bring down the wealth gap, particularly if trade is also restricted as is likely to happen during negative social mood (since the U.S. is a importing nation, trade restrictions will mean increased domestic production).

The point isn't that the policy is a good one. Advancing robotics may mean that a ban on immigration pushes up wages and workers are replaced with robots. If this policy were implemented before a debt crisis, a slowdown in GDP growth could trigger one. Instead, the takeaway is that a ban on immigration and restriction on trade could have beneficial effects that will make up for some bad ideas, especially if most of the bad ideas are in social issues. If the mainstream of political life continues to offer the same peak social mood policies, eventually voters turn to a radical. And if peak mood policies played a major role in the ensuing negative social mood crisis (they would not have caused it, but rather the policies will fail particularly hard during negative social mood), the radicals may hit upon a few policies that are not only very popular for social mood reasons, but actually do reverse the economic depression.

Today in America, opponents of amnesty for illegal immigrants are still tarred as anti-foreign because the elite are still ruling as if peak social mood is in effect. (The opposite is true in many other nations where social mood has shifted the acceptable policy range, such as Australia, where the left has a policy that is to the right of the American right.) This opens the door to a more radical shift in policy because even a small shift is considered radical. Whereas in Australia, a ban on immigration could be countered with a restrictive policy from the other side, in America a very restrictive immigration policy will be met with the current radically open policy.

Throughout its history, the United States has avoided extreme political leaders. Some policies have been extreme (Japanese internment during WWII), but America essentially banned immigration from the 1920s through the 1960s and policy didn't become more radical. Odds are history will repeat. In other nations though, with a history of more extremism, radicals could come to power and improve life quickly by reversing some existing policies. Golden Dawn in Greece, for example, hasn't shown signs of being a very competent political party to this point, but if they took power and happened to push through an agenda that in the short to medium term improved economic life considerably, they may be able to hang on to power much longer than one might expect. Ultimately, the lesson of social mood and peak social mood policies is that the politicians who most quickly tack towards the historic center stand the best chance of winning and of keeping their country from self-destruction. Where leaders persist in pressing extreme policies (and the EU troika policies for Greece and Italy qualify), the greater they open the door to a radical shift in politics.

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