A look ahead to 2024: The Great American Political Fracturing
As we begin 2024, I think we are entering a new political age, which makes handicapping 2024 difficult. That said, it does mean good things for the markets.
First, the politics. I sense that we are seeing a sea change in politics right now and a fracturing of both political parties. It is no secret that Red and Blue America don’t care much for each other - that isn’t news - but we seeing schisms that have plagued Republicans start to affect Democrats too.
Despite the best efforts of the media, the Republican establishment and Democratic Party lawfare, Donald Trump remains the overwhelming favorite to win the Republican nomination and it isn’t even close. While the Republican establishment and big money donors are pushing Nikki Haley these days, she garners so little excitement from the base that the whole thing feels astroturfed. It is the Jeb Bush “please clap” moment writ large.
It is clear that the base of the Republican party wants Sonny Corleone and not Tom Hagen. The establishment types consider heated rhetoric from Democrats and the media as "just business” while the base takes it personally. The base of the Republican party views the Democrats’ actions since 2016 as out of bounds and they want payback. It is why Trump’s vulgarities and moral peccadilloes don’t matter. They aren’t going to be bribed with a tax cut either. The establishment Republicans versus the Trump populists has been going on for 8 years at this point, and neither side wants to budge an inch.
Compare that with the Democrats, who have operated with uncharacteristic cohesion for this entire time. That lasted until the October 7 terrorist attack in Gaza which exposed major fault lines that have been building under the surface for some time. October 7 exposed a schism between mainstream Democrats and the Faculty Lounge Left. Mainstream Democrats support Israel, because Israel has always been a US ally, and they don’t care much for Middle Eastern terrorism. The Faculty Lounge has a different worldview. It divides every conflict into victims and oppressors, and once the parties have been assigned their respective role, the victim can do no wrong and the oppressor can do no right. The victim is entitled to unlimited empathy, while the oppressor is entitled to unlimited antipathy. This is why activists feel entirely justified to rip down posters of kidnapped kids and are shocked to receive push-back.
This isn’t the only fault line. While the typical American still supports the concept of meritocracy, the Faculty Lounge Left does not. To them supporting meritocracy means supporting an unjust system, and a commitment to equity means tearing down existing power structures. The Claudine Gay situation is shining a bright light on all sorts of things the Faculty Lounge Left would like to keep out of public view.
In addition, the left’s increasing comfort with censorship has turned off a lot of erstwhile civil liberty democrats who still believe in free speech. The current lawfare tactics in order to keep Trump off the ballot in states like Colorado and Maine also bothers Democrats who still care about process. I think we are seeing the two-party system break into three camps:
The Trumpy Populists
The Swampy Uniparty
The Faculty Lounge Left
The Trumpy populists are the Jim Jordans and Marjorie Taylor Greens in Congress. They aren’t interested in getting legislation passed because they know anything they would support would be DOA in the WH / Senate. Their main role is attacking the Democrats and liberal Republicans and for a large portion of the country, that is enough.
The Identity Politcs Left is exemplified by AOC, Ron Goldman and the Squad. They are similar to the Trumpy Populists. They are primarily in the role of prosecuting the Cultural War and jawboning the administrative state.
The Swampy Uniparty includes classic Democrats who support Israel and Republicans who don’t consider bipartisanship a four-letter word. The Swampy Uniparty includes Ron DeSantis, Nikki Haley and Joe Biden. They are also the neocons like Bill Kristol who never saw a war they didn’t like.
There is a fourth group of erstwhile progressives like Matt Taibbi and Michael Shellenberger who are old-school civil rights liberals who can’t stand the censorship industrial complex and the extra-legal steps (like blue states excluding Trump from the ballot) the left is taking to stop Donald Trump. Their view is that the people who try to imprison political opponents and employ censorship are never the good guys. This group also includes Libertarians identify more with free-market Republicans but cannot bring themselves to support Trump. They could end up holding their noses and joining the Swampy Uniparty if it distances itself from the Faculty Lounge Left enough. Or they could vote for a third party candidate. That probably hurts Democrats more than Republicans.
The Swampy Uniparty has been embarrassed by the Trumpy right for a long time, so that is old news. Embarrassment on the side of Democrats is new. We are starting to hear progressives start to refer to “leftists” who block traffic at JFK, rip down “kidnapped” posters and make woke performance art on Tik Tok. The Identity Politics Left has run culture and the institutions for so long it has worn out its welcome while being completely oblivious to that fact. Between the Bud Light fiasco, October 7, and the Claudine Gay scandal, 2023 may go down as they year performative wokeness finally jumped the shark.
I still think that the lack of an alternative candidate for the Faculty Lounge Left keeps them in Democratic Party tent for this year, which will probably be enough to drag Biden over the line. But this fracturing isn’t going away. Democrats may object to this analysis and say Donald Trump is such a threat to the American Public that desperate measures must be taken. But, think about this: If Donald Trump keeled over from a heart attack tomorrow, would anything change?
How this shakes out is anyone’s guess, but IMO if Trump is the nominee, the 2024 election will resemble something like the final between the Charlestown Chiefs and the Syracuse Bulldogs. Establishment Republicans like Chris Christie and Mitt Romney talk like Reggie Dunlop about Old Time Hockey and Eddie Shore, while Trump McGrath tries to motivate the troops to fight back. The bottom line is that 2024 is going to be difficult to game, and uncertainty will be a big part of the landscape.
So why is an econ guy talking about this? Because it matters for interest rate forecasts. The election is the elephant in the room right now when it comes to the Fed.
The Fed fears inflation, but it fears Trump more. If it looks like Biden is in trouble (and the polls bear that out) then the Fed is going to stimulate the economy to help his campaign. Yes, the Fed is supposed to be non-political, but that hasn’t always been reality. And just like every other entity in DC, it is horrified at the prospect of another Trump Presidency.
Some of the spending from the Inflation Reduction Act has been squirreled away expressly for Biden’s re-election, which will add more stimulus. The Fed is about to go from fighting inflation to fighting Trump. I have no doubt that the Fed is going to pull out all the stops to boost the economy in order to help Biden’s campaign, and they will deal with the economic fallout after the election.
Stop looking at the inflation numbers and take the dot plots with a grain of salt. Look at the polls, because that will be the story for 2024.