Geopolitical Alpha by Marko Papic
Marko Papic is an International Relation specialist who worked for Stratfor and then in fund advisory business. In 2020, he publishes Geopolitical Alpha, which describes his views on what are the new secular trends and his framework for analysis of geopolitical relations.
Washington vs Buenos Aires Consensus
One of Marko's main tenet is that globalization now faces headwinds, as demographics in economically dominant countries. While western consumers and median electors benefited more competition and opening in the 1990 to 2010, he considers that the GFC marked the end of the free trades policy.
We are going from a pro free-trade Washington Consensus to an import substitution Buenos Aires consensus suited to a deindustrialization situation.
International Relation Policy Framework
The main insight here is that politicians are very vocal about their preferences:
- preferences are always in the headlines
- constraints might be much stronger in the end
The author recommends the CIA book: The psychology of Intelligence Analysis as presenting the right kind of framework to gather intelligence.
Examples of Preferences and Constraints
The author describes the situation for Yugoslavia in the 90s as follows:
- country has no natural resources and a natural trade deficit that destabilizes the country
- government printed too much, and inflation became out of control
- when austerity is implemented by the Yugoslav government, somehow, a constraint was breached
- populist show up in the smaller republics and the country explodes into Serbia, Kosovo, etc...
- Hans-Werner Sinn and Krugmann write op-ed in which they advocate Grexit
- Tsiparas gets elected and Varoufakis is put in charge of negotiations. There are left wing politicians freshly elected with the mandate not to let Germany trample the Greek people
- This is the topic of the book EuroTragedy, in the end, the Greek government had too much to lose by exiting
- Papic considers that both grexit and remain would require structural reforms, but there is no reason to believe structural reforms would be easier in a grexit scenario.
- Germany will also do everything it can to preserve the Euro/Target2 system, as Papic sees it as in its interest.
Trump US policy:
- trade policy is well within presidential mandate, and is popular
- Obamacare repeal did not work because there was not enough popular support
- TCJA was another case where legal framework and political will were aligned.
- Covid-19 is worse than flu, but it is far from an existential threat
- mortality is 0.3% and the median death is above 80
- lockdowns have the potential to wreck economies far beyond affecting bar/restaurant and travel industry
- despite attempts of the CDC to portray covid as dangerous to the 20-45, population will find that it is not so dangerous
- median voter will pressure for reopening if lockdown last more than 6 months if people lose their job
- Mahan: importance of Navy for trading/island nations. The US is the ultimate island nation, secured from the rest of the world by oceans and weak neighbors. Based on this, US Navy scholar Mahan advocated for US to seek naval supremacy.
- Mackinder: the Eurasian landmass is the largest world-island. Who controls the world-island controls the world. Based on this, the British Mackinder advocated maintaining division between Germany, Russia and China.
Laws and Constitutional Constraints
Laws and Constitutional constrains are weaker than material constraints: laws are not suicide pacts.
- in Apr 2009, a law was passed to dispense banks from accounting their asset in MTM. This ended the GFC.
- in 2010, the EU puts the EFSF in place despite the laws that prevent this from being done.
- Trade War: considerable leeway has been given to the US president over trade agreements. Much of this dates from the Roosevelt era, but it should be noted that Nixon used a WW1 law concerning extreme threat to its "national security" to impose tariffs on its trade partners in 1971 invoking the Korean War, a war that had gone cold over 19 years. So the Trump trade war is not surprising.
- TCJA: in this case, the law and what can be changed is a very technical topic. See David Reich/Richard Kogan: Introduction to Budget Reconciliation and Megan Lynch: Budget Reconciliation measures enacted into Law.
- net assessment based on Bayesian probabilities evaluations
- game theory: e.g., James Dean's chicken game, the idea here is to check the payoffs, assess how much a player can impact the other, and how much he cares. Main point is that in real life, it is most of the time not a balanced game.
- motivation: the world of central banks commanding the economy by moving rates by 25bp policy rate is over. Policy will now require much more comprehensive tools. So its understanding requires more comprehensive analysis.