In Cork last week, I looked across the River Lee from the vantage point of the Marina, and I thought of the first line in Alexis de Tocqueville’s account of my home city, written in 1835 (by his associate Gustave de Beaumont), ‘the entry into Cork is very fine’. Very sadly, much of the rest of Tocqueville’s account of Cork and Ireland describes great poverty, inequality and injustice. Back then, Tocqueville was a well-known, political thinker in Europe, famous for his work (with de Beaumont) ‘Democracy in America’, based on their visit to the United States in 1831, ostensibly to study the prison system, but that became a broader, insightful commentary on American society and democracy.
Today, ‘Democracy in America’ is still regarded as one of the most pertinent accounts of American public life. He observed America’s march towards democracy, and potential for this idea to spread to other countries, the beginnings of severe inequality and exclusion in American society, the power that religion had over the populace, a strong sense of the individual coupled with a belief in local democracy and activism. Tocqueville also flagged the risks to democracy from despotism and smothering bureaucracy (‘a tutelary power’). All of those threads are current today, and many of them have been manifest in the midterm elections.
We previewed the elections two weeks ago (Midway, the End or the Beginning), and by most benchmarks the result is startling for the magnitude of the reversal for Donald Trump and the Republicans. Multiple, historic records were set, for instance the first female, native American (de Tocqueville mentioned their plight) governor was elected in New Mexico, and a raft of female former military officers won elections, some like Vice Admiral Nancy Lacore had been fired by Pete Hegseth.
What is clear is that many Americans, whom we might describe as falling into the early socio-economic cracks described by de Tocqueville, and whose state of mind is captured in JD Vance’s book ‘Hill Billy Elegy’ have come to the slow but firm realization that Donald Trump is not the man to address the long-running concerns they have over the cost of living, wealth inequality and America’s place in the world.
One of the most interesting diagnoses of this came in a long tweet from the Vice President, in what is surely his first unguarded utterance in over two years. Bluntly he states that the administration needs to end the war on Iran, focus on the cost of living, change its relationship with Israel and put ‘America First’.
Vance must realize that his chances of winning the 2028 presidential campaign are very slim, as are those of Marco Rubio. My sense is that economically astute, experienced policy makers (with military backgrounds) like Mike Pompeo and David McCormack are the kind of candidates the Republicans will gravitate towards.
The Democrats will go from having a poor, unprepared candidate in 2024 to a cast of apparent political geniuses. Jon Ossoff and Pete Buttigieg are two of the leading candidates, as is Gavin Newsom, but my suspicion is that on the road to 2028 the Democrats risk convincing themselves that a woke, leftward tilt is the way forward and thus become irrelevant in the same way the left has done in many European countries. The example they will want to avoid is the landslide win for the Labour Party against the unpopular Tories in 2024, and the ways Labour subsequently neutered itself.
If the 2028 election has now started, many other events will occur quickly. Pete Hegseth might be fired before he is impeached, the boon may be that Trump uses this moment to bring the Iran War to a halt, and that this provides the backdrop for a similar settlement in Ukraine.
Two weeks ago, we suggested that a Democrat majority in the Senate would lead to a shift to bonds and out of AI stocks. This trade has been building for the past two weeks and bond yields have dropped 40 basis points. The consensus view is that many Democrats are against AI, or at least its overlords and owners, and the consequences of its machinery (from data centres to surveillance). It is not clear that Democrats can halt the march of AI capital expenditure, and when they discover that this is the one engine propelling the US economy they may be less critical. But, in certain states like Texas, known for its business-friendly outlook, the new governor (Gina Hinojosa) may try to halt the build of new datacentres, nearly half of which are pitched by ‘first time’ data centres teams. If she does, she might rescue billions in shareholder capital.
Finally, two things surprised me through this campaign. The first is that whilst the cost of living is the top political issue, few politicians have raised the looming catastrophe of America’s financial situation (political ads that mention the budget deficit have been scarce compared to previous elections). A budget deficit of 6% and debt of GDP ratio mean that American politics, like France and the UK, is set to be smothered by the ‘fiscal question’.
Then, to return to the sharp observations of Tocqueville, American democracy still works it seems, but the resolute vote is in sharp contrast to the lack of courage shown by many lawyers, entrepreneurs and business leaders, not to mention Senators, over the past two years. I just wonder why some Americans are so disappointed in their choice of president, they had plenty of warnings.
Have a great week ahead, Mike
