The Faustian Bargain Americans are Making With Their Futures (and Their Money)

They’re not, three friends said to me the other day, going to let the stock market fall, are they? I raised an eyebrow. We’ll come back to that.

Another two friends said, even more sharply: it’s almost as if he can juice the stock market, and then nothing else matters much to Americans.

And I think that all my friends, wise as they are, have a point.

I am going to teach you something today that will be painful to hear. I’m sorry about that. But I have to give it to you straight.

Right now, Americans think they are making fortunes in the stock market. What they are really doing is selling out something priceless, including their very own futures, for pennies on the dollar.

I think that America’s making a Faustian bargain right now. You know what one of those is. This one, in particular, goes like this.

As long as the stock market booms, Americans will look the other way. They’ll quietly avert their eyes. To the immense, catastrophic damage being done to their democracy, society, and futures.

Maybe not you. I’m generalizing, and Americans object to this, individualists to the core, but we can’t discuss finance, economics, or society without it. So absolve yourself if you must, but glimpse the point with me. We’re old friends by now, and I say these things to you gently. And you can skip my long-winded exposition and go to the conclusion at the end, too, by the way.

Are Americans making such a Faustian bargain? You see, something is deeply amiss in America right now, and it’s not just Trump. It’s the confluence of authoritarianism, met with perhaps the greatest stock market bubble of all time (which it certainly is in absolute terms, if not relative ones.)

And it’s hard not to observe what so many of my friends have. Something is seriously wrong here. It is as if America’s willing to look other way, as long its stock portfolios roar.

But this is a Faustian bargain. Like all deals with the devil, such mistakes end in tragedy. Here’s how this one will go.

Yes, one can look the other way for a moment. While the stock market is juiced—one economist notably called all this “dot com on steroids,” recently. But what happens…next?

What happens is that as the institutions of a democratic society are pillaged, plundered, and demolished, economic growth will slow. America’s already there, so let me put the point in an even sharper way. What is exceedingly troubling is watching a stock market bubble develop while an economy is entering stagflation. But not even just any stagflation—authoritarian induced stagflation. The economy is already in deepening trouble. And that means that all these paper gains will soon enough vanish.

And yet we’re barely at the truth of this Faustian bargain.

It’s an ignoble thing to look the other way, while a society’s being demolished by lunatics, fanatics, and crackpots. Isn’t it? Didn’t we all go to grade school? But why is that? Does anyone remember?

The reason is that societies take generations to recover from such periods of self-destruction. Manias of institutional devastation, at the hands of extremists, such as America’s undergoing now—things don’t magically return to normal.

Repair and recovery, if such things are possible, take decades. For every year spend demolishing an institution, perhaps a decade is necessary to rebuild it.

In other words, the damage being done now will be permanent. America is now on a permanently lower growth trajectory. I don’t just mean that in the anodyne, sterile terms of American economics, but the broader, more sophisticated ones of European thinking, too: the growth of its wealth, financial to be sure, but also physical, human, social, intellectual, is now stunted permanently.

Let’s take a simple handful of examples. How long will it take to rebuild global leadership in science? In research? How long will it take international investors to trust the dollar again? How long will it take the world to trust America as an ally, a partner, and a friend again? Such things are unlikely to happen in our lifetimes. The old world is now dying, as the saying goes.

This gets us closer to the true—can I say it?—stupidity of the Faustian bargain being made by America right now. To say “my stock portfolio’s booming,” while the foundations of prosperity are being ripped apart—that is abject folly, the kind that makes history weep. Because of course what good is a booming stock portfolio now when an economy’s potential is going to be eviscerated for good?

What good is having 20% more in shares of FascistCorp when, having averted one’s eyes, the authoritarian can now say he owns half of it? Or decrees that all those paper gains can never fully be converted to a form of genuine wealth, like a currency he doesn’t control?

Please think it through with me. I am trying to teach you how economics and finance really work—not the BS pop version. If you don’t follow me, just ask yourself: how are the basics of an economy supposed to work in any efficient or productive way, if there’s a dictator basically calling the shots. One who wants a slice of everything in it, to boot. Is it a place where…anything functions well? Investment, prices, wages, salaries, currencies? Let’s ask history. How did that work out for the Soviet Union? How’s it working out for North Korea? Is Iran a shining beacon of prosperity?

And that brings me to the brutal truth of this Faustian bargain. In an authoritarian economy, nothing is safe. That’s the point of authoritarianism, after all.

So what Americans are really doing when they make this Faustian bargain is trading short term paper gains for the immense destruction of long term wealth of the real kind. Real wealth isn’t paper chits and bits. It’s what money can buy, and what it can’t. What good is money in a society where nothing is safe from the authoritarian? What good is wealth when the more you have of it, the bigger a cut the authoritarian will demand?

Short term gains. On paper. Versus real wealth. Do we even remember what that is anymore? They don’t even teach it in American economics classes anymore, so give me a second to gently remind you. If your stock portfolio’s booming, but you live in a society without functioning institutions, where facts are censored, where public health is decimated, where Art and Science barely exist anymore…where a dictator controls everything now anyways…what good is that paper money in the first place?

So the wrong answer is: but money will protect me from all that collapse! No, it won’t. If the way that the average person in a society has “made” money in the first place is by looking the other way while collapse happens, then of course, that’s a very bad trade, because that money is going to be worth far less in the end than in the beginning.

This is the essence of the Faustian bargain America’s making. Averting one’s eyes to the catastrophe now unfolding just because paper wealth is making people feel rich is a mistake of the highest order. In the end, a stunted economy, an authoritarian polity, and a devastated society is inherently going to be worth much less. Remember the example of cheerily having more FascistCorp in your portfolio—but now you’re living in a…hello…dictatorship, where everything can be taken from you, poof, like that? Go ahead and chuckle, because the reality is just that ridiculous.

When we see this strange, brutal disjuncture—perhaps the greatest stock market bubble in history, while a society dies as a democracy, what’s really happening? Something even more terrible than mere political collapse. Some, cheering it on, and buying into it. Others, averting their eyes, and…also buying into it. Functionally, is there a difference between them, then?

Of course, you’ll ask me: but what should I do? There are many things you can do, but the obvious one, if you’ve followed me so far, is this. Don’t buy into this Faustian bargain. Not just for moral reasons, which are important, and yes, morality should guide our investment choices, unless you think, for example, slavery’s totally OK and cool. But also for harder ones. Every dollar you invest in this lunacy is buying into folly. Greed is blinding you to the obvious.

It is obscene and tragic to sell out what is decent and wise and noble for money. Because, in the end, money means nothing at all without what is decent and wise and intelligent. I mean, come now: does a society without Art and Science prosper or stagnate or fall apart? Was the world rushing adoringly to throw money at the Nazis? Hint, no, there was a World War. How much would you need to be paid to live in a Stone Age society where human sacrifice was commonplace? Can we think clearly for just a moment here?

This is why democracies grow, preserve their wealth, and enjoy higher living standards. Because in them, investment—which is what the paragraph above is really about—can finally occur, in the true sense. Could peasants invest? In what? And so when we say that “it doesn’t matter if democracy’s dying! Dude, check out my stock portfolio!,” we are making not just a moral mistake, but perhaps the coarsest and ugliest one of intellect and investment there is.

This is the most basic lesson of all when it comes to economics.

It’s easy to sell something out priceless for pennies on the dollar. For a reason. Because it’s usually catastophically foolish.

And this is what Americans are really doing when they avert their eyes to the death of their country as a modern democracy because their stock portfolios are skyrocketing. What they don’t understand, and seem not to want to, is this. The price of all that will be much higher. The market may be up by X trillion now, but the loss of potential in the economy over time will be orders of magnitude higher.

And loss of potential in an economy has a real human meaning: it means people’s lives go up in smoke, too. Or are authoritarian nations known for their levels of health, happiness, and prosperity? Can we get real?

Let me now reiterate my points for you.

—What a shame that so many Americans have forgotten this most basic lesson of all.

—They think they are earning fortunes, and so they are averting their eyes to their own society being demolished.

—What they are really doing is selling out their very own futures, for pennies on the dollar.

—…Because democracies provide the underpinnings for genuine wealth, and authoritarianism does not, cannot, and will not.

—While those looting their societies laugh all the way to history’s darkest moments.

Forgive me if I have hurt you. I didn’t mean to. If I am to write anything at all, right now, it must teach you—even what, perhaps, you didn’t wish to know. This is the essence of seeing clearly. And that is your truest task right now.

None of us, my friends, should be averting our eyes. Because do you know what happens then? Then a society can be stolen from right underneath its own nose. And that is how folly repeats itself, of the kind we have just discussed, which makes history shudder.

Love,

Umair (and Snowy!)