America’s Superpower
Guest post by Ted Lamade, Managing Director at The Carnegie Institution for Science
“Our political leaders will know our priorities only if we tell them, again and again, and if those priorities begin to show up in the polls.”
— Peggy Noonan
Ahead of Thanksgiving, I thought it would be timely to write about something every American should be thankful for, so here it goes.
The United States just concluded its 60th presidential election and every American should be thankful.
Now, before everyone who voted for Kamala Harris starts to fume, hear me out.
The reality is that every American should be thankful after every election, regardless of the outcome.
You heard that right.
Every American should be thankful after every election. In fact, every American should also be thankful that these elections are often determined by razor thin margins.
Why?
Because these elections highlight one of America’s greatest superpowers – its “optionality”.
Let me explain.
Optionality is defined as, “The ability, but not the obligation, to choose a specific path.”
America’s optionality stems from the fact that its citizens have the ability, but not the obligation, to change the country’s direction every four years. If things are going well, Americans can choose to “stay the course”. However, if they believe the party occupying the White House has swung too far in one direction, they can vote to move the country in a different one.
Don’t get me wrong. America has a lot else going for it, including being protected by two massive oceans on its coasts and two friendly nations to its north and south, vast resources (energy, farmland, and navigable waterways), a diverse population, an educated workforce and entrepreneurial ethos, and the world’s strongest military, economy, and financial markets. However, Americans’ ability to choose how to leverage these assets most effectively is what makes it the most dynamic country and economy in the world.
As to why Americans should be thankful that their elections are determined by razor thin margins, the fact is that if America had one dominant political party (i.e. “one party rule”), it would be much more difficult to enact change. Thankfully though, American swing voters play an instrumental part in how the country is run, as evidenced by the most recent election.
Now, a logical response would be,
“But don’t these razor-thin margins lead to elevated tension, friction, and division, especially in the lead up to and after elections?”
Of course, but that is because optionality isn’t free. In fact, it always comes with a cost. Yet, the tension and division associated with optionality is almost always cheaper than the alternative.
Look no further than Argentina.
A century ago, Argentina was one of the strongest and wealthiest countries in the world. With endless resources, a diverse and literate population, and a diversified industrial base, Argentina was positioned for an incredibly bright future. European nations had started investing heavily, while countless multinational companies were opening offices or plants throughout the country (including manufacturing, retail, advertising, construction, and finance companies, as well as law firms). Some even declared its capital, Buenos Aires, “The Next Paris”.
Then, everything began to change.
In 1913 Argentina suffered a coup d’état, which was followed by a series of government overthrows that resulted in alternating periods of democracy and military rule. Then, with the rise of Peronism in the mid-1940’s, the country embarked in what amounted to more than 75 years of “one-party rule”.
The result?
Argentina went from being one of the world’s wealthiest countries in the world as measured on a GDP-per-capita basis to one ravaged by inflation (regularly north of 20% and over 100% in 2023), corruption, poverty (currently over 40%), and a rolling series of debt defaults.
So, how did this happen?
It happened because Argentinians lost their optionality. They lost their ability to institute change. To shape their destiny. As a result, a country many thought would be one of the next great global powers instead suffered a historic decline.
Sound familiar to something we are witnessing today?
It should, because after Xi Jinping removed term limits and instilled himself as “president for life” in 2018, the Chinese people were stripped of their optionality (while the Chinese do not have democratic elections, its leaders in the years prior to Xi typically responded to the needs/wants of the Chinese people and were chosen by consensus every ten years).
In doing so, Xi appears to have put China on a path similar to Argentina, or for that matter Russia, Turkey, Iran, and many Middle Eastern countries that are currently one-party or autocratic states. Unsurprisingly, these are the countries saddled with corruption, unbalanced economies, and on poor terms with the “West”.
Meanwhile nations with the most vibrant democracies, and therefore optionality (e.g., countries like Australia, Denmark, Finland, The Netherlands, New Zealand, Norway, Sweden, Switzerland, and the UK) are also the least corrupt, have the most balanced and resilient economies, and are some of the United States’ strongest allies. Unsurprisingly, these nations have also historically had some of the strongest equity markets.
Funny how that works.
The fact is, optionality is one of the most underappreciated things in life. It is what enables you to be nimble, change course, adjust on the fly, and self-correct. It is also what allows you to get through difficult moments, while simultaneously participating in the good ones.
While Americans may fight over the country’s path forward, be vicious with one another at times, and either get upset when their candidate loses or thrilled when they win, we should cherish our elections because it means we have the ability (but not the obligation) to change the path we are on. To choose our destiny.
As it relates to China, so long as optionality is absent, consumer confidence will remain depressed (has fallen more than 30% since Xi removed term limits), net capital outflows will continue, economic conditions will likely deteriorate further, and its equity markets will languish.
Frankly, this is what makes the country feel un-investable to me right now.
That said, if China reverts to a system of term limits, things could change quickly and dramatically.
After all, this is precisely what has happened in Argentina after its citizens elected libertarian Javier Milei last year. The results so far have been astounding as Argentina has experienced a material drop in inflation, green shoots in economic growth, and world leading equity returns as a result of his sweeping changes.
Often times the things we should be most thankful for aren’t obvious because they come with a cost. In the case of our elections, the cost is more than well worth it.