What Will 2023 Bring? – Part 2

Cassandra last week predicted that 2023 would bring deglobalization, inflation, recession and further fragmentation and tribalization. There are other views.” — The Lonely Realist

Readers are familiar with TLR’s habit of seeking insights from both oracles and experts. After digesting last week’s chilling 2023 predictions from Cassandra, TLR this week sought counsel from a panel of historically-distinguished military, economic and political experts, engaging with Sun Tzu (author of the authoritative Art of War), Adam Smith (the “Father of Economics”), and John Locke (the “Father of Liberalism”), seeking their perspectives on 2023.

THE REALIST:      Good Morning Mr. Sun. It’s been almost 30 years since you and I last … sort-of interacted and during that period the world has become far less warlike by following your sage advice. As the author of the the last two millennia’s most widely-read treatise on military strategy, TLR’s readers would like to hear your take on the Ukraine War as well as America’s global contests with China and Iran.

SUN TZU:             Thank you, Mr. Realist. As you know, I focus on strategy – the art of maintaining flexibility and reacting tactically. War, whether a “hot war,” as the one being fought in Ukraine, or a “cold war,” such as that currently being fought between America and China, involves a multitude of choices. Success depends selecting the optimal approach from among a variety of different options and then taking timely action. A key element is planning for what necessarily will be difficult decisions – history is littered with those nations that failed to do so – and executing on those decisions when least expected. Wars are terribly destructive and, in almost all cases, avoidable. The highest priority accordingly is strategic planning that deflects military action and minimizes armed escalations. War is a last resort, a lesson Russia failed to follow in its untimely and poorly thought-out invasion of Ukraine.

Concerning the Ukraine outcome, Mr. Realist, Cassandra is wrong. There will be no long-term escalation because Russia realizes that it cannot win. The West has the superior manufacturing and economic resources and will do whatever it takes to thwart Putin’s designs. That reality will force Russia to the negotiating table …, and sooner rather than later. The fact that Ukraine cannot realistically reabsorb the Donbas region or Crimea will lead to a balanced settlement. It nevertheless will take pressure from America and China to end the war, which is one of the building blocks that America and China will use in 2023 to begin bridging their divide.

China has been severely weakened by its real estate excesses, its exorbitant military spending, and the consequences of its Zero COVID policy. The Art of War teaches that 2023 would be a poor time for China to engage in any form of conflict. Indeed, 2023 presents China with an opportunity to re-engage with America, inviting dialogue in part by toning down its Taiwan rhetoric and stepping back from its challenges to Taiwanese airspace and shipping routes. Others have counseled President Xi to do the opposite and use Taiwan as a military distraction from domestic woes. That would be both an inferior strategy and a terrible mistake.

Sanctions on Iran are now biting hard. Escalating Iranian unrest will present America and its Israeli ally with unique opportunities to thwart Hezbollah and Hamas and stabilize Lebanon, Gaza and Palestine. The question is whether Israel’s new ultra-right government will take advantage of the opportunity or cede Middle East momentum to Turkey and a Saudi regime that is looking increasingly to China rather than America.

THE REALIST:      Thank you Mr. Sun.
Mr. Smith, you and I last cooperated when I represented several of your most fervent 20th Century fans. As the embodiment of Capitalist thinking, could you please share with TLR’s readers your reaction to Cassandra’s dire warning that 2023 will bring inflation and recession?

ADAM SMITH:    Thank you, Mr. Realist. I appreciate this opportunity to correct Cassandra’s misapprehensions about resilient Capitalism.

Western economies move in cycles towards greater wealth and higher living standards. Although there necessarily are ups-and-downs, the long-term trend is upwards. Inflation over the past decade+ has been suppressed by Central Bankers in an effort to promote economic growth following the Great Recession. It will now move higher – it indeed resembles the toothpaste that Cassandra referenced. Interest rates also will move higher because of the Federal Reserve’s pursuit of Quantitative Tightening. The Fed nevertheless will pause in its rate hikes before Summer and begin cutting interest rates to address a softening economy. Although inflation will not bottom anywhere near 2%, the Fed will treat it as being under control. This is consistent with the Fed’s unstated goal of reducing America’s enormous debt obligations. For example, should there be 4% inflation over the next 18 years, half of America’s debt would be eliminated! At the same time, there would continue to be jobs aplenty, so the Fed would not have to be concerned with unemployment. An implicit interest rate target of 4% would make fixed income more attractive, a boon to retirees. A higher inflation target also would allow GDP growth to exceed the limp 2%/year America experienced over the last 13 years. What this means is that success in the markets will require a return to 20th Century stock-picking. Buy and hold will disappoint. I therefore expect 2023 to see a mild recession with America’s economy rebounding strongly in the second half; however, as you, Mr. Realist, recently pointed out, today’s many economic and political variables make any economic prediction a particularly hazardous task. Risks indeed abound!

THE REALIST:      Thank you Mr. Smith.
On to you, Mr. Locke or, I should say, my good friend John. You and I last communed back in my college days, quite a long while ago. My memory of those philosophical and politically-charged imagined conversations continue to permeate my thinking. TLR‘s readers would very much welcome your view about democracy’s future.

JOHN LOCKE:     Your 21st Century world, my old friend, bears a close resemblance to my 17th Century one. The Enlightenment of which I was a central player divided the world into those believing in democracy and those favoring monarchism, the same dichotomy that exists in today’s philosophical battle between those believing in the values of The Enlightenment (free speech, a free press, freedom of religion, voting rights, and minority rights) and those who favor autocracy – monarchism by another name. 21st Century nations are choosing between America and your Axis of the Sanctioned. Americans similarly are choosing among tribes, lured by polarizing extremists who assert diverse definitions of liberty and individual rights – there no longer is an agreed-upon definition of either, only what each insular minority believes to be “the truth.” Our two historical cycles most certainly are rhyming.

Cassandra is undoubtedly correct in predicting that America’s Supreme Court will continue arrogating to itself powers historically wielded by the President and Congress – creating an “Imperial Supreme Court.” However, she is not correct in her prediction that the Supreme Court’s decision in Moore v. Harper will preclude State courts from overruling State legislatures when it comes to Federal elections – the Chief Justice will not allow it. It nevertheless seems to me that the Supreme Court in 303 Creative v. Elenis will hold that, although it previously sanctioned same-sex marriage, gay individuals can be denied services by those who object to their lifestyles.

In sum, Winston Churchill’s declaration that, although democracy may be the worst form of government, it is superior to all other forms has proven its validity. No one pretends that democracy is perfect, but because it prioritizes the individual over the state, it will triumph.

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Finally (from a good friend)

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