Shownotes Transcript
What's up, everybody? My name is Demetri Kofinas, and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world.
My guest in this episode of Hidden Forces is George Friedman, the founder and chairman of forecasting firm Geopolitical Futures, the founder of Stratfor, a geopolitical intelligence and consulting firm, and the bestselling author of books such as The Next 100 Years and The Storm Before the Calm, America's Discord, The Coming Crisis of the 2020s, and The Triumph Beyond.
In the first hour, George and I discuss what he describes as the institutional and socioeconomic cycles that drive historical events. We explore several notable examples of such cycle turnings in history, including Andrew Jackson's abolishment of the Second Bank of the United States, which facilitated the financing of westward expansion,
the presidency of Rutherford B. Hayes and the Long Depression, the growth in American consumption that arrived on the back of FDR's reforms in the 1930s, and the neoliberal era sparked by the Reagan Revolution.
In the second hour, George and I apply this framework to the era we are living in today, which according to George is the first time in American history that both the 80-year institutional cycle and the 50-year socioeconomic cycle are occurring concurrently. We discuss how and why so-called woke ideology and a sclerotic and ineffective bureaucracy are symptoms of the end of the institutional cycle
and why the economic policies of this new era will lead to more capital investment and a revitalization of the American economy.
Lastly, George provides us with a roadmap for geopolitical events in the 21st century that includes reconciliation with Putin's Russia, a new paradigm of peace in the Middle East, and a long and challenging period of economic weakness in China that will consume the energies of the Chinese Communist Party and challenge the PRC's ability to assert itself on the global stage for at least the next several decades.
If you want access to both parts of today's conversation and you're not already subscribed to Hidden Forces, you can join our premium feed and listen to the second hour of today's episode by going to hiddenforces.io slash subscribe. All of our content tiers give you access to our premium feed, which you can use to listen to the rest of today's episode on your mobile device using your favorite podcast app, just like you're listening to this episode right now.
If you want to join in on the conversation and become a member of the Hidden Forces Genius Community, which includes Q&A calls with guests, access to special research and analysis, in-person events and dinners, you can also do that on our subscriber page. And if you still have questions, feel free to send an email to info at hiddenforces.io and I or someone from our team will get right back to you.
And with that, please enjoy this thoughtful and perceptive conversation with my guest, George Friedman. George Friedman, welcome to Hidden Forces.
Thank you for having me. You know, George, I'm actually surprised that this is your first appearance on the show because of, I think, how influential you are. I've had so many of the analysts that work for you at Stratford on the podcast. So, you know, let's, I want to give people a sense of who you are, your background. I'm also interested in understanding how you grew up, what informs your sort of framework and approach to thinking through problems before we get into your framework and applying that framework to the rest of the world.
But what's your story? Well, I was born in Hungary in 1949 to give way at my age. Two months later, we had to escape from Hungary. My parents had been... My father had been fighting in Russia. Then they discovered he was Jewish. So they put him in a work camp in Russia, then took him to Mauthausen. My mother went to Lichtenberg. We came back to Hungary. I wasn't born yet.
And it was discovered that the communists were going to arrest him. So my family's life was geopolitical. It was fleeing. We fled to over the Danube. I was about two months old. They peddled over, got to Vienna. In Vienna, they got to an American displaced refugee camp.
They fell in love with America. The first thing they did was gave us food, a dinner. They hadn't had a dinner in a long time. Then doctors examined us, gave us whatever we needed, led us to a room where they had beds for everyone. And we had to stay there for a year or so. And then they brought us over and my father remained there for two years. Further, it turned out later that he was working for US counterintelligence.
on Russian infiltrations of Austria. My father was held back for two years. We got to come over without him. We found out that later I had access to some files and he was working at HALINE, headquarters of US Army Counterintelligence. And he told me later the story that they wanted to know who was escaping from Hungary, who was an agent and who was escaping from the country that was really escaping.
And he pointed out to them that if he had no family with him, he was an agent. If the family was with him, he was escaping. Very simple. And that my father taught me, be stupid. All the Americans are very smart. That's their problem. If you're stupid, you can obviously see the thing. Can you elaborate on that exactly? What do you mean by be stupid? Don't be so sophisticated. Think about the people as they are. Would a refugee come alone?
Most of them have families. Would they bring their families if they were agents? No. If they come across as alone, they probably left their families behind and they're in danger. If they come with their families, it's a real escape. So it was a story told and I think it was true. The problem with the Americans were they were so complex in their thinking, they didn't trust the obvious. So the simple human dimension was...
subsumed, analytic systems were created. So that was what he said, "Always be stupid. Always avoid your education. Avoid all the brilliant talk. See the obvious. He's alone. He's a spy. He's with his family. He's a refugee." Very simple. I feel like there's an important lesson there for listeners to really meditate on as we continue this conversation, because it speaks to how you approach forecasting.
Okay. So you left Europe, you said, when you were three years old. What city did you first arrive in? The Bronx. The Bronx. In New York. And that's where you grew up? I grew up until I was in junior high school. In junior high school, we made the famous journey to Queens and Long Island. But my elementary school was in the Bronx and I learned stickball and how to run away from people. Run away from people. So you moved to Queens. Where in Queens and where in Long Island did you go?
Well, in Queens, it was interesting because I grew up five miles or so from the president. I never met him. I didn't know him. It was the same neighborhood. It was a working class neighborhood. He didn't live in a working class neighborhood. He lived in Jamaica States. I lived in Springfield Gardens, which was more working class. And I recognized Trump because he carries himself with the same arrogant confidence that we all did.
It was like the Bronx transferred to Queens and you didn't look weak and you didn't look scared and you were tough. Even if you couldn't win the fight, you would look that way. What was it about, I don't know, growing up in the inner city, growing up in those boroughs that created that kind of culture in your view? We were all poor. We were all lost. This was an immigration area. There was Italians. There were Irish. There were everyone.
Clotted together in groups, the Jews, the Irish, the Italians, the Puerto Ricans, we fought. We're states. I mean, nation states built it. The gangs were that way. And in that way, we understood something. There was little mercy in the world. What was said was not what was meant. We all kept our real fears inside of us and presented a face to the world that was crafted to be appropriate to the world.
So I learned from that, that what people are and what they appear to be, what is crafted, the other is real. They interplay. You can't predict people on that basis. And I learned to judge politicians on that basis. Politicians are craftsmen. They craft the persona their nation requires of them. Within them, you can't judge what they are. So when we look at the president, I mean, he appears to be strange, except for the fact that the majority of the country voted for him.
So it wasn't strange to them. They were strange to some people. So when I went to Cornell to go to school, I was a very strange person to these people. I had to recraft my personality. So I look at politics from the point of view of politicians are brilliant craftsmen of themselves. They are designed to understand. They have a profound understanding of the nation where there wouldn't be leaders. And when you look at it,
If you look at the leader, you're missing the point. The leader is an artifice. He's responding to the country. Look at the country, not the president. You'll understand what is happening. But if you personalize it, then it's simply whim by the president. And presidents don't survive on whim, nor other leaders, black dictators either. They have to respond or they can't rule.
When you went to Cornell, when you went to college, did you already know what you wanted to study? Did you already know what you were interested in? Well, as an undergraduate at City College of New York, I studied political science. When I went to college, I studied political philosophy. Political philosophy led me to Marxism, and I was not a Marxist, but wrote a book on my dissertation on Herbert Marcuse and how sexuality intersected with politics. It was a very pleasant book. It was insane.
I went to Cornell and I met America in a different way than I met at a city college. I met students who were rising, rising out of the slums. Those who came from the upper classes, I saw all the mixtures. Okay. And I saw the persona they presented. I learned a great deal of political philosophy. Then I served a term in the army.
Then I turned to the intelligence world, but stayed out of the intelligence world as much as possible. And through my experience, I finally realized I became a professor, a tenured professor. I say that with glory. It's a major achievement. But I left my universities and went to three universities. I was developing theories that were unacceptable. In other words, the universities are ideological in nature.
And they can have conservative ideologies in the past, these ideologies, doesn't matter. You conform. I found it very difficult to form because I came from a very different life than most of them. But also, I was led by my education to think in very different ways. So as I was developing these things, they had no place there. I then had a, at Louisiana State University, I had my own center. Running a center at a university is a bureaucratic nightmare.
battling for turf and everything else. And I realized I had no time to think. I couldn't write books or anything like that. So I left the university. And I left the university and I had a very strange idea. I could do my work intellectually more effectively in the private sector, selling what I know than teaching. Besides my tuition, my students didn't care. At 19, you don't really care about the profundities of Hegel.
So, we have a strange understanding of education. But I started a company that did this. The only reason I did that is I knew nothing about business, so I didn't have an idea what to do. But I had a lot of people who knew me in Washington. So, I started by sending out articles daily to these people, then off to other people. Then my wife had a strange idea. Why don't we charge? Why don't we make them pay for it? And to my shock, they did.
And it spread from that point onward. My life was a series of, from the beginning, of crises and dangers and everything else. And it made me conscious of the obvious, which is a very difficult thing for a professor to do, to be conscious of what's there right in front of you. So I did what my father said. I became stupid.
Okay. So I'm very excited to get into that because it's very important for me to understand your framework and the same for the audience. Just a couple more questions on your background. So that company was Stratfor? That company was Stratfor. And what year was that that you founded it? 1996. 1996. Okay. So as I said, I've had many Stratfor alumni on the podcast. Peter Zayhan has been on the podcast. Kamran Bihari, who introduced us, has been a regular guest on the podcast.
Jacob Shapiro, Marco Papich. I could go on and on listing people who have gone on to have their own successful careers as geopolitical analysts after having learned and studied under you. So it's been a very influential company. It's kind of like the Fairchild Semiconductor or PayPal of the geopolitical space. And in that sense, it's very rare to find a company that has produced so many people who themselves have gone on to create their own companies and have their own impact on a particular industry or field. In this case, the field is
national security and intelligence. I'm not even going to bother asking you because one of the questions I had in mind to ask you was sort of like, what school of thought would you say most aligns with yours? Because you do feel like a realist, but again,
It's obvious when reading your work that you don't adhere to a particular rigid framework. And I've used the word framework before, but I wouldn't quite describe it as a framework. You have a very, what feels like a very bottoms up analysis. And in some sense, it's almost like an irrigation path. It's like you focus much more on constraints and what people have to do and what they need to do in the case of leaders, as opposed to kind of, does this fit a template that I have in my head about how the world works? And if it doesn't, I can't see it.
Walk me through the way you view the world. How do you think through problems? You gave the example of look at what's obvious. How do you know what's obvious? How do you know what to focus on? What is signal and what is noise in international affairs and politics? We begin with three principles, imperatives. What do you have to do as an individual, as a country? What can you do? Very different from what you must do, possibly. Who doesn't want you to do it?
Or who wants you to do something else? If you look at a country as a machine, a corporation, whatever you want, you look at what it consists of. What is its capabilities? What is its urge? What's its need? And you don't look at the leader. The leader misleads you. He is there. He is the summary of the nation, but not necessarily pointing it. So, for example, we knew that
Russia had to invade Ukraine. Why? Because the northern border of Ukraine was 300 miles from Moscow. The Russians had had invasions from Napoleon and Hitler that took them to Moscow. Moscow was their heart. They were 300 miles away by Route 3, and they were terrified. They were always afraid, but when Ukraine became independent, the border was so close, they were going to try to take it back. It was their buffer zone.
So, Ukraine became the buffer zone between our Europe, if you will, Western Europe, their Europe, okay, and who owned it had the offensive capability. From the Russian point of view, there was an imperative to take Ukraine. They didn't have the capability, but they
They suddenly felt they had the capability to do it. And that was triggered by an American event, the Maidan uprising, the uprising in Ukraine that frightened the Russians terribly. They saw it. It was very much organized, involved the Americans. Go to the sound system that they suddenly had.
Where do they get a sound system like that? I went to look at it. That was a good start sound system for that audience. I also look at all uprisings as asking one question. Where are the bathrooms? You can do without food for two days, but you can't go without a bathroom. If you're going to keep people in a square for three days, you have to have mobiles, toilets. That's the one thing you have to have.
They were there. Now, I know us, and I know we get ready for things. The Russians know us. They know they get ready for things. They read Maidan as us trying to take control of Ukraine to be right on the Russian border. Now, if they had taken Ukraine, they'd be right at the border with NATO. We couldn't tolerate that. So Ukraine became this critical piece of real estate, really minor in many ways.
But we convinced during the Maidan uprising, the Russians, that we had intentions. We had intentions of making Ukraine not neutral, but part of the West, that it would join NATO, which was always the major question for the Russians. The Russian imperative was to keep Ukraine at least neutral. And after Maidan, they said that wasn't going to happen. They saw what we did in the Balkans in their intervention there.
And they read the Americans, rightly or wrongly, as potentially aggressive. Potential, I learned in the Bronx, was probable. And probable was of a certain. So you didn't have the luxury of saying, oh, they probably wouldn't. So the Russians took a look at the board and said, we've got to take Ukraine.
I see nations as rational. They are like good businessmen and everything, and the leaders are good businessmen if nothing else. They're rational people. They're looking at it and looking at their country and looking at their responsibilities, and they watch other countries and their imperatives. We had the imperatives to keep them out of Ukraine. Do not become another Russian front.
then the Cold War would be back. They had the imperative, keep them away from 300 miles from Moscow. We can't defend Moscow with 300 miles. So you had two different imperatives. The American imperative on Ukraine of making sure the Russians didn't occupy it, NATO's imperative. The Russian imperative, do not let NATO to the border of Russia. And so it was very predictable.
I didn't think NATO would be able politically to advance into Ukraine. I think Russia thought this was the opportunity to move themselves into that position, but they didn't have the capability. The Russian army failed. It moved into Ukraine. It was a full invasion. Now they're saying, "Well, the only way we can capture it." Nonsense. There were three columns coming in. One column was aimed at Kiev, one column down the center,
They were coming up from the south, they were coming from the east, they were coming from every direction. They were going to take Ukraine. If you remember the early pictures of the invasion, there was a line of tanks coming down a mountain. They were stalled. Their logistics system failed. They couldn't get oil, fuel to the tanks. I then knew this is not going to work, folks.
So the central thrust failed, although there was fighting in Kiev and stuff, because they just couldn't support their forces. So I realized their logistics were not prepared for war. They were not ready for this. And so it became obvious that they could do the area closest to them with the logistics that they had. They couldn't take all of Ukraine. They couldn't retreat for political reasons. They couldn't advance for military reasons.
This is going to be a long war. It would end in a draw. You can't solve it. Now we're at the draw point. But I looked at these countries and what they were afraid of, what they needed, what they wanted. I looked at them as if they were people. And people you can predict by what they crave and what they want. And you must have money for going to college for your child and all these things. You can predict their lives in some sense, not mysteries. So with states.
So how do you differentiate between the push and pull of national interest and the push and pull of the political needs or expediency of the leader? A political leader must live with the nation. The fear of Moscow falling was deep in the heart of every Russian. This was not an alien thought that it came to the president of Russia. He was responding to a deep fear built into the Russian people by history.
Presidents who do not understand the national mood in any country can't be leaders. The nature of leadership is not crafting a vision like a Marxist always failed to achieve it. It is understanding that the nation has, divided as it is, underlying necessities. And those who fulfill those necessities must understand them, must respond to them. Leaders are prisoners of the times.
So when we talk about Donald Trump, we always have to remember that this crazy man appealed to the majority of the country. Did he craft himself to be that man? Or was he that man in Asia? It doesn't matter. But he caught what was happening in the country. Putin understood what was happening in his country. Otherwise, you have coup d'etats, assassinations, impeachments, and so on.
So don't think of the leader as separate from the nation. He is the representative of the nation, even when a dictator. Hitler was Germany at that time. He didn't impose himself on an unwilling people. The leaders who succeed are leaders who, well, they can intimidate people. That's not very efficient.
Because you have to trust your police and everything else. So how do we think about that in the context of decision making? So let's just take the example of US-Russia.
How do we determine whether or not NATO enlargement was in the national interest, or whether it was a mistake made in the pursuit of the national interest? And how do we do the same thing for Russia and its invasion of Ukraine? Was the invasion of Ukraine in the national interest of Russia, or was it a mistake in the pursuit of national interest? It was a national interest. It was not a national capability. So you have to look at two things. All nations cannot achieve their interests. The leader's job
is to align interest with capability with opposition. What the leader does, if he's a good leader, that he understands the imperatives of the nation. I don't want another attack on Moscow. Design the capability necessary to prevent that. We created NATO at a time when the Soviet army had won World War II. We played a great role, but it was a marginal role in a sense for Normandy and all the great things we did.
It was the Russian army that broke the Wehrmacht. Now, the Russian army was still fully standing as mortar. It had conquered Eastern Europe. We'd conquered Western Europe, if you will. We feared they would come further. If they reached the French coast, if you will, they could now challenge us in the Atlantic. The Atlantic is our barrier. The United States cannot be invaded by land unless Canada really gets mad at us.
The sea is our barrier, is our wall. We went to war in World War I because the U-boats were beginning to operate, sank the Lusitania. We feared the loss of the Atlantic. The British fleet couldn't hold them. In World War II, we went into the same thing. We went into Britain, giving them weapons, lend these, to try to keep them out of the Atlantic. So for us, the oceans are the barriers. For the Europeans, the land.
Now, we did not want the Russians any more than Germans sitting in Cherbourg with fleet. We didn't want their boats. The Cold War had much more to do with the Atlantic than they thought. So for example, if the war broke out, NATO's plan, and I'd been in shape, Supreme Headquarters Allied Powers Europe for a while, our entire problem was, how do we make sure we can get our ships across the Atlantic to supply?
The Russians had created a fleet of submarines to come down and block us. We created anti-submarine warfare. So there was a battle quietly going on, a competition to control the Atlantic. If Europe falls into one country's hands, the United States faces the only threat, same with the Pacific. We had to defend both seas. So our war was at sea.
After that, we were in a unique position that we hadn't been before. We controlled the Pacific. The Atlantic was unchallenged, and we wanted to keep it that way. So we drew a line in Europe between us and the Russians. We didn't want to fight. We created something called NATO. We created NATO because Europe was shattered. They couldn't defend themselves. NATO had an American commander, Sakhur, Supreme Allied Commander Europe, and he was the one who ran NATO.
But when I was at SHAPE, we knew what the Belgian Air Force would do at what time, at what place on day three of a Russian invasion. We could count on it. Once the Soviet Union fell, the Cold War did not end. That was not the end of the Cold War. A new Russian Tsar emerged. These were all Tsars. They called themselves chairman or whatever. A new Tsar came in. And this new Tsar
tried to make an accommodation with the United States. That broke down the Balkans. Remember that we went into the Balkans to stop the killing and everything else. They thought they were taking advantage of their situation on their Southeastern flank. Something happened when we tried to get the head of Yugoslavia to the court of the United Nations,
And we paid, we asked the Russians, he wouldn't do it. Would the Russians, Chernomyrdin, who was prime minister, talk to him and say, look, it's over? And he did. Then something happened strategically, but it was a tiny thing. Kosovo has an airport in Pristina. And we took the airport to Kosovo.
And the Russians thought they would be allied with us and allowed to use that airport, patrol it with us because of what we had done in ending, they had done in ending war. We made a move there to force the Russians back, refusing to allow them into the Balkans. That's when Putin became president. And Putin became president saying, the Americans are a nightmare.
They're going to be moving on us. They did this in the Balkans. They had no interest in the Balkans. What do they care about Kosovo? They're not in Kosovo for moral reasons. We may have been. I still don't know why they're doing that. But the Russians read it, had to read it, had to read worst case scenario. They're going to be building up a line to our west. And here in the southwestern portion, they built it. And that was the time that Putin emerged.
And he had a very different view than Gorbachev had. Gorbachev had a view of Entente with the West. Putin had a view that this was the preface to war with him, or that it was going to come up to it, that we just moved the line east. And he then had a long-term strategy of blocking the Americans. So when you look at it, we saw ourselves in a position
of consolidating Eastern Europe, former Eastern Europe. He saw that consolidation as a threat. NATO, that part fell apart. It no longer existed. The European countries were direct. The European countries were strong, but they very much enjoyed not having to pay for their defense. They paid a little, but they didn't take risks. They weren't involved in these things, only marginally. At that point, it became obvious that
The rationality of NATO had ceased to exist. There was no point to it. The Europeans chose not to be able to produce the defense capability they could obviously produce because there was no such thing as Europe. Europe is a continent with a lot of different countries that have hundreds of years of history of loathing of each other, fear of each other, different interests. They're competitors. They're brought together by poverty.
that has nothing in common, and forged by the Americans. And by the time we reached the war in the Balkans, there was no NATO. It was not like we knew what the Belgians were going to do in the morning of the third day with the Air Force. All the plans were on paper. They were not real. So we had no capability or intention or interest in attacking Russia.
but they could not assume the best outcome was likely. The Russians had no real interest in taking Western Europe. What would they do with it? It would be a wreck again, and they'd have to supply it. But they took the most pessimistic view, because that's usually the best view to take. So in both cases, we misunderstood each other because we were looking at the imperatives. Yes, we had an imperative to knock out Russia,
That would be wonderful. Then everything would be great. We didn't have the capability of doing it, and therefore not the intention. The Russians dreamt of building a new buffer, at least, but they didn't have the capability. So imperative is what we must do. It's frequently not what we can do. And this is the deep division that Hitler encountered, that Hirohida encountered. He had imperative to control the Western Pacific for getting fuel from Indonesia and so on.
just couldn't do it. So history is a competition between imperatives and capabilities, much as our lives are. So let's take a step back here, because what we're doing here is also applying a lot of lessons to the world we live in today, which is something I do want to do. But before we do that, let's just... Two questions. One has to do with your
with how you view yourself as an analyst. And then I want to talk about your cyclical theory of history, which breaks down into institutional and socioeconomic cycles, which is very important and something I want the audience to understand before we continue this conversation. So first of all, just real quick, do you consider yourself primarily a political theorist, a historian, a philosopher, or something else? How would you describe yourself? I've been all these things at once. I am now...
Bad word for it is futurist because it's- Sounds like you have a crystal ball and a napkin on your head. What I do is I'm a realist. I'm not interested in personalities. I'm not interested in ideology. The ideology of the Russians was the same of the Tsar as it was under Stalin.
In ideology different, Russia was the same. You had a realist in a Hans Morgenthau sense or a realist in a more sort of just I'm trying to look at reality sense? I studied with Hans Morgenthau at City College. I was enormously lucky to have him as my professor of geopolitics, but he had a focus on decision makers.
What I saw was that the decision makers did not make decisions autonomously. They made decisions on the one hand, considering what the nation could do, what the nation wanted to do. And at the time of the Cold War, the nation wanted to do the Cold War, both nations. So the difference, he taught me a great deal about how nation states interact. The one place I differed with him
was in his focus on the leaders making policy when the nation made the policy and the leader adopted it. The leader is the vehicle. The spirit of the nation is the driving force of policy. The spirit, yes, but that derives from need. We live our lives in fear. In Europe, every human being in 1950 was afraid. They'd lived through hell. They were afraid it would repeat itself.
The American public feared that twice they had been drawn into a war at the worst time, the First World War and the Second World War. They had to come in to save the Atlantic. This time, they didn't want that task. They didn't want another war. Truman understood that. Truman was successful not because he was particularly brilliant or anything else,
But he came from the Midwest, and he understood all the soldiers that would go to war and die in World War I or World War II. And we don't need this. We're far away. He knew we wanted war kept far away from us and not have to send our sons to war. NATO was his invention. It came out of the NATO that period.
So did he make the policy on NATO? No. The country couldn't have the third world war. Did Khrushchev, Stalin first, and Khrushchev make the policy of not invading Western Europe? No. The Russians were not prepared to go another two years in a bloody war. They were exhausted. They had lost everything. So the leaders may have dreams of what they want to do.
but it's the capabilities. And they can't be leaders if they don't capture, as you call it, the spirit of the time, but the needs of the time, the imperatives that the people had. So the American imperative came from the fear of another world war that brought us into it late and caused many lives. Let's be there to block it. The Russian fear was that the American attempt to block with NATO
was an opening for another invasion of Russia, as they had in the First World War, for World War II. And each had perfectly reasonable reasons to think this possible. That was the Cold War. It never happened because neither side had the capability, or really the intention, of doing it. But the leader is, if he's going to survive, he's going to be the spokesman for the national necessity. He's imprisoned by reality.
There are leaders who don't survive, who believe all said things are possible. They can for a while survive with the secret police, but the secret police will eventually get them and the head of the secret police will rise and it will go on and on. Stable, real governments are the creation, are democratic, or whatever it means, of the spirit of the nation. Stalin captured that.
So let's go now to your approach to history. As I said, you come across very much as a cyclical theorist of history. We've covered various frameworks related to cycles, whether it's Neil Howe's generational theory, whether it is Nikolai Kondratyev's 50-year economic cycle based on
in particular, the commodity cycle. Years ago, I interviewed Robert Prechter for an old program I had with Elliott Wave theorists. So I have some working knowledge of this stuff, and I do see a lot of similarities in how you approach your institutional cycle theory and your socioeconomic cycle theory. But walk me and the audience through this. What do we mean by institutional cycle and socioeconomic cycle? What are the key drivers of each cycle? What is the historical evidence for this? And how does this relate to
your previous observation about imperatives versus capabilities? First of all, I came by this being stupid. I looked at American history and I saw certain radical shifts that took place. The strength of America is it reinvents itself. We started by breaking all norms and guardrails, as they say these days. Washington was loathed by many Americans for breaking them. They were loyalists.
but we invented our country and we survived by reinventing it. The fundamental principle of our country is innovation and the recognition of obsolescence and the recognition of what's supposed to come next. I noted that the system shifted for no reason that I can ever fathom routinely at 50 years, the socioeconomic system, 80 years at the institutional system, that is.
How does our government run? Every 80 years, it changes its course. What social crisis comes along? And I can name them. I mean, first, there was what I call the Washington Cycle. He founded the country. By 50 years later, Andrew Jackson came. The reality of the United States has changed. We had bought the Louisiana Territory. We were going to the West. The Eastern banks were focused on Eastern development.
The ability of farmers to buy land, to build and so on was gone. He wrecked the Eastern banking system, leading to a great crisis in the country, Jackson, creating capital for the occupation of the West and took the country to the next step. He had an imperative. He had to integrate the Louisiana Territory into the United States. The financial system would not allow that. He wrecked the financial system.
You're seen as reckless and foolish and monstrous and everything else. Can you explain that one second? So you're referring to his refusal to renew the charter for the Second Bank of the United States. How did that facilitate the expansion of the Western frontier? Money is important. You have to buy horses, you have to buy plows, you have to buy everything. There was no credit available.
to those who went to Louisiana territory. The central bank was wholly focused on the situation along the East Coast. So having purchased Louisiana territory, Jackson knew that we now had to advance into it. Capital was necessary, not capital for building large factories, but to do the basic fundamental things that had to be done. Among them, building roads, canals, all the things to get them there.
The Appalachian Trail was cut just before that, across the Appalachians. The Erie Canal had been done just before that. We were building the connecting tissue of the country. Otherwise, Louisiana purchase made no sense. Now, there had to be banks in the West. There had to be places where mortgages would be taken out, loans on getting plows, all the things that normal life would include.
The Bank of the United States did not grasp that, did not want that. They saw that as an alien evolution. This could not last. Therefore, when Jackson came in, he wrecked the bank, in a sense, and created a new financial system to support the geopolitical reality that had emerged. It was a new one.
The reason I ask is because I'm only superficially familiar with this period in American history. I know Jackson refused to renew the charter and that this led to the era known as Wildcat banking or free banking, which eventually came to an end with the passage of the National Banking Act during the Civil War.
that laid the groundwork for a national currency backed by government bonds and the eventual passage of the Federal Reserve Act in 1913. But how was that period of free banking essential in facilitating the movement of capital from the East and from supporting transatlantic trade toward the West and westward expansion? Well, one thing was obvious. The West was wonderful country, agricultural country, tremendous opportunities.
Entrepreneurs wanted to go there. They were the settlers. The entrepreneurs needed financing. By breaking down the central bank into wildcat banks, as you called them, the bankers also wanted to make money, knew they could go there, finance these, draw the capital back into it by recurring loans. Some failed, others succeeded, but we settled in Midwest.
And what happened was that the old institutions that George Washington had put in place were no longer relevant to the reality of the country. It had to be broken. It was broken by Jackson. The wildcatting bankers were simply local bankers who did not depend on the federal government to do more than issue currency.
And they were able to finance it. Without that, we would not have expanded westward. So that was the next issue. So he sort of facilitated the further decentralization, a period of decentralization within the US capital system, the system of banking, in order to allow for westward expansion by giving the people expanding westwards the ability to be more flexible with the allocation of their capital. But look at the geopolitical problem.
The United States fought the War of 1812. The British had come back. We had no strategic depth. In other words, we had a strip of land along the East Coast. We had no significant navy that we'd afford. If they came back in 1812, would they come back again? We needed strategic depth. We needed more than a coastal country. The French, who hated the British, sold the land
west of us because they couldn't use it. And Napoleon needed the money. Needed the money. And we needed the Mississippi Valley and we needed the land west of it and east of it. So it was a geopolitical necessity of the United States to expand westward. It needed the depth that if the British came and took the East Coast, we'd fight back. We had to have that depth. In order to have that depth, we had to have economic system underneath it that could support itself.
Farming was by far the best. Agriculture was outstanding. The problem was that the banking system was oriented geopolitically at the East Coast. We were no longer that. The reality had shifted. And anyone who wanted to keep the old institutions in place had not grasped the reality of the threat from the British or of the depth of the economic possibilities of Midwest.
What Jackson did, because he was an uneducated man, hadn't really learned much, he saw the obvious. People were coming out here. They couldn't get the machinery they needed to do things. They needed to start farms. They couldn't buy land. They couldn't build houses. This is ridiculous. They couldn't get a loan. He took a look at the system and wrecked the banking system and the federal government as well, creating new states that had not been there before and broke the norm.
The norm was a north-south divide, but running along the eastern seaboard of merchants, farmers living together in a stable Anglophile mode. Well, the English immigration was not going to settle the West. So two things had to happen. A shift in immigration. That took place a little later. We needed workers. And the other thing that had to happen was a financial system that could support the logistical system.
the geopolitical system, I should say. And so if we had bought the Louisiana territory and not broken the bank, it would have failed. Expansion would have withered on the vine. Exactly. And he went and wrecked the bank to open the door for regional banking, putting instead of a central bank, state banks, making states out of the colony that we had taken. And so each state could have its own banking system
and take care of it. It worked for years. So I want to look at some other cases historically, like the Civil War and the period around World War II, for other examples of either institutional crises or socioeconomic crises precipitating new cycles.
And then I want to try to understand where we are today, because I think one of the things that's unique about the cycle that we're living in today is we have actually two cycles, according to you, one socioeconomic, one institutional, that are colliding at the same time. And I think that's new in the American experience. I also want to apply this to some of the stuff we've talked about in terms of presidents and leaders, to the current president, and to the current set of interlocking geopolitical challenges that the United States faces in the second hour, George.
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