The Growing Complexity of Democratic Societies and Industrialized Economies: The Risk of a Vicious Cycle of Problems and Crises

Wednesday May 14, 2025

By Dr. Rodrigue Tremblay, Professor Emeritus of economics at the Université de Montréal

"Once a complex society enters the stage of declining marginal returns [marginal economic costs higher than marginal economic benefits], collapse becomes a mathematical likelihood, requiring little more than sufficient passage of time to make probable an insurmountable calamity." Joseph A. Tainter (1949- ), American anthropologist and historian, (in his book, The Collapse of Complex Societies 1988). 

"All who attain great power and riches, make use of either force or fraud; and what they have acquired either by deceit or violence, in order to conceal the disgraceful methods of attainment, they endeavor to sanctify with the false title of honest gains." Niccolò Machiavelli  (1469-1527), Italian political philosopher and author of The Prince, 1513, (in Florentine Histories, 1526, book III, ch. 13).

"There is no question tariffs can be an act of war to some degree and could cause inflation... Trade should not be a weapon." Warren Buffet (1930- ), renowned American investor, comments made on March 3, 2025, in a TV interview with CBS News and at the Berkshire Hathaway's annual meeting on May 3, 2025.

Since the beginnings of the first Industrial Revolution in the mid-18th century (initially in Britain in 1750-1760), and later in France and in other countries), democratic societies and industrial economies have tended to become increasingly complex, moving from subsistence agricultural and artisanal systems to stages of urbanization and increasingly sophisticated technological advances. 

In the 19th century, advances in means of transportation with the advent of steam-powered ships and trains stimulated industrial specialization and international trade. In the early 20th century, it was the availability of petroleum-based liquid energy that propelled the automobile and aircraft industries. Subsequently, energy generated by hydroelectricity served as a propellant not only for widespread electrification but also enabled the emergence of new industries.

Similarly, important economic, technological and institutional progress was a powerful factor of the post WWII period, especially from 1945 to the early 1970's, which saw a boom of general economic prosperity and of social progress.

Later on, the advent of the Internet and satellites also played a significant role in communications and the economic and financial globalization that followed. And now, in the 21st century, the revolution in Artificial Intelligence and automated robotization could upend the way businesses and industries operate.

However, studies by various writers on civilizations and their growing economic and political complexity have identified a number of causes and factors that could lead to a slowdown, if not a decline, in the economic order and efficiency of the previous century. There is a fear that neglected or unresolved problems, intellectual confusion and social disintegration could lead to widespread chaos and to a period of political and social disruption and economic stagnation.

More specifically, historians and social scientists such as Arnold J. Toynbee (The Study of History, 1962), Joseph A. Tainter (The Collapse of Complex Societies, 1988), Jared Diamond (Collapse: How Societies Choose to Fail or Succeed, 2005), and Samuel P. Huntington (The Clash of Civilizations, 1992) have highlighted the risks and vulnerabilities that can arise when economic and political systems become increasingly complex and bureaucratized, and increasingly fall victim to unforeseen domestic or external demand and supply shocks.

In which case, the well-being and economic prosperity of an entire population in some industrial societies could be at risk. The collapse of the Soviet Union under the weight of the contradictions of its economic and bureaucratic system, in 1991, serves as a reminder that such collapses or declines did occur many times throughout history.

A first question therefore arises: even if we limit our thinking to the most important economic factors, could the same causes that brought about the collapse of ancient complex economies and societies in the past possibly apply to some industrial societies of today? Secondly, as a caveat, it is also useful to remember that once a process of decadence is set in motion, it may take a few decades before it is fully realized.

I) Public sector debt levels and the debt trap problem

Some spendthrift Western governments have tolerated persistent fiscal deficits over the last decade, especially since the 2008-2009 Great Recession. In so doing, they run the risk of letting their public debt, as compared to the underlying economy, reach unsustainable and counterproductive levels.

Such fiscal laxity raises intergenerational issues. Indeed, public debts are a form of deferred taxation. This could mean higher taxes in the future. 

In the short-run, this could also lead an economy into a debt trap, that is, a situation where a vicious cycle of large fiscal deficits and higher public debt levels as a percentage of domestic production, coupled with rising borrowing costs, does not stimulate but rather slows down the economy.

Indeed, a fiscal crisis looms on the horizon when public debt reaches levels that are too high relative to an economy's gross domestic product (GDP).

Normally, when public debt is not excessive, i.e. when the public debt-to-GDP ratio is relatively low, any additional public spending financed by borrowing propels economic growth upwards. The public spending multiplier, or Keynesian multiplier, is then greater than unity, meaning that one dollar of additional public spending produces an increase of more than one dollar in overall economic spending (public and private) and higher economic growth.

However, empirical studies by economists Reinhart & Rogoff (2010) show that when the public debt-to-GDP ratio for an economy reaches 90%, a debt trap is likely to appear, because the multiplier of public spending may then not exceed 1.0, which means that one additional dollar government spending produces less than one dollar of economic growth.

The main reason is that unproductive debt service (interest and repayment) comes to occupy a growing share of the public budget. This can lead to an increase in interest rates and taxes and force a contraction in public spending. The economy may then find itself in a situation of economic stagnation and inflation, which is the definition of stagflation.

The worst thing to do in such circumstances is to finance current public expenditures with more debts, rather than through taxes.

The average public debt level of the 38 OECD member countries, measured as the public debt-to-GDP ratio, after exceeding 120% in 2020, was still above 100% in 2024, according to official data. Countries with a public debt-to-GDP ration above 100% are Japan, Greece, Italy, the United States, France, Portugal, Spain, Belgium, the United Kingdom, and Canada.

Over-indebted governments will not be in a good fiscal position to cope with a major economic crisis in the future.

II- Other leading indicators of economic trouble ahead

Economic leading indicators can provide early warnings of changes in the direction of an economy in the coming months or years. Examples can be sudden changes in monthly jobless claims, a rise in the ratio of new part-time jobs to new full-time jobs, a decline in consumer confidence, a decline in new orders for manufactured goods or a general increase in tariff barriers, etc.

Such indicators could signal when a potential economic downturn or a recession is about to unfold.

The current economic and financial environment is special because for months, many leading indicators have been pointing to an economic downturn, but partly because of unusually high public deficits, most economies have shown some resilience and a recession has been postponed.

In the past, when this has occurred, such as in the late 1970's, the subsequent economic recession was more severe than usual. In fact, there were two important worldwide economic recessions in 1980 and 1981-1982.

Therefore, the lesson of history seems to be that when an important rise in public debt postpones artificially the onset of a recession, the next economic downturn risks being even more severe.

III- The Trump administration's disruptive tariffs and on-coming job losses

In 1930, American tariffs in the republican sponsored Smoot-Hawley Act turned an economic recession into an economic depression for both the United States and for the world economy.

Politically, it also brought down the U.S. Republican Party. The Democrat Party took over power in 1933, with the Franklin D. Roosevelt administration and its New Deal. Democrats remained in power for twenty years, until in 1953, when the Republican Party under Dwight D. Eisenhower regained power.

Some ninety years later, the Republican Trump administration's unilateral tariffs on imports risk upending international trade again for years to come.

This could possibly lead to a 'Trump Slump' and the loss of millions of jobs, not only in the United States but also around the world, if short-run partisan political considerations were to prevail over long-term economic logic.

IV- The climate crisis, the energy crisis and international migrations of populations

In the past, a major cause of productivity gains and economic growth has been access to cheap and reliable sources of energy. Whether coal, mainly for steam engines in ships and trains, or liquid energy derived from oil and gas for automobiles and airplanes, or electricity from hydroelectric or nuclear power, these energies have increased labor productivity tenfold and raised living standards.

Nowadays, climate warming that is expected until the end of the century to be the cause of more floods and droughts, threatens to disrupt the economies of several countries, as well as international agricultural supply chains.

For environmental reasons, governments are seeking to discourage the use of polluting fossil fuels and replace them with renewable energies such as solar and wind power, which are less reliable and often more expensive. Higher energy costs could act as a brake on future economic growth.

For underdeveloped economies with high population growth, population migration to economies with high living standards is likely to intensify. Such migration is already causing serious problems of social and cultural integration, particularly in Europe and North America.

V- Incompetence, improvisation and confusion in some governments

There is a daily demonstration that there is currently in the United States a dysfunctional, chaotic and erratic federal government that is dangerously unhinged, especially as it is bent on launching a risky international trade war, which irresponsibly threatens to severely contract world trade and upend numerous national economies.

In Europe, especially within the Euro zone, some countries seem to have de facto moved away from the statutory limits imposed on their public budget deficits and indebtedness. 

All this could have something to do with the increased influence of big money into the working of the political system in some countries. The often lack of expertise of many of the world's most powerful leaders in situations of conflicts of interests has become a great challenge to the principles of good public governance, as this is reflected in their policies and decisions.

Conclusion

Modern economies and societies have become ever more complex systems, especially in the Western world. Multiple factors may contribute to their decline, involving economic, political, fiscal, environmental, demographic, speculative, social and cultural crises. There has been an expansion of public or semi-public bureaucracies and monopolies, which can progressively interfere with personal liberties and private businesses. 

Simultaneous crises could cascade into one another, building up to a point that could overwhelm otherwise long-standing institutions, impeding their ability to maintain order, stability and prosperity.

The best way to prevent a decline in Western economies and societies is to address their unsustainable fiscal, economic, political, demographic and social imbalances, which are increasing. This would require a greater awareness of the problems and crises looming on the horizon.

Currently, public sectors in many Western economies and societies are overburdened and are producing diminishing returns for the resources invested. If such a situation were to continue, in a context of rampant inflation and economic stagnation, it would not be surprising if a collapse could one day occur in their welfare state socio-economic system.

__________________________________________________________________

International economist Dr. Rodrigue Tremblay is the author of the book about morals "The code for Global Ethics, Ten Humanist Principles" of the book about geopolitics "The New American Empire". 

He holds a Ph.D. in international finance from Stanford University.

Please visit Dr. Tremblay's site or email to a friend here.

Posted Wednesday, May 14, 2025

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Turmoil in the USA: Great Inequalities, Corruption, Over-Indebtedness, Speculation, Division and Imperialism

Wednesday March 12, 2025

By Dr. Rodrigue Tremblay, Professor Emeritus of economics at the Université de Montréal

"The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt." Bertrand Russell (1872-1970), British philosopher. 1933.

"We will tariff and tax foreign countries to enrich our citizens." Donald Trump (1946- ), American business tycoon and U.S. President, (in his inaugural speech, January 20, 2025).

"We should...recognize that one of the key factors behind our nation's great prosperity is the open trade policy that allows the American people to freely exchange goods and services with free people around the world." Ronald Reagan (1911-2004), 40th U.S. President, 1981-1989, actor and republican politician, (in a radio address, November 26, 1988).

"We must make our choice. We may have a democracy or we may have wealth concentrated in the hands of a few, but we can't have both." Louis D. Brandeis (1856-1941), U.S. Supreme Court justice, 1941.

"Populist regimes have historically tried to deal with income inequality problems through the use of overly expansive macroeconomic policies. These policies, which have relied on deficit financing, generalized controls, and a disregard for basic economic equilibria, have almost unavoidably resulted in major macroeconomic crises that have ended up hurting the poorer segments of society." Rudiger Dornbusch (1942-2002) and Sebastian Edwards (1953- ), respectively MIT and UCLA economists, in "The Macroeconomics of Populism in Latin America", 1991.

In its entire history, the United States has never been confronted, as it is the case since January 20, 2025, by a president and an administration so ostensibly authoritarian and neo-fascist and so openly defying its constitution and the principle of the division of powers enshrined therein. This has resulted not only in upending the internal functioning of its democracy, but also in creating havoc in its external relations with neighboring countries and the entire international community.

This new domestic political reality stems in part from a number of pre-existing factors and trends. It would be useful to identify them in order to know whether the current American political crisis could lead to even more serious crises in the future.

 I- Half a century of rising income and wealth inequalities in favor of the super-rich Americans

Over the last half century, the US economy has increasingly become an economy of the super-rich, by the super-rich and for the super-rich. Indeed, it is an economy where the highest-earning 10% of Americans account for nearly 50% of all consumer spending and who control most of the levers of political power.

Over the years, according to a report of the Economic Policy Institute, CEOs' compensation pay-packages in the largest American corporations have far outstripped workers' wages and benefits. In 1965, The CEO-to-worker income ratio was 21-to-1. In 2021, the CEO-to-worker income pay ratio was at its highest level recorded since 1965 and stood at a ratio of 399-to-1. —It is thus not surprising that more than 60% of American families live paycheck to paycheck.

Another indicator of persistent income disparity in the United States is the U.S. federally mandated minimum wage, which has not been raised since 2010, and which is set at a paltry 7.25 U.S. dollars per hour. American workers have fared better in some states where the minimum wage goes from $14 an hour in Rhode Island to $17 an hour in the District of Columbia. However, five states (Alabama, Tennessee, South Carolina, Mississippi and Louisiana) do not have a state minimum wage law, and some other states have minimum wages even lower than the federal minimum wage. In a period of rising prices, a non-inflation adjusted minimum wage translates into a decreasing real minimum wage.

What this means is that there are two distinct economies in the United States. On the one hand are the top 10% of people with high incomes and huge fortunes, profiting from tax breaks and high stock market prices. Then on the other hand, are the 90% of Americans whose real incomes have been lagging behind inflation for years and whose wealth is mainly concentrated in real estate or none at all.

As a result, wealth inequality is very high: In 2023, the 3 richest American multi-billionaires had more personal wealth than the bottom 50 percent of the population. Similarly, the top 10% richest American households owned about two-thirds of total wealth, or twice what the other 90% of Americans owned. In contrast, the lowest 50% of Americans only owned 3 percent of the total wealth.

II- Political corruption is high and on the rise in the United States

It would not be surprising that there could be a link between income disparities and the growing concentration of wealth in the United States and political corruption. Such corruption had been declining during the twentieth century, and especially after WWII, but it has been on the rise during the first quarter of the twenty-first century, as money is playing a dominant role in politics and as corporate media have become more concentrated.

Business mogul Donald Trump's presidential elections in 2016 and 2024, and the arrival of "plutocrat bullies' at the highest echelons of the US government are no accident.

Such a trend was greatly reinforced in January 2010 when the US Supreme Court removed several of the century-old laws that prevented the ultra-rich and superbillionaires, some with personal fortunes above $50 billion (Elon Musk, Jeff Bezos, Mark Zuckerberg, etc.) from unduly influencing the electoral process, from the early stages of an election to the composition and functioning of government.

There is always the danger in a democracy that crony capitalism rises and public officials sell political favors to private interests. That is the definition of political corruption. On that, one should keep in mind President Franklin D. Roosevelt's (1882-1945) wise words when he warned Americans that "The liberty of a democracy is not safe if the people tolerate the growth of a private power to a point where it becomes stronger than the democratic state itself. That, in its essence, is fascism—ownership of government by an individual, by a group...".

III- Public indebtedness in the United States is reaching high levels as compared to the economy

The level of the U.S. National debt (est. at $36.6 trillion) as a percentage of the Gross Domestic Product (GDP) (the latter est. at $29.8 trillion) is at a lofty 123% as of March 2025, according to the US National debt clock. Also, the US government fiscal deficit is $2 trillion, which is equal to 6.7% of GDP.

To somewhat personalize things, the U.S. national debt per American citizen is currently $107,019, while the same amount of national debt per American taxpayer si $323,047. In other words, the United States like other Western economies is awash with debt.

To keep things in perspective, members of the EURO monetary zone must keep public fiscal deficits at no higher than 3% of GDP, and each country's public debt should not be higher than 60% of GDP. (N.B. Some member countries have public deficits and debt ratios much higher, which could eventually be a threat to the survival of the EURO zone itself.)

The U.S. public debt conundrum could be a handicap for fiscal policy if an economic recession were to unfold in the coming months or years. The House of Representatives recently adopted a Republican budget resolution that called for $4.5 trillion in tax cuts and a $2 trillion reduction in federal spending over the next decade. This is in line with the Trump administration's domestic political agenda.

IV- Speculation

After the financial mortgage-backed securities crisis and the Great Recession of 2008-2009 that followed, the U.S. government has adopted a fiscal policy of large deficits, while the U.S. Federal Reserve central bank has experimented with the new expansive monetary policy of Quantitative Easing (QE).

While fiscal deficits mean more government borrowing and an increase in the national debt, it also means the issuance of additional Treasury bonds. Such sales tend to depress bond prices and to drive up interest rates. However, a Quantitative easing monetary policy by the central bank, where a central bank purchases large amounts of government bonds or other financial assets in the open market, has the reverse effect and that pushes interest rates down.

US fiscal deficits reached nearly $1.5 trillion in 2009, but doubled up to $3.0 trillion at the onset of the Covid-19 pandemic, in 2020.

Some financial markets, especially the stock market, have been in a euphoric phase, even in a bubble, for some time. Indeed, stock market evaluations in the United States can be considered stretched, as measured by the price/earning ratio (P/E), which was 36.8 at the end of 2024. Such a level is a lofty two standard deviations above the modern-era average, which is 20.4, an indication that the market is currently overvalued and could correct at any time.

Speculation and the cryptocurrencies

President Trump has said in the past that cryptocurrencies are a scam against the US dollar. However, he named in his administration officials whose objective is to deregulate the issuance of such artificial digital assets. He went one step further in signing an executive order, mandating the US government to establish a Strategic Bitcoin Reserve, as well as a separate Stockpile of Digital Assets. A question thus begs to be asked: Is this a way to encourage speculation and the manipulation of the price of cryptocurrencies? 

V- Social and economic division

Nobody can deny that the United States is currently as divided a nation as it has ever been since the 1861-65 Civil War. President Donald Trump is focusing on what divides Americans, with the result that the country is split in two.

We live in a time when advanced economies are undergoing rapid technological changes (Artificial Intelligence, robotization of tasks, etc.). In the United States, some workers and some regions are benefiting from these new industries, while others are stagnating.

One would think that the American central government should assist displaced workers and less dynamic regions with infrastructure and social assistance spending.

Nevertheless, the US government spends hundreds of billions of dollars annually to support costly wars in the Middle East and Eastern Europe, in addition to assuming the cost of maintaining some 800 military bases abroad. The result domestically is a system of social services, particularly health care, which is inferior to what can be found in other advanced economies.

It is therefore understandable that some Americans feel abandoned by their government and could easily fall prey to the first demagogue who comes along offering them instant solutions, such as taxing foreign countries.

The current US  Trump administration 2.0 is relying on ignorance, lies, improvisation, confusion, revenge and failed policies to centralize government decision-making at the White House, under a one-man control system, in violation of the spirit and words of the U.S. Constitution, besides upending international relations. In so doing, President Trump may make promises and give the appearance of attempting to solve problems in the eyes of some of his followers, but in the process and in reality, he could end up worsening problems and even creating new ones. Sooner or later, one learns that no government can act as if the laws of economics have been abolished.

In such a dysfunctional context, economic and political polarization is likely to persist in the United States and possibly increase in the coming months and years.

VI- Imperialism, protectionism and great economic intellectual confusion

Trump's economic imperialism is even more abhorrent than the old one, which was based on American sanctions unilaterally imposed on a whole series of countries. In fact, President Trump often behaves like a schoolyard bully.

Indeed, since his inauguration on January 20, 2025, the Trump 2.0 administration has pursued an unprofessional, incoherent, erratic, whimsical, arbitrary and full of reversals trade policy, by unilaterally raising tariffs on imports. (N.B. tariffs are domestic regressive indirect taxes levied on imported goods.) In so doing, it has upended domestic and international economic relations besides threatening to plunge the world economy into chaos. On top of it all, D. Trump has invoked a fake "state of emergency" in order to usurp Congresses's responsibility to raise taxes, a move that can be constitutionally contested.

Perhaps the most questionable and ill-advised example is the unilateral tariffs imposed on products imported from Canada, a neighboring country with which the United States has a military air defense treaty (NORAD) and a free trade agreement since 1988 (which was expanded to include Mexico in 1994, and which was revised in 2000 with the signature of President Donald Trump 1.0.) In addition, the U.S. and Canada have been part of NATO since its foundation in 1949. All this belongs to an unreal world.

The big losers in Trump's trade wars affecting about $1.5 trillion in U.S. imports and the industrial dislocation that they will produce are going to be the consumers in all countries involved, including the American consumers. Less wealthy households will especially suffer the most as they are going to face rising prices while their incomes are going to stagnate or decline. The end result will be stagflation in many countries, i.e. rising prices and slower economic growth.

A historical reminder: President D. Trump seems to have been persuaded that the tariffs imposed at the end of the 19th century, when the US economy was largely agricultural and had some infant industries, could be transposed to the 21st century, where the US economy is fully developed and a leader in the world economy. Stiff tariffs of 49.5% were indeed imposed on imports in 1890, to protect infant industries and to give them time to become competitive. However, the experiment backfired badly.

Such high tariffs and other causes paved the way for the worst economic depression ever seen until then, the Panic of 1893, which lingered on until 1897. It had been preceded by an increase in the cost of living for most Americans, balance of payments deficits, bank runs, a credit crunch, a stock market crash, business bankruptcies and a 25% unemployment rate.

It would be a tragedy if such a failed economic experiment were to be repeated more than a century later in an economic and financial environment that could be more sensitive to disturbing political shocks.

Conclusion

Everything would seem to be in place for the United States to enter into a perfect storm with a convergence of several crises: political, economic, financial and constitutional crises. Most of those crises are purely man-made.

Indeed, for the time being, the Trump administration 2.0 has been behaving like a bull in a china shop. It is a major agent of chaos, uncertainty and destruction all around. —One should never forget that it is relatively easy to destroy prosperity with bad policies, but it is much more difficult to build a sustainable economic prosperity.

Inequalities: Income and wealth inequalities in the United States are important and rising.

Corruption: The main American political institutions (Congress, the Presidency and the Supreme Court) are more corrupt nowadays than at any other time in the country's history, and all indicates that it is going to get worse.

Over-indebtedness: The ratio of the U.S. national public debt to the gross domestic product (GDP) is higher today than it was at the end of World War II, and about to rise even further.

Speculation: Financial market exuberance is especially high at this time, especially in the stock markets. A downward trigger shock could cause a severe correction at any time.

Division: The United States is a deeply divided country, both socially and regionally, and it could become even more so.

Imperialism: Economic imperialism à-la-Trump is currently unchecked and it is likely going to produce stagflation, not only in the US but also in many other economies, which would result in lower standards of living all around.

____________________________________________________________

International economist Dr. Rodrigue Tremblay is the author of the book about morals "The code for Global Ethics, Ten Humanist Principles" of the book about geopolitics "The New American Empire". 

He holds a Ph.D. in international finance from Stanford University.

Please visit Dr. Tremblay's site or email to a friend here.

Posted Wednesday, March 12, 2025

*** To receive new postings of Dr. Tremblay's articles, 

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The US Government of Donald Trump is Oligarchic, Dysfunctional and disruptive to the Global Economy

Monday, February 3, 2025

Dr. Rodrigue Tremblay, economist Ph.D. Stanford '68 and former government minister

"Nearly all men can stand adversity, but if you want to test a man's character, give him power."               Abraham Lincoln (1809-1865), 16th President of the United States, 1861-1865.

"I am driven with a mission from God. God would tell me: 'George, go and fight these terrorists in Afghanistan'. And I did. And then God would tell me 'George, go and end the tyranny in Iraq'. And I did." George W. Bush (1946- ), American President, 2001-2009, (in “George Bush: God told me to end the tyranny in Iraq“, The Guardian, Oct. 7. 2005).

"I really do believe we have 'God on our side'," Donald Trump (1946- ), (in a speech to the 'Evangelicals for Trump Coalition', on January 3, 2020

"The 1929 Great Depression was so wide, so deep, and so long because the international economic system was rendered unstable by British inability and U.S. unwillingness to assume responsibility for stabilizing it by discharging five functions:

 (1) Maintaining a relatively open market for distress goods [basic necessities];           

 (2) providing countercyclical, or at least stable, long-term lending;                           

(3)  policing a relatively stable system of exchange rates;                                           

(4) ensuring the coordination of macroeconomic policies;                                         

(5) acting as a lender of last resort by discounting or otherwise providing liquidity in financial crisis."     Charles Kindleberger (1910-2003), American economic historian and author of The Great Depression 1929-1939, (1973)

The United States radical government of real estate mogul Donald Trump, in office since just a few weeks, is full of plutocratic oligarchs, and it is led by a deeply flawed president who is convinced that he has all the knowledge in the world all by himself. He seems to believe that his country should not import or export any product and live isolated in economic autarky.

An Unhinged President

The last two weeks of January will go down in history as presenting the most questionable and unhinged behavior of any newly elected American president.

Never before, indeed, has such a flurry of dictatorial presidential decrees come from the Oval Office, some in violation of existing laws adopted by the US Congress and of the US constitutional system of checks and balances, as if the US government had suddenly become the business of a single individual. Add to that Donald Trump's bizarre and increasingly inflammatory statements and rhetoric on a variety of topics, most of which are rarely, if ever, based on evidence, studies or sound analyses.

As far as economic issues are concerned, one has the impression that the new Trump 2.0 administration seems to have abandoned all intention and responsibility for stabilizing the international economy; he is instead promoting improvised, irrational and destabilizing policies.

In addition, many countries and even some international institutions, created after World War II under American leadership, have been the target of insults, threats and demagogic attacks by President Donald Trump. —This raises many important questions.

I- Many specialists have become concerned about the mental state of the American president and his disruptive influence on things to come

The paramount issue is Mr. Trump's mental state. One of the first people to express fears about Donald Trump's mental state and personality disorders is Mary Trump, a clinical psychologist and his niece. On many occasions and even in a book, she has attempted to warn her fellow Americans about her uncle's unstable mental condition.

Already on November 29, 2016, in an open letter to then President Barack Obama, three professors of psychiatry at Harvard, Berkeley and Stanford universities, had come to a similar conclusion regarding Donald Trump's symptoms of psychosis. Their conclusion was that Donald Trump was exhibiting "widely reported symptoms of mental instability, including grandiosity, impulsivity, hypersensitivity to slights or criticism, and an apparent inability to distinguish between fantasy and reality," and this "lead them to question his fitness for the immense responsibilities of the office of president."

Other mental specialists have since raised alarms and documented here and here, and in books, about how Donald Trump's unstable mental state and personality disorder, (i.e. his desire for domination, his grandiose sense of self-importance, his lack of conscience and empathy and his absence of guilt, shame or remorse, etc.), could be a danger for the United States and for the world.                                                                                            

[N.B.: Such character traits and behaviors are among the main symptoms of those individuals suffering from a Narcissistic Personality Disorder, according to the American Psychiatric Association (APA). Only about 1% of a large population displays symptoms of the mental disease of psychopathy or of sociopathy.]

Moreover, according to former FBI director, James Comey, Donald Trump also seems to have the mentality of a gangster and of a con man, with a mind filled with malice and wickedness, ready to violate any law, treaty, practice or convention to advance his personal interests. It is important to remember that Donald Trump was criminally convicted on May 30, 2024, and will go down in history as the only individual with a criminal record before occupying the White House.

Trump is also known for having encouraged violence by his cult of extreme followers, especially by the raging mob of insurrectionists who stormed the U.S. Capitol building, on January 6, 2021, in order to overthrow the results of the November 2020 presidential election.

As a matter of fact, a more than 800-page report on the insurrection against the U.S. Capitol building just released by U.S. Special Counsel Jack Smith, on Tuesday, January 14, concluded that "Donald Trump engaged in an 'unprecedented criminal effort' to hold on to power after losing the 2020 election... and the evidence would have been enough to convict Trump at trial."

One can also notice Trump's cavalier betrayal of his oath of office to the U.S. Constitution. Indeed, one of his first acts once back in power was to grant a complete pardon, commuting the prison sentences, or vowing to dismiss the cases of more than 1,500 violent rioters, some of them convicted of seditious conspiracy, including individuals convicted of assaulting police officers. He did not consider the fact that the January 6 insurrection caused more than 100 injuries and several deaths of policemen.

II- Trump's gratuitous insults, threats and attacks against several countries

A second source of concern is the increasing aggressiveness in Donald Trump's remarks. Indeed, President Trump 2.0 has multiplied threats, insults and gratuitous attacks against a large number of countries, including Panama, Mexico, Cuba, Columbia, Canada, Greenland, Denmark, Jordan, Egypt, Saudi Arabia, North Korea, Russia, China, Iran, etc. —The list is getting longer on a daily basis.

This is most counter productive to world peace and prosperity. It would be much more useful to the world if he could better assume his great political responsibilities, instead of adopting the imperialist posture of another century.

III-Donald Trump's tricks to profit financially from his office

A third issue is about President Trump's seemingly lack of judgment with his recent launching of speculative meme crypto 'currencies' for his organization and for his immediate family. Not only have we seen the issuance of his own commemorative $TRUMP crypto token on the Solana blockchain, but also one for his wife, a $MELANIA token and even another one for his daughter Ivanka (who has publicly denounced the operation).

Such crypto memecoins have no real intrinsic value. Their owners can only make money if they sell them to someone else at a higher price than they bought them. That is tantamount to a Ponzi scheme.

Nevertheless, such instruments are financial speculative gimmicks that could, in theory, earn Trump millions of dollars by abusing the credulity of some of his followers. It is also possible that they are in violation of an article of the American Constitution, which prohibits a president from enriching himself personally as a consequence of his position or of his policies (Art. II, sec. 1, par. 7).

IV-The longtime economic and defense cooperation between Canada and the United States is at risk

Donald Trump seems to have developed a special animosity towards Canada and its government. Indeed, the neighboring country of Canada has recently been the target of insults, threats and attacks from President Trump.

This may come as a surprise because Canada is a member of the British Commonwealth, besides being a founding member of the North Atlantic Treaty Organization (NAT0), in 1949. Moreover, since 1957, Canada and the United States are partners in the North American Aerospace Defense Command (NORAD) agreement, whose function is to defend North American air sovereignty. 

In addition, Canada is part of the 1989 Canada - United States Free Trade Agreement (FTA) with the United States, which was expanded to include Mexico in 1994, under the North American Free Trade Agreement (NAFTA). This latest agreement was renegotiated in 2019-2020 at the request of President Trump 1.0, and is known as the US-Mexico-Canada trade agreement of 2020 (USMCA). It came into force on July 1, 2020. A review of the agreement is scheduled every six years, with such a review on line for next year, in 2026.

Nevertheless and without any trilateral consultation, President Trump has threatened to unilaterally impose 25% tariffs on American imports of goods and services from Canada and from Mexico, claiming that the US borders with these countries are not well enough controlled against illegal immigrants and the drug trade (fentanyl) entering the US. (Trump has gone even further in proposing that Canada annex itself to the United States!)

If these ill-advised, self-destructive tariff policies were to be applied, they would destroy the mutually beneficial and longstanding industrial cooperation between Canada and the United States. For instance, there has been such a close cooperation in the automobile sector since 1965. The same applies to the energy sector (oil, gas, electricity) and resource sector (iron ore, steel, aluminum, etc.).

It is difficult not to agree with a Wall Street journal editorial, which said that a trade war against Canada and Mexico would be "the dumbest trade war in history". Moreover, it would be brought about in total intellectual confusion.

Nevertheless, that is precisely what Donald Trump did on Saturday, February 1st, (while relying on an obscure 1977 statute about a state of national emergency), when he hit Mexico and Canada with a unilateral 25% import tax on most American imports from these two countries, to be applied as of Tuesday, February 4, 2025. —In so doing, the US government violated the renewed trade agreement between the three countries, an agreement that President Trump himself signed in 2020.

However, to show how improvised, arbitrary and chaotic things can be, President Trump announced on Monday February 3rd that tarifs on US imports from Mexico and Canada would be postponed for 30 days.

Such a delay, however, will have a cost, namely the one of maintaining uncertainty and vulnerability for Mexican and Canadian companies. This could have negative consequences for their investments and exports.

Conclusions

Something is definitively wrong and worrying about US President Donald Trump. His mental state is questionable considering his behavior and his erratic, reckless and delusional statements.

He has made gratuitous insults, threats and attacks against many countries, including close allies, and would seem to have no hesitation in provoking an international trade war. Moreover, his rhetoric seems to get more and more violent as time goes by. 

Such pronouncements and threats could be very disruptive politically and economically to international relations. This could lead to a drop in international trade, throw many economies into a severe economic recession, and possibly be a repetition of the policy mistakes of 1929-1939, which led to an economic depression. 

President Trump would be well advised to refrain from creating havoc in the world. He should tone down his insults, threats and attacks against other sovereign countries and against international institutions.

In this day and age, when the threat of a nuclear conflict still exists and is indeed very present, it is no time to yield to impulsive actions and to adopt improvised policies. It is a time for cooler heads and for rationality to prevail, with the aim of making the world more peaceful and more prosperous for all.

_____________________________________________________________________

International economist Dr. Rodrigue Tremblay is the author of the book about morals "The code for Global Ethics, Ten Humanist Principles" of the book about geopolitics "The New American Empire", and the recent book, in French, "La régression tranquille du Québec, 1980-2018". He holds a Ph.D. in international finance from Stanford University.

Please visit Dr. Tremblay's site or email to a friend here.

Posted Wednesday, February 3, 2025

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The Trump Administration's Agenda and the likely Economic and Financial Consequences

Wednesday, January 8, 2025

Dr. Rodrigue Tremblay, Professor Emeritus at the Université de Montréal, former Minister and author of the book 'The Code for Global Ethics', Prometheus, 2010.

"When plunder becomes a way of life for a group of men living together in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it." Frédéric Bastiat (1801-1850), French economist.

"The government, which was designed for the people, has got into the hands of the bosses and their employees—the special interests. An invisible empire has been set up above the forms of democracy." Woodrow Wilson (1856-1924), American professor and the 28th President of the Unites States, (1913-1921).

"When every country turned to protect its own private interest, the world public interest went down the drain, and with it the private interests of all." Charles Kindleberger (1910-2003), American economic historian.

"Near as I can tell, this president [Donald Trump] only has one reference point and it is internal. That's very similar to a Cosa Nostra boss." James B. Comey (1960- ), former Director of the F.B.I. (2013-2017)

In the conflictual context of American politics, the political pendulum seems to swing from one extreme chaos to another, from an interventionist, war-mongering and spendthrift government led by the outgoing Democratic President Joe Biden and his "neoconservative" advisers, to an isolationist, imperialist and protectionist government under the leadership of Republican President-elect Donald Trump, with his ultra-nationalist slogan of "America First".

Indeed, Donald Trump's political agenda is radical, isolationist and protectionist, even mercantilist. In this, the latter professes to want to pursue a most cavalier foreign policy with a mix of provocation, insults, blackmail, coercive threats and hegemonic intimidation towards other countries and their leaders.

That is why the coming months and years risk being politically and economically tumultuous and possibly chaotic, not only in the United States but also around the world, as President Donald Trump and his administration proceed to forcefully implement the numerous promises he made during the 2024 U.S. presidential election campaign.

President-elect Donald Trump has pretty much completed the composition of his administration with loyal supporters and political allies, some of them being clones of himself and some being even more hawkish and militarist than himself. His political agenda and his numerous promises are partly inspired by the Heritage Foundation's far right Project 2025.

Therefore, it is now somewhat clearer in which direction the new administration intends to move the United States government in the coming months and years. It is also easier to analyze the economic and financial consequences this is likely to produce.

Indeed, with a psychopath as president, as of Jan. 20, 2025, a new era of 'Plutocrat Bullies' may be emerging in the United States that could parallel the "Robber Barons" era of 1861-1901.

In fact, this new political era really began on January 21, 2010, when the U.S. Supreme Court, under the principle that "money is speech", allowed electoral groups to accept massive financial donations and to spend practically unlimited sums of money during elections, (so long as they do not directly coordinate their actions with candidates of political parties).

1- The Trump administration plans to reduce American imports through high tariffs, besides better controlling the borders

Among its first proposals, the Trump administration intends to raise tariffs on products from different countries, from a 10% tariff on imports from most countries to a 60% tariff on Chinese imports, besides encouraging domestic oil and gas production. [N.B.: President Trump has even dreamed about replacing the US income tax with tariffs, although the numbers do not add up for such a radical switch!]

It also plans to strengthen border security and to deport a large number of undocumented immigrants, besides severely cutting 'wasteful' public outlays, deregulating some business practices and adopting more lenient anti-trust regulation laws. Moreover, it can be expected to extend previous tax cuts for individuals and to drop corporate tax rates from 21% to 15% for businesses, financed by a drastic compression planned in federal bureaucracy.

Some measures will undoubtedly stimulate domestic capital spending, production and employment, at least in some sectors and for a while—the result of new tax cuts, import substitution and deregulation. However, other measures, such as severe government spending cuts and looming trade wars will have the contrary effect.

Indeed, the Trump administration's fiscal policy will be a balancing act between lowering taxes and reducing public expenditures, within a global budget of $6.3 trillion in 2024.

In the short-run, however, the already high U.S. federal budget deficit ($2.1 trillion or 7.4% of GDP) and the enormous federal public debt ($36.2 trillion or 127% of GDP) are bound to rise even further.

This will be the case as the debt service alone (payments of loans at maturity and on-going interests on the outstanding public debt) is more than $1.0 trillion a year. Making past corporate and personal income tax cuts permanent is also likely to raise deficits and public debt.

This would mean more bonds issued by the U.S. Treasury and upward pressures on nominal and real (inflation-adjusted) long-term interest rates and on borrowing costs in the coming years. This could also mean more pressure on the Fed to purchase Treasury bonds at the risk of creating more inflation.

However, this would not be the end, since the expected rise in import taxes will likely also push import prices up, while large deportation of workers illegally in the U.S. would result in higher wages in some economic sectors. This could persuade the Fed to slow down for good its on-going program of lowering interest rates for fear of rekindling inflation.

2- In the short-run, some boost of domestic output and a rise of inflation can be expected in the United States

The overall initial impact of protectionist measures to be adopted during the first 100 days of the new administration is likely, on the whole, to be inflationary.

The prices of many imported goods and materials are bound to go up. Some estimates of the annual cost of Trump's new tariffs for an average American household could be between $1,700 and $2,350.

Also, wages in some sectors would rise when many foreign workers are subjected to deportation. A rush to replace imports would also require new investments, thus placing added demand pressure on prices and costs.

For a while, the US dollar would appreciate vis-à-vis other currencies, thus tempering somewhat the rise in import prices. Also, attempts to boost domestic oil and gas production would lower energy prices. Over time, as domestic production of import-substituting goods gears up, such an increased domestic supply would also tend to slowdown domestic inflation in the U.S.

3- In the medium term, higher import taxes are bound to reduce consumer spending, while trade retaliations from other countries would hurt American exports

Indeed, higher import taxes would lower real disposable income for American households and this would hurt consumer spending.

Similarly, trade wars are going to damage the world economy and this, in turn, will hurt American exports. —All countries lose in trade wars. —A worldwide economic slowdown is not in the interest of the American economy, nor of the world economy.

The experience of the Great Depression (1929-1939) is a serious reminder. The 1930 American Smoot-Hawley Act, which raised American import taxes by some 20%, provoked an international trade war. Many countries followed the United States in adopting "beggar-thy-neighbor" trade policies. World trade contracted and so also did the entire world economy.

Could a mercantilist trade policy succeed nowadays ? In other words, could the net result of such one-sided stimulative policies be expansionary in the U.S., initially, and then be followed by an important contraction later on in the world economy and in US exports?

4. The errors in Trump's economic reasoning

Donald Trump seems to have insufficient knowledge of international finance. He falsely maintains, for example, that a country is necessarily a 'loser' when its net external trade in goods and services with other countries is in deficit. This is a misconception of the real world, especially when there are movements of financial capital between countries.

Indeed, one country may have a net inflow of foreign financial capital. Such a net inflow of financial capital will appreciate its currency, and its imports will necessarily tend to exceed its exports. A country will then have a surplus on its capital account but a deficit in its current account (trade balance, transfer payments, etc.). This is how real capital is transferred (in the form of machinery, technology or other goods) to a recipient country.

The reverse is also true.

When a country has a net outflow of financial capital, its currency will tend to depreciate and such a country will tend to have a trade surplus, i.e. more exports than its imports of goods and services. Its trade balance becomes positive to transfer real capital abroad.

Each country's global balance of payments is constantly kept in equilibrium by the play of prices and exchange rates, and that is the way real capital is transferred from one country to the other. This is an elementary fact of balance of payments accounting.

5. The special role of the US dollar in the international monetary and financial system

But there is more in the case of the United States, whose currency is used in international transactions.

Indeed, the US dollar being the main international currency creates a structural international demand for that currency. Foreign holdings of US dollars and of US dollars assets (bonds, shares, etc.) translate into a capital inflow into the USA, making for a strong dollar in foreign exchange markets. This allows the United States to import and spend more abroad as it imports more than it exports. The net result is a deficit in its trade balance. (N. B.: For example, the U.S. government spends enormous amounts of money each year in maintaining some 800 military bases abroad, which is partly financed by foreigners holding US dollar assets.)

It is therefore somewhat ironic that Trump wants to impose 100% tariffs on the BRICKS countries if they try to replace the US$ as the world's reserve currency!

If the United States wanted to have a permanent trade surplus, it should prevent residents of other countries from investing in the United States. Specifically, the United States would have to discourage foreigners from holding US dollars and from investing in bonds and stocks of American companies.

Foreign central banks should not also hold large amounts of US dollars in their official reserves. Such a foreign investment in US dollars appears as s surplus in the capital account of the US balance of payments.

6- Trade protectionism and trade wars in a context of high public indebtedness

Public debts are currently at record levels in many countries. This is the consequence of years of fiscal and financial excesses—the result of a 'spend-borrow-print' approach to fiscal and monetary policies. Therefore, after a few months of expected economic and financial exuberance in the United States, a serious economic recession could take hold in several western economies, sometime in the coming years.

Indeed, a likely contraction in American exports resulting from the expected trade war and other countries' retaliatory tariffs, would exceed any expansion in the American import-substitution sector. This, plus a contraction in public expenditures, could also contribute to slowing down economic growth.

7- The on-going cryptocurrency speculative craze

It is also worth mentioning the current speculative cryptocurrency craze, a potentially inflationary phenomenon.

Cryptocurrencies are private digital currencies, which are based on an electronic encryption technology and a decentralized network of computers using a great amount of energy, which control and secure their production. [In 2008, an anonymous entity known under the pseudonym Satoshi Nakamoto invented a software program for the artificial creation of digital wealth. This was the first and best-known digital currency based on blockchain technology and secured by cryptography, the bitcoin.]

There are numerous so-called cryptocurrencies and they are not backed by any government, are not regulated by any central bank and are not based on any physical asset, such as gold. Their existence is essentially virtual and their intrinsic value is based on speculative appeal, due to the high volatility of prices, and the secrecy conferred on those who use them to make anonymous transactions. However, their market is on track to reach a total value close to $2 trillion!

Such artificially created and risky private digital 'assets' are currently supported by president-elect Donal Trump and by a few of his pro-crypto appointments. They are very lightly regulated. Former Securities and Exchange Commission Chairman Gary Gensler has testified to Congress that the entire crypto asset class is "rife with fraud, scams, and abuse."

8- Uncertain financial and economic outlook

All of the above factors could be a source of economic difficulties in the years to come. Indeed, all the elements are present for a perfect economic and financial storm, especially if we add the possible convergence of a monetary crisis, a fiscal crisis and a financial crisis. There are currently too many exuberant speculative bubbles for this not to be a cause for concern.

Their combined effect could lead to a period of stagflation, that is, a period of slow, zero or negative economic growth in the context of rising prices.

If such a situation were to arise, it is not impossible that it could morph into a severe cyclical economic recession, and even possibly into a longer term structural economic depression.

For its part, the Organisation for Economic Co-operation and Development (OECD) forecasts global economic growth to be 3.3% in 2025. However, there is a great risk of deterioration over the coming years if important trade wars and other crises were to occur.

Conclusions

The world is economically more multilateral and interdependent than ever. Attempting to go back to unilateral thinking and isolationism, as president-elect Donald Trump demagogically promised to receptive American voters, could be a dangerous experiment.

Internationally, a second presidential term by American business mogul Donald Trump risks being very disturbing, as it may severely destabilize and upend international economic and financial relations, particularly as far as international trade and capital movements are concerned.

Indeed, if president-elect Trump were to go ahead and rely on strong-armed tactics to obtain unilateral concessions in trade and other matters with other countries, this could unravel the intricate network of international commercial and financial relations between countries that has been built since WWII.

Domestically, if the Trump administration were to enforce its radical economic agenda, the U.S. economy could possibly benefit in the short term at the expense of other economies. However, this would carry heavy economic, financial and political costs in the medium and longer term for the world economy, but also for the U.S. economy.

It may look relatively easy to launch trade wars for domestic political reasons, but the net economic, financial, monetary and productivity consequences over time can be very disruptive. As the mercantilist experience of the 1930s indicates, such inward-looking trade policies could transform a standard economic recession into a full-fledged economic depression.

As we approach the 100th anniversary of the great financial crash of 1929, it may be prudent to learn from past mistakes and errors. For instance, it was only a quarter of a century later, in 1954, that the U.S. stock market returned to its pre-crisis level.

In between, the Great Depression of 1929-1939 paved the way for World War II (1939-1945) and its disasters.

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International economist Dr. Rodrigue Tremblay is the author of the book about morals "The code for Global Ethics, Ten Humanist Principles" of the book about geopolitics "The New American Empire", and the recent book, in French, "La régression tranquille du Québec, 1980-2018". He holds a Ph.D. in international finance from Stanford University.

Please visit Dr. Tremblay's site or email to a friend here.

Posted Wednesday, January 8, 2025/edited Jan. 12, 2025.

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© 2025 Dr. Rodrigue Tremblay