The crash of 2016

No, I am not talking about the stock market, though I could. Let me make a couple of points about why not before I tackle my main topic.

First, why I am not talking about the stock market. The main reason is that I think 2016 will see a more significant crash than anything that can happen on Wall Street. That’s the crash of the Republican party.

I will get to that in a second, but first a digression about the stock market fall. Yes, the market began to fall in late 2015, and the plunge has only gotten worse this year. No, it’s hardly a trivial issue, especially to people and institutions who own a lot of stock or whose retirement depends to some degree on the market or the price of a group of individual stocks therein. Most emphatically, I want to make the point that the reason I am not focusing on the market is not

because I have no experience or credentials as a financial analyst. I don’t. But the fact is I could talk about the stock market because anyone could. That’s because the endless chatter of the all the market gurus has as much scientific, factual basis as astrology. In cruder terms, it’s BS.

If you don’t believe me, read about a recent study reported on in this Sunday’s business section of the New York Times. Here are some of the main findings:

Since 2000, the consensus of the market savants called for an average annual 9.5 percent increase in the S&P index. The real annual change was just 4 percent.

More interesting than even this fact is that “consensus predictions were inaccurate in every single year, sometimes by preposterous margins.”

Here are two examples. In 2011, the market sages predicted a rise of 20.7 percent. In the real world, the index fell by 13 percent. In 2008, the experts foresaw an 11.1 percent rise. The market fell 38.5 percent!

The main reasons for this reign of error come down mainly to two things. The market is inherently unpredictable. A generation ago the eminent economist Lester Thurow showed that stocks picked through a random process actually did better than those chosen by a panel of market analysts. I am not talking about a computer programmed to analyze the market beating the human analysts. I am talking about a machine, called a random number generator, winning the contest.

Then there is a second factor, bias, also brought out by the findings of the study: “Not once since 2000 has Wall Street predicted the market would decline in a calendar year. Yet the market actually fell in five of those years.”

I read this to mean that while the gyrations of the market are random, the predictions of the gurus are not. Their bread is buttered on the top side and this systematically colors their forecasts.

Despite all appearances, there is a reason, connected to my main topic, for this long excursus about the pseudo-science of market forecasting. Remember when George W. Bush waged a long, unsuccessful campaign to convince Americans to entrust part of their retirement income to the stock market and begin defunding Social Security? What a disaster that would have been given the performance of the stock market in recent years. Fortunately, the American people refused to hinge their retirement on a roulette wheel.

Bush’s thinking was subject to the same bias as that of the market geeks. His bread had the butter on top too. The larger point, however, is that Bush’s thinking is not only reflective of the thinking of the Republican party today. Today’s GOP is actually more radical than Bush in its desire to dismantle all that is public and privatize everything else in sight. That is why this election is important and the coming crash of the Republican party is good news.

Why will it crash? The cannibalistic nature of the GOP nomination process is only one, and not necessarily the main, reason. The increasingly nasty infighting won’t help come November, of course. But the party has bigger problems.

The most obvious, analyzed at length in a recent article in the Nation magazine and this Sunday in the New York Times, is that the GOP is really two parties, the party of money and the party of rage (my terms).

The most zealous supporters of the Republican party seethe with rage. They rage against immigration, against the government, against gun control, among other things. Their rage both makes them a potent force and deludes them. It drives them to the polls, making them disproportionately important in the selection of the GOP presidential candidate. They go there to vote for a candidate, for instance, who would build a fence on the Mexican border and make the Mexicans pay for it, a preposterous and offensive idea on too many levels to discuss.

But money is the mother’s milk of the Republican party. The party of money for a long time has coexisted uncomfortably with the party of rage. Coexisted at all because you can’t win an election with only the votes of the 1 percent. So the votes of people many of the well-heeled secretly consider yahoos are crucial to keep the 1 percenters’ gravy train on track. Coexisted also because the party of money has usually prevailed on the Republican establishment to nominate a candidate well-schooled on corporate ways, means, and mindsets: Ronald Reagan, George W. Bush, Mitt Romney.

The dilemma has come to a head in 2016 because, in the words of the New York Times: “Rank-and-file conservatives, after decades of deferring to party elites, are trying to stage what is effectively a people’s coup by selecting a standard-bearer who is not the preferred candidate of wealthy donors and elected officials.” Enter Donald Trump and Ted Cruz. Exit Jeb Bush.

Republican elites are extremely worried because they know the only chance the GOP has to win the White House is by expanding the base, not contracting it. They need to do better with Latinos, women, young people. Can Trump or Cruz pull that off? Right now, that seems as likely as either one of them getting the endorsement of Pope Francis.