The Perils of Democracy

We got away with one on Tuesday. [Morning Reckoning] November 07, 2024 [WEBSITE]( | [UNSUBSCRIBE]( The Perils of Democracy Asti, Northern Italy November 07, 2024 [Sean Ring] SEAN RING Good morning Reader, In a time when democracy is often held up as the ultimate expression of human progress, it can be jarring to consider the views of someone who saw its dangers as much as its strengths. The French aristocrat and political philosopher Alexis de Tocqueville traveled across the United States in the early 1830s and distilled his observations into a landmark work, Democracy in America. Tocqueville's insights—astute, prescient, and dark—reveal a truth: democracy, while often framed as the fairest form of governance, contains within it seeds of potential destruction. Why revisit Tocqueville's warnings now? The challenges he identified nearly two centuries ago—populist fervor, a propensity for mediocrity, the erasure of individuality, and a creeping tyranny of the majority—still plague modern democracies. Tocqueville’s critique allows us to confront uncomfortable truths and examine the dangerous dynamics in today’s democracies. [Claim Your Starlink Pre-IPO Prospectus]( [Click here to learn more]( This is a critical and time-sensitive message. It’s regarding Starlink, which is expected to be the largest IPO in history – set to take place in as little as a few weeks. And for the first time ever, we’ve found a way for you to profit BEFORE the IPO happens. One of the world’s top venture capitalists and Silicon Valley insiders has just released all of the details… including a prospectus… in this short message. [Click here now to discover how to take action BEFORE the IPO.]( [LEARN MORE]( The Tyranny of the Majority: The Rule of the Mob “Think of how stupid the average person is, and realize half of them are stupider than that.” — George Carlin One of Tocqueville’s most famous insights was the notion of the "tyranny of the majority." In a democratic society, the majority wields power, and they impose their will on the minority without restraint. Tocqueville warned that, left unchecked, the majority's will could suppress minority opinions, squelch individual freedoms, and stifle dissent. Consider how "majority rule" is often celebrated as the purest form of governance. But Tocqueville saw it differently. He observed that dissenters could easily be marginalized in a majority-driven system, leading to a homogenized society where conformity is the norm. Conformity isn’t freedom. He argued that democracy, if unmoderated, tends to lead to "soft despotism." This form of despotism doesn't come from an iron fist but rather from cultural and social pressure to conform, which leads to the silencing of minority voices. In our modern context, social media amplifies this phenomenon. Cancel culture and suppressing divergent views are part of the digital landscape. Tocqueville’s observations on the dangers of majority rule prefigured this perfectly: he knew that the tools and tendencies of democracy when turned against individuals, create a tyranny just as stifling as any authoritarian regime. Democratic Mediocrity: The Quest for Equality at the Expense of Excellence A major flaw Tocqueville observed in democratic societies was their tendency toward mediocrity. The democratic pursuit of equality drives a societal focus on leveling. In Tocqueville’s view, democracies value equality even at the cost of excellence. (Think Boeing.) In the spirit of making all citizens equal, Tocqueville argued that democracies are inherently suspicious of greatness and tend to push down those who excel. This focus on equality produces a homogenized culture where mediocrity is tolerated and celebrated. Think of modern-day schooling systems, where the quest to create “fair” systems has led to "grade inflation" and an aversion to competition. Merit is being sacrificed on the altar of inclusivity. The political arena suffers similarly, as the democratization of media has reduced complex discourse to sound bites and populist slogans, prioritizing personalities over policies. When everyone is equally mediocre, greatness is not allowed to flourish. The pursuit of equality becomes the pursuit of sameness. Tocqueville was skeptical that democracy could sustain a society of strong, independent thinkers because such individuals threatened the democratic impulse to equalize. Tocqueville foresaw a culture where even a semblance of hierarchy or merit is offensive to democratic sensibilities. Materialism and Democratic Despotism As Tocqueville warned, democracy’s emphasis on individual freedom also fosters materialism. In a democratic society, where people are theoretically equal, they are driven to distinguish themselves by pursuing wealth and consumer goods. Tocqueville noticed that democratic citizens often focus on material success to validate their worth. As material prosperity becomes the measure of success, democratic societies become shallow. Their citizens become ever more anxious and competitive. Tocqueville’s concept of “democratic despotism” takes on a subtle form in such environments. This isn't the oppressive force of an autocrat but rather a more benign-seeming form of control that lulls citizens into complacency. Sound familiar? Tocqueville predicted a scenario in which individuals become so absorbed in pursuing personal comfort and material well-being that they gradually surrender their liberties to a paternalistic government. Again, does this sound familiar? Consider the extent to which this warning applies today. Consumer culture is rampant, and societies encourage accumulation over critical reflection. As people become more preoccupied with personal pleasures and material gain, they become less engaged in political and civic life. Democracy, rather than engaging citizens, encourages a society of passive consumers. And as citizens abdicate responsibility, the government assumes an ever-greater role—yet another instance of Tocqueville’s soft despotism. Erosion of Individuality Tocqueville was deeply concerned about the potential for democracy to erode individuality. He feared that democracy’s emphasis on the collective diminishes the uniqueness of each individual. He observed that democratic societies are characterized by a certain pressure to conform, leading to a loss of distinctiveness and originality over time. Tocqueville described democracy as producing a “social state” in which people are more likely to blend in than to stand out. In modern democracies, technology and media exacerbate the erosion of individuality. There is less tolerance for dissent; those who express unconventional opinions are marginalized or censored. This tendency toward conformity also affects political discourse. Leaders and policies are chosen not for their distinctiveness but for their alignment with the prevailing mood. Politicians no longer aspire to inspire or challenge the electorate but to pander to it. In an era where public figures can be “canceled” for the slightest deviation from social norms, Tocqueville’s fears about the erasure of individuality in democracy are prescient. The Fragility of Democratic Institutions Finally, Tocqueville warned that democratic institutions, while appearing robust, are inherently fragile. The great irony is that democracy relies on its citizens’ commitment to principles it cannot enforce. Democratic institutions are meant to be fair and transparent, but they only work when citizens uphold these values. Without civic responsibility, democracy erodes from within. The fragility of democratic institutions is evident when we look at political polarization today. In many democracies, citizens no longer see their political institutions as legitimate, often viewing them as tools elites manipulate. Tocqueville understood that once the public loses faith in democratic institutions, the entire system is at risk of unraveling. Moreover, Tocqueville believed that democracy tends toward centralization, as citizens increasingly expect the government to solve their problems. Tocqueville argued that when people cede too much power to the state, they risk creating a bureaucratic leviathan that is difficult to control. In our time, the erosion of civic responsibility and the rise of bureaucratic governance present a real threat to the sustainability of democracy. Wrap Up Alexis de Tocqueville’s warnings about democracy were not made lightly or outdated. His insights remain relevant, offering a framework for understanding the challenges facing modern democracies. The question that remains is whether democracies can heed these warnings. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( [Congrats, you earned this…]( As one of my readers, you qualify for [this special deal.]( Only a small fraction of our readers will have the chance to see this. Fortunately, you’re one of them. All you have to do is [click here now to see how to claim your special deal.]( [LEARN MORE]( In Case You Missed It… My Top Election Night Prediction Greg Guenthner, Editor [Greg Guenthner] GREG GUENTHNER Good Morning Reader, Let’s get this out of the way first… I don’t have any pressing Election Day insights for you. I don’t know which polls to trust. I have no idea whether the race is going to be a nail-biter or a blowout. These days, you can just dig up whatever data you want to support your own biases. You’ll even find wildly different odds on the various election betting markets. In short, nobody knows nuthin’. Meanwhile, the stock market doesn’t seem to be suffering over who might win the White House. The major averages have trended higher since early September. There was no “October Surprise” (unless you count the get-check drop that spiraled averages lower on Halloween). In spite of the divisiveness and bile the anxiety-inducing media throw our way, life goes on. Stocks mostly go up. Today’s results simply don’t feel like a life-or-death moment for the markets. As the results begin to trickle in tonight, I’m going to do my best to ignore the spectacle and get to bed at a reasonable hour. No portfolio adjustments are necessary. There are no last-minute bets to make. Sure, futures might dart in one direction or the other as the electoral map becomes clearer. Anxious investors might even try to position their portfolios into stocks or sectors they see benefiting from their chosen candidate. But my trading plans can wait until we have more information on what the next four years might have in store for the nation… and the markets. An Election Night Party-Pooper The longer I trade, the less inclined I am to pay any mind to the talking heads on the TV. This philosophy has also spilled over into politics. Learning to ignore outside opinions is a major trading hurdle that everyone in this business has to eventually scale. And once you develop some consistency in your trading style, you find you aren’t as interested in interacting with the media noise machine. Every soundbite that manages to sneak between your ears is thoroughly scrutinized. Friends and family tend to dislike this evolution. Some might even think you’ve become a flake. They’d much rather speculate about the current state of the world and argue about politics. Also, I don’t have friends and family texting to ask who I think will win the election. They know I have no clue. After all, who could predict the results of an election that has been too close to call for months? Not me! But I do get a lot of similar questions about stocks… Is NVDA going to double again? Is RBLX going to rally after reporting earnings? What’s going to be the best-performing stock on the market next year? I can usually cobble together an adequate non-answer to these questions to cut off any follow-up requests. But a more honest response would be: I have no idea. I can’t predict the future. More importantly, the lines I draw on a chart do not dictate where the price will be tomorrow, next week, next month, or next year. Just as a political pundit can’t change an election’s outcome, a trader cannot magically change the direction of a single price chart. Unfortunately, political and market pundits alike hate admitting this simple truth because it means their predictions don’t matter. This admission is also one of the most difficult concepts for novice traders and investors. Most of these casual market watchers assume market greats like Warren Buffett or Steve Cohen possess otherworldly powers that somehow allow them to see into the future. They simply buy the stocks they know will outperform, sit back, and watch billions of dollars magically flow into their accounts. If only that was the case… Your Predictions are Worthless Most investors rely too heavily on predictions and guesswork instead of simply weighing actual evidence they can gather in the market right now. The right now part of this statement is critical. The more you try to predict how the future will turn out, the less you’ll understand about the market forces acting on your investments at any given moment. One of the big gripes I hear about technical analysis and charting is that these disciplines have no predictive power. This commentary is, of course, complete nonsense, because there is no type of analysis – fundamental, technical, or astrological – that doesn’t completely rely on past or current information. No rigorous analysis of the markets can glimpse the future. But that doesn’t make it worthless! In fact, today’s price holds incredible power. How the price of a stock reacts (or fails to react) to news, earnings, or any other event is some of the most valuable information you’ll ever receive. Here’s what will change when you finally admit that your predictions are worthless and you begin to use actual, real-time information to inform your decisions: - You’ll stop buying stocks locked in downtrends. Newer investors are almost always tempted to bottom fish for “cheap stocks” that are stuck in ugly downtrends. When you finally figure out you have no clue when a stock is going to stop going down, you’ll quit guessing and just wait for the price to begin to recover. No, you’ll never buy the exact lows. But you’ll also avoid prematurely betting on turnarounds that never materialize. - You’ll quit making big earnings gambles. It’s tempting to bet that your favorite company will crush earnings. But there’s no way of knowing how the market will react to the numbers. I actually put on some of my best trades after earnings are released when I have a clearer picture as to where the stock is trending after buyers and sellers have digested the latest report. - You’ll embrace trends and the madness of crowds. Some investors insist on fighting the markets. They dig into balance sheets and sit through endless conference calls in an attempt to find a magic piece of information that will prove their contrarian bet correct. Sure, you might find a needle in a haystack. But most of the time, the trend will win. Don’t fight it! If we do get a clear winner at some point tonight, It will be tempting to start mapping out how the next four years will affect the investing landscape. My best advice: Just wait. The market might flash a false move or two (remember what happened in 2016). Give it some time to work through these moves and it will reveal everything you need to know. Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Sean Ring] [Sean Ring, CAIA, FRM and CMT]( is a former banker and financial educator and is the editor of the Rude Awakening. Sean has trained interns and graduates from Goldman Sachs, Morgan Stanley, Citi, Bank of America, Standard Chartered Bank, DBS (Singapore), the Abu Dhabi Investment Authority (ADIA), Bank Indonesia (the central bank), HSBC, Barclays, RBS, and BlackRock. He knows the global economy is being corrupted by forces that most people can't understand and has used his unique and worldly experiences to help people navigate the markets. [Paradigm]( ☰ ⊗ [UPDATE PREFERENCES]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. 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