Thread by @trygveolson

THREAD -- Let's talk about political risk. Not the risk someone like @kevinmacarthy takes when appeasing and acquiesces to DJT. @lincolnproject, @SteveSchmidtSES , @reedgalen,@stuartstevens, @rickwilson, @lincolnwatchman @JoeTrippi

Instead, I want to discuss the political risk nations incur when they move from liberal democracy to an illiberal state. One of the consequences of 1.6 -- and more broadly the last decade -- with democratic norms under assault in the US is the economic consequences.

Sovereign risk is typically the domain of people on Wall Street, Multinational corporates, & those in business schools. Most Americans don't think much about our own sovereign risk because the United States has been where others go to escape it. We have been the reserve currency.

We pay lower interest rates on our debts (both governmental and personal) because our nation has been the lender of last resort and the world's reserve currency. Because of my experiences working around the world dealing with non-democratic states,

I have on occasion been retained to go into countries for clients to assess political risk before they invest. Typically, they want to know if government changes will put their investments at risk to the changing domestic tides.

There is even a whole industry of political risk insurance -- I only learned this because of a client who had invested in a country without it. The government nationalized the asset and refused to pay a fair price for it.

Then the government lost in international arbitration multiple times before eventually coming to a resolution. For me, as the consultant, it was a gift that kept on giving. For my client, it was a boondoggle.

If they allowed this country to take their investment, then there would be a precedent for those unsavory types in other countries where they had invested to do the same. When going into a country,

I would start to understand the country's state of governance through the @TheEIU (EIU) Global Democracy Index. economist.com/graphic-detail…

The rankings by EIU are the gold standard for comparing governance in countries both over time and against each other. So what does such an analysis using EIU say about the situation and risk in the United States today?

EIU uses six categories and more than 60 data points to assess each country. They have been doing this since 2006. The chart below shows the US over that period. As you can see, our democracy has been declining, according to EIU.

In fact, we have moved on the macro score from a full democracy to a flawed one. In 2006 our score stood at 8.22, down to a score of 7.92 in 2020.

The decline has been most pronounced in two of the sub-categories -- one I have found to be a leading indicator and the other a lagging one.

The first category where the United States has declined is the functioning of government. As the graph below shows, there are three points where our functioning of government on @TheEIU rating scale declined -- each was a point of divided government.

The first in 2011 occurred after Republicans took control in the tea-party election. What happened after the GOP took control was a battle with the Obama Administration over Obamacare.

The newly mined GOP majority did not pass an increase in the debt ceiling until after we technically defaulted. That, in turn, caused a lowering of our nation's credit rating for the first time in history.

The second time was in 2015 when the GOP essentially stopped all business with the Obama administration -- including giving a Supreme Court nominee a hearing -- prior to the 2016 Presidential election. Oh, and there were the Benghazi hearings too.

The final was decline came in 2019. This time a democrat-controlled house and the Trump administration waged war with each other. Little was passed in terms of legislation, but lots of battles occurred, mostly precipitated, in my mind,

by President Trump forcing democrats to have to focus on defending democracy.

The lagging indicator, & more troublesome, is the EIU's conclusions about the decline in our political culture. Since Donald Trump's arrival on the political scene, it has fallen off a ledge.

Today, our political culture has far more in common with places like Hungry, Haiti, Senegal, or Thailand than with countries like Germany, Canada, or the United Kingdom. We now rank 57th Globally in terms of how our politics is played.

If you think, well, this is just a bunch of Europeans judging us, ask yourself -- do Canadian chant "lock them up" to political opponents? Do Brits storm the houses of parliament to overturn elections?

Do Japanese who feel they can't trust the police take to the streets and burn police precincts? Unfortunately, those things do happen in the places which are now our peers.

The bottom line is that all of those are places where people like me get retained to do sovereign political risk assessments. Today, if I were asked to do such an assessment in the United States, I would conclude a level of political risk that has never been present before.

If we don't control extremism, confront what happened on 1.6, & demonstrate we are still exceptional, we will no longer be exceptional. Ironically, many of those who want to Make America Great Again don't realize they are destroying what has made America Great from the beginning.

If we don't get our act together it is only a matter of time before our credit will become tied to our political dysfunction.