Harris Kupperman argues today's global economy operates under a new feudalism, where central banks and market structures prioritize asset appreciation over worker prosperity, creating a system ripe for political and economic upheaval.
The Feudalism Economy: Asset Owners vs. Main Street
- The top 10% (specifically 1%) of asset owners benefit from policies designed to inflate asset prices.
- The bottom 90% of wage earners experience stagnant real wages and declining purchasing power, despite official inflation metrics.
- Political attempts to support "Main Street," like Trump's initial push, quickly capitulated to asset owner pressure when equity markets declined.
- "We've decided to run our economy for the S&P. And as a result, there's a lot of side effects of this. And one of the side effects is that 90% of the people are suffering."
The 2022 Reversal: Asset Owner Panic Kills Growth
- In 2022, high nominal GDP and low interest rates accidentally boosted the "center of the country" economy (construction, steel, energy, commodities).
- This growth led to rising wages and inflation, causing panic among asset owners (commercial real estate, private equity, long-duration tech).
- Fed Chair Jay Powell, under pressure from asset owners, "killed the economic recovery" by raising rates, despite real wage growth for many.
- "All these guys panicked and they went to JPOW and they said, 'Do something.' And he did something. He killed the economic recovery."
Market Structure & The Passive Trap
- The shift to index funds, initially well-intentioned for tax efficiency, has led to over-concentration in a few "monopoly" tech stocks.
- This structure prevents capital rotation into struggling real economy sectors, even when they are undervalued.
- The system forces the middle class to save for retirement in these approved, index-linked products, further empowering tech oligarchs.
- "We've made a decision that certain sectors will do great and we've told all the middle class people you need to save for retirement and these are the approved products which are all index funds."
Global Feudalism & Capital Misallocation
- The US operates on an "S&P standard," prioritizing equity market performance.
- Japan historically focused on Japanese Government Bonds (JGBs), leading to stagnant equity markets and economy.
- China implements "factory feudalism," subsidizing exports with peasant savings, suppressing domestic consumption.
- This global "odd equilibrium" results in no real growth, as 90% of populations lack consumption capacity.
- "Globally there's no growth and everyone's kind of okay with it because they're all doing feudalism in a different way."
The AI Bubble & Deflationary Future
- The AI bubble represents capital flowing into non-productive assets (e.g., data centers with negative Return on Investment) due to a lack of scalable, high-return real economy investments.
- AI will automate white-collar jobs (lawyers, accountants, architects), mirroring the impact of industrialization on blue-collar workers.
- This automation will shrink the consumer class, leading to deflation and further entrenching feudalism, as humans become less economically useful.
- "The numbers will never work. It's impossible... They cannot make these data centers have a positive ROI."
Navigating the Feudal Landscape: Investment & Political Shifts
- Breaking feudalism requires "change at the top"—leaders willing to prioritize economic growth over asset prices, accepting the inevitable consequences for the S&P.
- Investors should target "hard assets" with restricted supply (e.g., refiners), rare assets, and undervalued opportunities in emerging/frontier markets (e.g., Brazil, Argentina).
- Wealthy individuals are increasingly migrating capital to safer, lower-tax jurisdictions (e.g., Dubai, Hong Kong, Florida Panhandle) as political instability rises in major cities.
- "You don't exit feudalism until the four people at the top... make a political change and that's the day the market's probably down 20%."
Investor & Researcher Alpha
- Capital Movement: Capital is fleeing overvalued US equities and bonds, seeking hard assets, geopolitical volatility exposure, and undervalued emerging/frontier markets. Wealthy individuals are also relocating capital to politically stable, low-tax hubs.
- New Bottleneck: The primary bottleneck is not capital availability, but the lack of productive, scalable investment opportunities in the real economy that yield positive returns, driving capital into speculative bubbles like AI.
- Research Direction: Research should focus on identifying political tipping points that could trigger a shift away from asset-centric policies, and on analyzing the long-term societal and economic impacts of AI-driven white-collar job displacement and consumer class contraction.
Strategic Conclusion
The global economy is trapped in a feudalistic cycle, prioritizing asset owner wealth over broad prosperity, fueled by passive investing and capital misallocation. A fundamental political reorientation is required to re-prioritize real economic growth and demand, necessitating a painful but essential re-pricing of existing asset bubbles.
