- The New Rules with Alan Pentz
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- The Sleeper Awakens
Welcome back to The New Rules
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The New Rules has had a bunch of new subscribers so I thought I’d go with a piece this week that attempts to summarize what this newsletter is about.
Let’s dive in…
I loved the book and recent movie adaptation of Dune. The original 1980s movie is nowhere near as good but has a classic scene. Before all the craziness starts the main character’s father, Duke Leto Atreides, says to his son, Paul:
“Without change something sleeps inside us, and seldom awakens. The sleeper must awaken.”
After Paul has gone through his trials and emerges ready to conquer the universe he cries:
“Father, the sleeper has awakened!”
Waking Up to a New World
This is a good analogy to The New Rules. I think the US and the developed world in general have been sleepwalking for 30 plus years since the end of the Cold War.
We had become so rich and so powerful that few of the realities that constrained countries and economies really mattered anymore. We hyper-globalized bringing first Europe then Japan then South Korea and the Asian Tigers and finally China into a global trading system.
The US defeated the Soviet Union, a truly generational opponent, and then confidently began intervening in countries across the globe in an effort to shape them in its own image.
Capitalists prospered. The US was the sole superpower and everything seemed very stable. But then something changed.
You can pick lots of potential starting points. One candidate was the Great Financial Crisis in 2009. That certainly showed the weaknesses in the system but we still had a 10 year period after which governments tried to keep things together with increasingly poor results.
It was really the pandemic that made clear the old world was over. We recognized that supply chains anchored in China weren’t going to work anymore and that we, in West, might actually have to make some stuff again. The long 40 year decline in interest rates and inflation quickly reversed.
I think there are four key trends facing our new world.
The Four Horsemen of Change
Inflation: Inflation tends to move in long cycles of 30-40 years. We just ended a cycle that lasted from the early 1980s until 2021/22. During that cycle, we went from 20% interest rates down to zero. I don’t think we will go back to 20% anytime soon but we will see higher average levels of inflation than for the last couple of decades and it will be more volatile. This will challenge asset prices: stocks, real estate, bonds, etc.
De-globalization: The US led an increasingly globalized system starting from the end of the Second World War. After the Soviet Union fell and China embraced business, that system hyper-globalized. Now that trend is reversing. The US will have to bring some supply chains back home and move others to friendly countries. It will no longer protect all the shipping lanes and might begin focusing on creating its own trading and defense block. This will drive inflation and supply shocks (I can’t get toilet paper on Amazon!) that might cause recessions but there aren’t any other good options.
Technological Change: We will see rapid technological changes in the next few decades driven by AI, biogenetics/health, robotics, energy, etc. These changes will compete with de-globalization and inflation as the dominant trends and I believe this era will eventually end as the result of these technologies. Integrating them effectively into our societies will be the core challenge for business and government going forward.
Instability: With the US no longer capable or interested in running the world, there will be more chaos. More war and more general disruptions. Additionally, technology will destabilize traditional structures and economies with unpredictable results. The key for the US and the developed world is to focus on what’s important to them and resist the urge to try to fix the world’s problems. We do not have the capability to solve them.
These will be both trying and exciting times. We will extend lifespan beyond anything in human history and we’ll see terrible tragedies we wish we could prevent but can’t.
Which brings me back to Dune. It’s been years since I read the book and in researching this article, I vaguely remembered that Paul never said, “The sleeper has awakened,” in the book. Only in the original movie.
The closest line in the book is something Duke Leto says:
“We came from Caladan—a paradise world for our form of life. There existed no need on Caladan to build a physical paradise or a paradise of the mind—we could see the actuality all around us. And the price we paid was the price men have always paid for achieving a paradise in this life—we went soft, we lost our edge.”
I think the same thing has happened in the developed world. Things were so good we forgot how to prioritize. The New Rules is my effort to understand how that’s changing. Time to wake up!
Keep learning,
Alan
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