
The U.S. slide into authoritarianism
As an investor witnessing more than three decades of booms and busts, I find it increasingly difficult to separate investing from politics, especially when political figures have a harmful, toxic, and deleterious impact on investment performance. I am frequently told by those who disagree to stay in my lane and steer clear of politics, but under Trump, the two subjects are intertwined. I believe it’s impossible to peer into the future – where investment returns are produced – and ignore Trump’s impact, and therefore, his intentions.
The re-election of Donald Trump to the U.S. presidency in 2024 has inarguably reignited concerns about the state of American democracy. Frighteningly, for me, the response this time is markedly different from 2016. As Foreign Affairs noted in its March/April 2025 edition, “Donald Trump’s first election to the presidency in 2016 triggered an energetic defense of democracy from the American establishment. But his return to office has been met with striking indifference.” This shift in attitude comes at a perilous moment, as the United States faces unprecedented democratic backsliding.
As investors, we must consider the future, and I for one, cannot help but consider the mechanisms and implications of what appears clearly to me to be a slide toward competitive authoritarianism, a framework where elections persist but are skewed by the incumbent’s abuse of state power.
Indeed, I find it remarkable that many investors focus solely on company earnings growth for the next few years. While it is our job to do just that, we shouldn’t pretend to operate in a bubble, especially when the geopolitical landscape is experiencing a tectonic shift. Even if we cannot factor the outcomes into our revenue and EBITA modelling, we should at least devote some thought to whether there are ways to prepare portfolios through partial diversification, perhaps into non-public assets.
Over the past decade, the United States has experienced a steady erosion of democratic standards. As Foreign Affairs notes, according to Freedom House’s global freedom index, the U.S. score dropped from 92 in 2014 to 83 by 2021, placing it below Argentina and on par with Panama and Romania. This decline reflects weakened institutional checks, with Trump’s 2020 attempt to overturn the election results going unpunished by Congress or the judiciary.
More recently, Trump’s 2024 campaign openly embraced authoritarian rhetoric, promising to prosecute opponents, suppress media, and use military force against protests – promises bolstered by a Supreme Court ruling granting Trump broad presidential immunity.
Unlike his first term, where inexperience and internal party resistance limited his actions, Trump now commands a loyal Republican Party. “Democracy survived Trump’s first term because he had no experience, plan, or team… This time, Trump has clarified that he intends to govern with loyalists.” This loyalty, coupled with a purged party, sets the stage for a more deliberate authoritarian agenda.
Witness most recently the threat to arrest Gavin Newsom, the Governor of California. Newson has responded this week, stating “What’s happening is unlike anything we’ve seen before”, adding, “This isn’t just about protests here in Los Angeles. When Donald Trump sought blanket authority to commandeer the National Guard, he made that order apply to every state in this nation.”
Despite the riots in L.A. winding down and being concentrated in just a few square blocks downtown, Trump chose to create a crisis, incite chaos and violence and by so doing create support for the taking of more control.
Trump has repeated invoked crises allowing special powers to be spuriously applied. The L.A. riots were a response to this. As Newsom noted, “California is no stranger to immigration enforcement, but instead of focusing on undocumented immigrants with serious criminal records and people with final deportation orders, a strategy both parties have long supported, this Administration is pushing mass deportations, indiscriminately targeting hard working immigrant families regardless of their roots or risk.”
Trump created the crisis, justifying more control to quell it.
“Putting out a fire you start, doesn’t make you a firefighter, it makes you an arsonist with a hose.” Jimmy Kimmel.
Source: Jimmy Kimmel Live
The U.S. doesn’t have a problem, Trump creates the problems. Consider Trump’s North Korean-esque military parade, arranged at a cost of US$206 million to mark his birthday. He has already promised to invoke the Insurrection Act if anyone protests, stating anyone who protests “hates our country”.
Perhaps one, if only slightly, encouraging observation is the United States is not sliding toward a classic dictatorship but toward competitive authoritarianism, where elections occur but are unfairly tilted. According to Foreign Affairs, what lies ahead for the U.S. is not a “fascist or single-party dictatorship but competitive authoritarianism—a system in which parties compete in elections but the incumbent’s abuse of power tilts the playing field against the opposition.” Examples include Hungary under Viktor Orban and Turkey under Recep Tayyip Erdogan, where opposition exists but faces systemic disadvantages.
This system emerges through the weaponisation of state institutions. The U.S. federal government, with its US$7 trillion budget and over two million employees, wields immense power over political, economic, and social spheres.
“Even in countries such as the United States that have relatively small, laissez-faire governments, this authority creates a plethora of opportunities for leaders to reward allies and punish opponents.” Foreign Affairs.
Trump’s reinstatement of Schedule F, an executive order allowing the conversion of tens of thousands of civil servants into at-will employees, threatens to replace professionals with loyalists, mirroring tactics used by autocrats like Orban and Erdogan.
One hallmark of competitive authoritarianism is using state agencies to target critics. Trump’s nominees, such as Pam Bondi for Attorney General and Kash Patel for FBI director, have signalled intent to prosecute rivals. Indeed, he has openly declared his intention to prosecute former Republican Representative Liz Cheney, and while convictions may be rare due to independent courts, the harassment, through investigations, audits, or lawsuits, deters opposition because individuals are forced to “devote considerable time, energy, and resources to defending themselves.”.
Beyond punishment, Trump co-opts elites through rewards. Witness the markets observation of Trump making pronouncements that adversely impact the price of certain assets, then reversing course, resulting in prices rising again and, in the process, rewarding his allies. Consider also the drill, drill, drill campaign to reinstate mining, even in national parks, directly rewarding friends and family and engendering support from large corporations, even if the policies harm staff.
Meanwhile, businesses, media, and universities, fearing regulatory or legal repercussions, may align with the administration, as we have seen with CEOs from Amazon, Google, and others who donated heavily to Trump’s inauguration, a 180-degree shift from their previous criticism.
A weaponised state also protects allies from accountability. Trump’s pardon of January 6 insurrectionists signals tolerance for political violence, a tactic with historical precedent. As Foreign Affairs notes, “During and after Reconstruction, the Ku Klux Klan… waged violent terror campaigns… made possible by the collusion of state and local law enforcement.” This protection emboldens extremists, increasing risks for critics and journalists.
The chilling effect of state harassment could sideline opposition, as Foreign Affairs observed, “the heightened cost of public opposition will lead many… to retreat to the political sidelines.” This self-censorship, though less visible, could erode democratic vitality by discouraging new activists, journalists, and politicians.
I believe the United States stands at a crossroads. The Trump administration’s moves to weaponise state institutions threaten the foundations of liberal democracy, pushing the nation toward competitive authoritarianism. While constitutional safeguards and societal resilience offer hope, the opposition must remain vigilant. As Foreign Affairs warns, “When fear, exhaustion, or resignation crowds out citizens’ commitment to democracy, emergent authoritarianism begins to take root.” The fight to preserve democracy requires sustained resistance, lest the U.S. slide further into an unfair and uncompetitive political and financial arena.
xiao fang xu
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Authoritarian Freedom by Neville Kennard, the founder of Kennards Hire
Democracy worship is the religion of the times.
Would you rather live in a democratic regime that taxed 50% of the Gross National Product (that is, took half of what people earned) while giving the semblance of freedom under the guise of “democracy,” or would you rather an authoritarian non-democratic regime where only 20% (or less) of your earnings and spending was taken? Or even where none of your income or property was appropriated by the regime?
Would you rather live where you had a substantial amount of personal economic clout, but not much political clout; or one where you had a struggle for economic clout and freedom, but where you could vote on things political?
Hong Kong, the Special Economic Region of China, is an example of authoritarian economic freedom, while the welfare states of Europe are examples of political freedom.
Hong Kong thrives while Old Europe struggles. Hong Kong ranks #1 on the Heritage Foundation’s Economic Freedom Index.
Another place of authoritarian freedom is Singapore. Low taxes, property rights, free trade, ever-growing prosperity, but some restraints on political and personal freedom (chewing gum, for example, is banned in Singapore). Now would you rather live and work and keep most of your earnings in Singapore, and go without chewing gum and some constraints in regard to criticising the regime, or be free to chew and spit while paying half your earnings and spending in taxes in a European Union country? Singapore ranks #2 in the World Economic Freedom Index.
Roger Montgomery
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You haven’t really given me a choice. One choice is a fake democracy and the other choice is a real dictator. How about we choose real democracy?
xiao fang xu
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Monarchy and War by Erik von Kuehnelt-Leddihn
As a rationalist and a liberal (in the worldwide sense rather than in the American sense), I am also a monarchist who realizes that monarchy, combined with Christianity and Antiquity, was responsible for the rise and flowering of Western civilization,
https://mises.org/journal-libertarian-studies/monarchy-and-war
Antoine de Rivarol:
Le prince absolu peut être un Néron, mais il est quelquefois Titus ou Marc-Aurèle; le peuple est souvent Néron, et jamais Marc-Aurèl. The absolute ruler may be a Nero, but he is sometimes a Titus or a Marcus Aurelius; the people is often Nero, but never Marcus Aurelius.
Clergyman Mather Byles Loyalist, famously said “Which is better: to be ruled by one tyrant three thousand miles away or by three thousand tyrants one mile away? ”
Erik von Kuehnelt-Leddihn
Even 51 per cent of a nation can establish a totalitarian and dictatorial règime, suppress minorities, and still remain democratic; there is, as we have said, little doubt that the American Congress and the French Chambre have a power over their respective nations which would rouse the envy of a Louis XIV or a George III were they alive today.
Roger Montgomery
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Thanks again for sharing those aphorisms.
xiao fang xu
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Last time western world was free, was before World War One. Government was small and limited and taxes were around 6%. In USA no income tax.
Authoritarian vs Totalitarian
Erik von Kuehnelt-Leddihn:
Our freedom, after all, is menaced far more by the totalitarian than by the authoritarian principles. The latter came into being with our first parents, the former was born by the French Revolution.
Reflections on the French revolution by Edmund Burke:
If I recollect rightly, Aristotle observes that a democracy has many striking points of resemblance with a tyranny. Of this I am certain, that in a democracy the majority of the citizens is capable of exercising the most cruel oppressions upon the minority whenever strong divisions prevail in that kind of polity, as they often must; and that oppression of the minority will extend to far greater numbers, and will be carried on with much greater fury, than can almost ever be apprehended from the dominion of a single sceptre. In such a popular persecution, individual sufferers are in a much more deplorable condition than in any other. Under a cruel prince they have the balmy compassion of mankind to assuage the smart of their wounds; they have the plaudits of the people to animate their generous constancy under their sufferings : but those who are subjected to wrong under multitudes, are deprived of all external consolation. They seem deserted by mankind, overpowered by a conspiracy of their whole species.
Jacob Leib Talmon in his book: The Origins of Totalitarian Democracy quoted Alexis de Tocqueville:
“I think that the species of oppression by which democratic nations are menaced is unlike anything that ever before existed in the world.… The supreme power then extends its arm over the whole community. It covers the surface of society with a network of small, complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate to rise above the crowd. The will of man is not shattered, but softened, bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to be nothing better than a flock of timid and industrious animals, of which the government is the shepherd.” —Alexis de Tocqueville