Friday Macro Sitch Watching: The Grit from the Sandstorm Is Fierce!
When the rules of the game change at a tweet’s notice, the only sane prudence is near-total paralysis, saving for the frantic building of robustness. In a landscape of unknown unknowns, the only rational move is to wait, watch, and insure. Thus in the chaos-monkey economy, optionality is all—and so recession is likely, while stagflation is baked in the cake, and long-term economic relative decline nearly inevitable. And then the sanewashing media adds a fog machine to the sandstorm. And yet Mohamed El-Erian dares to hope for a Reagan-Thatcher-style rebirth. In the Holy Name of the Storm God of the Semites, and his servant the Black Man, why?
It is difficult to know what to think, let alone what to do, in the current macroeconomic moment.
We are told over and over again by the sages of the bond market and the high priests of central banking that the United States stands at a crossroads. But what kind of crossroads? The signposts are written in an unfamiliar dialect. The directions are contradictory. And is it a normal crossroads, at which one decides whether to turn left, go straight, or turn right? Or is it a different thing altogether—one that calls for crying out: “Papa Legba! Ouvri baryè pou mwen, pou m ka pase. Lè m retounen, m’a salye lwa yo!”?
My strong sense is that the uncertainty generated by Trump’s chaos-monkey policy process is less a fog than a sandstorm—one that grinds its way into every crevice of the economic machine, clogging the gears and rendering forward motion both painful and unpredictable. The closest analogy is, of course, BREXIT. As with BREXIT, the U.S. appears to have chosen, by the narrowest of margins and with the most dubious of mandates, a path that is likely have roughly the same effects on it that BREXIT has had on Britain: to leave it a good 10% poorer in a decade than it would have been had the narrow majority chosen the more technocratic and community-minded and less rage-filled and incompetent alternative.
But even if that is the road we are on, what is the path from here to there?Will the next two years bring a near-recession, or a full-blown contraction? Some stagflation, that ghost of the 1970s, appears baked in the cake. But will it manifest with a vengeance, or merely haunt the margins of the economic data? And what will Congress look like in January 2027—will it be a rubber stamp, an impediment, or an institutional casualty of the new order? Will the Supreme Court assist or resist Trump’s increasingly corrupt and authoritarian tendencies?
These are not questions that raise risks to be managed, but rather describe uncertainties. And they call not for the laying of bets vis-à-vis possible futures but rather the building of robustness and the purchase of insurance. In addition to the known unknowns, unknown unknowns infest the decision calculus of every business executive, investor, and household.
Thus the incentives to defer, to postpone, to wait and see, are overwhelming. Why make a major capital investment, hire aggressively, or commit to long-term contracts when the rules of the game may change on a presidential whim, or a late-night tweet inspired by an old episode of “Night Court”? Optionality becomes all. It amplifies the risk of recession, deepens its likely trough if it comes, and prolongs its likely duration.
And yet the very sharp Mohamed El-Erian is, against all odds—optimistic? He sees
the global economy… on a bumpy journey…. We could be hurtling toward recession, stagflation, and the fragmentation of global trade and payments systems. Or we could be in the early stages of a Ronald Reagan- or Margaret Thatcher-style rewiring that will eventually bring greater productivity gains, higher growth potential, less threatening deficits and debt, a fairer trading order, and a more stable payments system…
And I want to say, puzzled: What?! Why?! What is there that sees the possibility of a successful new political-economic order on the point of being born?
El-Erian catalogues:
the volatility in US tariff (and every single other dimension of policy,
the unpredictable reactions from other systemically important countries,
the awakening of the bond vigilantes,
the extra confusion created by Elon Musk’s DOGE, which he sanewashes as an attempted “shrink[ing] or reform[ing] the public sector… raising more questions than answers”, and
strong divergence among professional economists’ forecasts.
And yet, rather than drawing the obvious conclusion that chaos monkeys produce chaos, which is not the friend of growth or prosperity, El-Erian seems to say that opinions of the future consequences of installing Trump in the White House differ. From whence comes the suggestion that there is a good chance we might be at the dawn of something like the Reagan-Thatcher-style Neoliberal Order rewiring: a period of wrenching dislocation that, with the benefit of hindsight, will appear as the necessary prelude to a new order of higher productivity, greater growth, fiscal rectitude, and a more stable global payments system.
Why does he say this? What does he see that I do not?
Is it mere rhetorical balance, a professional deformation acquired through years of writing for a global audience that demands some glimmer of hope? Or does he genuinely discern, beneath the surface tumult, the lineaments of a transformative moment?
Four hypotheses present themselves:
The Professional Optimist’s Imperative: El-Erian, as a public intellectual and market commentator, may feel compelled to offer a “positive scenario” if only to avoid the charge of Cassandraism. His audience—investors, policymakers, the worried well—crave narratives of resilience and adaptation. To deny them this is to risk irrelevance, being shunted aside as a mere doomsayer. The world prefers its forecasters to offer a plausible path to redemption. Thus, El-Erian’s invocation of Reagan and Thatcher may be less a forecast of a possible scenario than a pure act of ritual.
Régime Change as Creative Destruction: Perhaps he genuinely does believe that the current chaos, while painful, is a form of Schumpeterian creative destruction. The Old Order—the post-1980 Neoliberal Order—had run its course. But as the old was dying whatever new thing would come appeared at risk of being stillborn. Many morbid symptoms had already appeared. And only a shock of sufficient magnitude could clear the ground for something new. In this reading, the volatility of a chaos-monkey interregnum is a necessary purgative.
The Limits of Pessimism: El-Erian may be warning against the fallacy of extrapolating from present dysfunction to permanent decline. After all, the American economy has, time and again, absorbed shocks that seemed, in the moment, to portend the end of the republic—only to emerge, battered but unbroken, on the other side. To insist on catastrophe is, in a sense, to deny the possibility of adaptation, improvisation, and institutional learning.
There is the Cynical Signaling Hypothesis. Perhaps El-Erian’s optimism is not intended for the broad public or even for me at all. Perhaps it is intended for a much narrower audience of those with the power to shape American executive-branch decision making. Perhaps it is aimed at the Bessents and Lutnicks and Wileses and their respective Affinities. By invoking the Reagan-Thatcher precedent, he may be attempting to discipline the discourse, to remind policymakers that moments of crisis are also moments of agency, and that their future reputations, comfortable livelihoods, and perhaps lives outside of federal prisons depend on their guiding the Trump administration to some sort of semi-coherent quasi-rational non-ruinous policy. If so, El-Erian would see himself now less as a diagnostician than a would-be midwife, hoping that by naming the possibility of constructive transformation, he can help bring it into being.
But, for us, here and now, the sand is still grinding in the gears, and the fog is not about to lift.
References:
Black, Duncan. 2025. “Uncertainty.” Eschaton, May 23. <https://www.eschatonblog.com/2025/05/uncertainty.html>.
Dixit, Avinash K., & Robert S. Pindyck. 1994. Investment under Uncertainty. Princeton, NJ: Princeton University Press. <https://www.jstor.org/stable/j.ctt7sncv>.
Drezner, Daniel W. 2025. “Real Trumpism Has Not Yet Been Tried.” Drezner’s World, May 20. [danieldrezner.substack.com/p/real-tr...](https://danieldrezner.substack.com/p/real-trumpism-has-not-yet-been-tried.)
El-Erian, Mohamed A. 2025. “Where Is US Economic Policy Taking Us?” Project Syndicate, May 27. <[www.project-syndicate.org/commentar...](https://www.project-syndicate.org/commentary/trump-tariffs-economic-policy-volatility-implications-for-us-and-global-economies-by-mohamed-a-el-erian-2025-05>).
Fox, Justin. 2025. “Economic Uncertainty Has Never Felt This Uncertain.” Bloomberg Opinion, April 17. <https://www.bloomberg.com/opinion/articles/2025-04-17/economic-uncertainty-has-never-felt-this-uncertain>.
Luce, Edward. 2025. “America’s Rising ‘Moron Premium.’” Financial Times, May 27. <https://www.ft.com/content/d9c762c5-64dc-42a6-bf87-b830808ec5b6>.
Roubini, Nouriel. 2025. “Market Discipline Will Prevail in the US.” Project Syndicate, May 29. <https://www.project-syndicate.org/commentary/trump-tariffs-attacks-on-fed-and-immigration-provoking-market-backlash-by-nouriel-roubini-2025-05>.
Weisenthal, Joe, & Tracy Alloway. 2025. “The US Economy Has a Leak.” Bloomberg Odd Lots Newsletter, June 2. <https://www.bloomberg.com/news/newsletters/2025-06-02/the-us-economy-has-a-leak>.
“There are unknown unknowns…” 2025. Wikipedia, last modified May 26. <https://en.wikipedia.org/wiki/There_are_unknown_unknowns>.
Wikipedia. 2024. “Papa Legba...” 2024. Wikipedia. Last modified May 31. <https://en.wikipedia.org/wiki/Papa_Legb>.