Sidestepping totalitarianism
Key Markets report for Friday, 26 June 2026
In my post on Tuesday, titled “If Russia retaliates…” I discussed what might happen if Russia struck at targets in one of NATO member nations. The subject of my musings is related to collective human psychology which, incidentally, is very relevant to the underlying theme of this newsletter: market trends. But from the strictly psychological point of view, perhaps the most authoritative treatment of collective human psychology was developed by Mattias Desmet, professor of clinical psychology at Ghent University in Belgium.
His impressive work on this subject became highly relevant during the Covid 19 pandemic. Desmet’s hypothesis on “mass formation” psychosis draws on Gustave Le Bon’s crowd psychology and Hannah Arendt’s analysis of totalitarianism. He developed it most fully in his 2022 book The Psychology of Totalitarianism and the hypothesis is very consistent with the changes I observed in the collective psychology of people when war broke out in former Yugoslavia in 1991.
Mass formation emerges when four pre-conditions are met simultaneously in a population:
Social atomization — widespread loneliness and lack of meaningful community bonds
Absence of meaning — a sense that life lacks purpose or meaning; this sense gives rise to the following two conditions:
Free-floating anxiety — a pervasive sense of unease with no identifiable object (people feel anxious but can’t point to the cause of their anxiety)
Free-floating frustration and aggression — again, without a clearly identifiable cause
When these conditions exist, the population is susceptible to narratives that provide a concrete object to which people’s anxiety and frustration could attach, for example, a virus or the Russians. The injected narrative also offers venues for collective action against this object at which point the four conditions can snap together explosively.
The diffuse anxiety suddenly has a focus; people’s isolation gives way to a newfound solidarity around fighting the emergent threat. This enables a bonding among people which can give a powerful sense of meaning to individuals. As mass formation takes hold, Desmet suggests that three things happen:
People become hypnotically focused on the narrative object and functionally blind to contradictory evidence
They become intolerant of dissent — not primarily because authorities demand it, but because dissenters threaten the newly-found meaning and solidarity
They become capable of participating in atrocities with genuine moral conviction — what Arendt called the “banality of evil”
These dynamics can lead the society into totalitarianism, which forms both from the top-down (from the authorities), and bottom-up, from populations that are psychologically primed and prepared to willingly surrender to a unifying narrative. In other words, the masses and their leaders co-create this totalitarianism and radical intolerance. This reaches the most radical stage when parents are disposed to denounce their own children to authorities and children their parents.
Desmet gained a great deal of attention during the Covid pandemic, since his analysis framework provided a compelling explanation of what we were experiencing in society at that time. He argued that Western societies almost perfectly fit the conditions for mass formation, providing fertile grounds for irrational fears and ritual compliance, along with an aggressive intolerance of dissenting voices, including the willingness of people to snitch on their neighbors.
Earlier this week, Desmet gave a 36-minute interview to Radio Mrežnica podcast (only the brief intro is in Croatian, the interview is in English) which I highly recommend, particularly for the positive side of Desmet’s argument - it is in the bottom of this report.
Truth: the antidote to totalitarianism
Desmet argued that, while some 20% to 30% of people become “hypnotized” in the mass formation, another 60% or so go along and are unwilling to speak out. The rest would be dissidents. Those who do speak out typically find themselves disappointed as though their words have no effect and their arguments seemingly fall to deaf ears. However, dissent and willingness to speak out are essential in preventing the society from descending to the last, most atrocious stages of the psychosis.
That can take place when dissidents go quiet and the imposed narrative goes entirely unchallenged. At that point, masses tend to turn cruel, seeking to eliminate all who fail to go along with the program, or whose dedication to the common cause is suspect. The examples of this stage would be the USSR in the earlz 1920s or Nazi Germany during the 1930s. Desmet alleged that in those societies, when the dissenting voices went silent, within six months violent destruction of “infidels” began.
Dissent matters
Although dissident voices may not be able to wake up the hypnotized crowds, by continuing to speak out they continuously disturb the hypnosis process, penetrating through the veil of appearances. As a result, the emerging totalitarian system faces headwinds and ultimately destroys itself before it can destroy the resistance. Totalitarian states, says Desmet, always, inevitably destroy themselves because, in diverging from truth they become alienated and the social bonds between totalitarians disintegrate. To prevent the descent into totalitarianism, Desmet suggests that it’s essential to persevere in speaking the truth, but without any illusion that such speech will actually persuade very many people.
As we all experienced during the Covid 19 pandemic, it’s certainly true that there were many people inclined to snitch on others and many who advocated forcing the “antivaxxers” to take up the shots whether they wanted it or not, or removing them from society. Even intellectual giants like Nassim Nicholas Taleb and Noam Chomsky were among them and if Desmet is right, we have the dissidents to thank that the “New Normal” disintegrated before it could turn into a dark totalitarianism.
The dissidents were many and some of them paid a very high price for speaking out. But speak out they did and in doing so they certainly penetrated through the veil of appearances. We also have the Internet and Social Media to thank because without these platforms, we wouldn’t have been able to hear many voices of dissent. Hopefully, this same dynamic will continue defeating future attempts to bring about totalitarian rule. Mattias Desmet’s most recent interview is below:
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Today’s trading signals
With yesterday’s closing prices we have the following changes for the Key Markets portfolio:
