(Source: Miami Herald)
One of the consequences of the erosion of economic conditions in the aftermath of the Global Financial Crisis (GFC) has been a marked deterioration in the quality of politics.
The problem is particularly prevalent in Western democracies, but it has also manifested itself in Hungary, Turkey, Russia, China, Israel, and other countries. It has found expression in rising populism, xenophobia, growing state power at the expense of personal freedoms, and nationalism.
Even more concerning, there has been a marked erosion in the balance of powers as Western politicians have try to bolster their flagging popularity by usurping powers from the press, the civil service, and the judiciary.
The power grab has been taken one step further in the United Kingdom (UK) than elsewhere. By leaving the European Union (EU), the UK has eliminated the scrutiny and checks and balances implicit in EU membership.
Specifically, since leaving the EU successive UK governments have abandoned climate objectives, weakened the rights to strike and protest, and removed regulations protecting the environment (pollution has already reached unsafe levels at some 60% of Britain's popular swimming and water sports).
(Source: The Guardian, 21 November 2023)
The dismantling of checks and balances in the UK and many other Western economies is a serious issue, because the effects are structural and can lead to a self-perpetuating cycle of power grabs.
The driving force behind the attacks on the institutions that hold the executive to account is a desire on the part of politicians to counter the perception among voters that politicians are powerless to reverse the worsening economic conditions since the GFC.
The power grab began shortly after the GFC, when a slew of mainstream politicians were jettisoned for failing to spot the GFC in the first place and then for failing to reverse its effects. The populists who replaced them, such as Donald Trump, Boris Johnson, Geert Wilders, Georgia Meloni, Viktor Orban, and Recep Tayyip Erdogan have gained more traction with voters by identifying scapegoats, who they blame for the malaise. They have also not shied away from putting forward radical solutions to the alleged problems.
Nazism versus Fascism: Many people are marvelling at the fact that many far-Right leaders are backed by and in turn openly support Zionists, including Netanyahu's government in Israel. This confusion arises from a failure to distinguish between Nazism and Fascism. While both are far-Right ideologies, Fascism is not anti-Semitic per se. The recent rise of the far-Right in the West has generally not been associated with strong anti-Semitism. In fact, anti-Islamic sentiment has been far more pronounced within these movements. Instead, what has united the far-Right is conventional fascist ideology, particularly the desire to use the full powers of the state to crush political enemies as well as the various encroachments on checks and balances noted previously. In this regard, Netanyahu's government fits the far-Right bill perfectly, because its policies are clearly neofascist, right down to Netanyahu's attempts to manipulate the judicial system.
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The rate of institutional decline under the populists has been both rapid and multifaceted. Many governments have marginalised or entirely eliminated the traditional role of the civil service to deliver viable policy options to ministers, especially in the politically sensitive areas of health care, education, immigration policies, and social care.
In Turkey and China there has also been some deterioration in macroeconomic policies, although this is not the case for emerging markets in general. I shall return to this point at the end of this note.
The rejection of sound policy advice in favour of purely political advice has politicised policy-making to the point where the quality of policy-making has declined significantly. Today, Western governments undertake fewer economic reforms and long-term investment projects than previously, while decision-making policy has become more myopic and less evidence-based.
This is deeply problematic, because poor policy-making translates directly into worse economic outcomes. A feedback loop has therefore been set in train, whereby worse economic outcomes lead to worse policy-making, which in turn leads to even worse economic outcomes.
This is not in a stable equilibrium.
Rather than seeking to break the vicious cycle, however, the populists are doubling down on bad practices. As things have continued to get worse, the populists have become increasingly obsessed with managing information in order to cover up the economic reality.
Lying has therefore become prolific in Western politics (click here for a proposal for how to bring an end to lying in Western politics ). To facilitate lying, eratwhile independent news organisations have become polarised along political lines - witness Fox versus MSNBC. Meanwhile, the independent media sector has increasingly been sidelined. State media organisations, such as British Broadcasting Corporation, have entirely lost their quasi-independent voice and become an outright government mouth pieces.
Populist leaders have also engaged heavily in scapegoating in order to deflect blame for their own bad performance onto vulnerable groups, such as refugees. Since scapegoating often contravenes the basic rights and protections afforded to victims in domestic and international law, the judiciary has come under heavy pressure. In Britain, for example, the courts have been heavily leaned on as the government has pledged to leave the European Court of Human Rights over the Rwanda refugee rendition policy (see picture below).
(Source: Associated Press, 16 November 2023)
Encroachments on the independence of the judiciary have also taken place in Hungary and Poland, while Donald Trump began to stuff the US Supreme Court with friendly judges during his first presidency. He will undoubtedly want to complete this job if he is elected to the presidency again. If he succeeds, American democracy will genuinely be at risk.
Far-Right populism also poses very grave challenges for the future as it detracts attention away from the much needed solutions to underlying economic issues, which include rising income inequality, declining productivity, environmental degradation as well as the ageing of populations. These issues are, at best, left to linger, at worst made worse by populism.
Perversely, the populists may in fact be deliberately seeking to worsen these problems. For example, rising income inequality probably helps the populists by further eroding trust in mainstream politics. Perhaps this is why no serious effort has been made to bring down income inequality, which remains near the highest level in fifty years (see chart of US income inequality below).
(Source: CPS)
Similarly, UK's purported solution to its economic problems - leaving the EU - has also worsened Britain's already poor economic performance and increased the country's international marginalisation. Yet, there is so far little evidence to suggest that populist policies are being rejected by voters. In fact, the Labour opposition party has largely embraced most of the populist policies of the Tory government, including Brexit itself.
In short, populist politicians have been effective in selling the appearance of political potency, but have delivered only worse economic outcomes. Unless this dynamic changes, Western economies will eventually face serious economic crises. And once the economic crises strike, major political upheavals are sure to follow.
In my opinion, it is not a question whether these crises will happen, but rather when and how.
Timing crises is always notoriously difficult, but it is fairly easy to imagine how the crises might unfold. One scenario is that Western democracies as NATO members get sucked into a major international conflagration akin to World War II. All it takes is that a powerful NATO member state turns to external aggression in order to deflect attention away from its domestic problems. For example, a future Trump presidency could attack China, say, in response to a Chinese re-annexation of Taiwan, triggering a much larger conflict.
Another scenario, which may at first sight seem less horrific, is a rash of smaller isolated conflicts characterised by powerful nations or groups initiating aggressive actions against lesser 'enemies'. In the absence of effective international governance, more powerful nations can bully lesser powers, almost with impunity. This has been the case since since the West shied away from holding Assad to account in for his crimes in Syria, including the use of chemical weapons.
Such smaller isolated conflicts are, in fact, already erupting in many places. For one, the dynamic is playing out in Ukraine, where Russia has unilaterally launched a war against its far smaller neighbour. Another example is Israel's disproportionate response to the Hamas terrorist attack on 7 October. So far, Israel has killed nearly twenty times as many Palestinians as the number of Israelis killed, including more than 5,500 children and 3,300 women none of whom participated in the Hamas attack.
Which of these two scenarios - global conflagration or bloody and unjust local conflicts - is the greater evil? The answer very much depends on one's rate of time preference. Do you prefer a lot of pain upfront but with the prospect of a lengthy period of stability afterwards? Or is your preference lower level conflicts that nevertheless may continue indefinitely?
Clearly, a giant global conflagration would have immediate and huge upfront costs, both in terms of human lives and infrastructure. The world would also have to contend with the tail risk of thermonuclear war. On the other hand, a large global conflagration would likely generate so much outrage that it would usher in a renaissance in multilateralism in its aftermath. After all, this is exactly what happened after both world wars, albeit more successfully following World War II. Greater multilateralism would facilitate a period of greater stability and prosperity, enabling the world to rise from the ashes and prosper as it did following World War II.
By contrast, smaller bilateral conflicts would have lower lower upfront costs. The costs would also be distributed differently as conflicts would be highly localised. On the other hand, low level conflicts could conceivably carry on indefinitely if they fail to generate enough global outrage to trigger a global response. If so, each time a bully initiates a conflict against a lesser nation and wins, his aggression will pay off, encouraging yet more aggression and also encouraging others to pursue similar tactics. This is a world of bullies, where rules have given way to tyranny by the strong and the ruthless.
Of course, both these scenarios may morph into one if the bully nations take things too far as Hitler did when he invaded Poland on 1 September 1939. But there is no guarantee that today's bullies take things too far in which case we may have entered a very long and very dark era of conflict.
Economic stagnation is bound to follow as international corporation becomes progressively more difficult. One should expect further deterioration in international trade and investment - more Trump-style trade wars and China-style sanctions, if you wish. Needless to say, defence costs will also skyrocket at the expense of far more productive investment. There will also be further rapid environmental destruction and adverse climate change due to lack of international agreements to address these problems. This unhappy state of affairs gets even more depressing as migration pressures mount, thereby further fuelling xenophobia and nationalism in rich countries.
Are there any bright spots? Until recently there was reason to believe that younger generations could change the direction of politics, if only their voting power could be mobilised. Brexit, for example, would never have happened if the young had voted. Sadly, the recent election result in the Netherlands seems to crush this hope. The majority of 18-35 year olds in the Netherlands supported far-Right populist Geert Wilders. If this result generalises across Western economies, it suggests that fascism is only be in its infancy with much worse to come.
The other bright spot is emerging markets. It is deeply ironic that the countries least likely to enter the downwards economics/politics spiral of Western economies will be those perceived by many to be most vulnerable to populism. Yet, as reflected most recently in the very prudent monetary policy decisions of the majority of EM central banks (see picture below), EM countries generally do not gamble with economic policy. The reason is simple: most EM populations are poor without access to social security. As such, they are highly vulnerable to business cycle fluctuations, a vulnerability made greater by EM governments' inability to tap global capital markets during times of stress (which means they struggle to do counter-cyclical fiscal policy). This political reality means that to minimise the risk of social discontent (and maximise chances of remaining in office) most EM governments pursue extremely prudent economic policies. While this truth is still very poorly understood in Western policy circles and among investors, it is nevertheless likely to prove an efficient bulwark against the excesses of populism and nationalism that we will see in rich nations in the next few years.
(Source: Financial Times, 21 November 2023)
The End