American winter – calamity awaits the once-great country

I was wrong. Before last year’s US presidential election I said that it wasn’t the most consequential in a generation (or such longer period offered by breathless commentators); it would be no more so that the elections of 2016 (which could have done for Trump altogether) or 2020 (a weaker argument there…). A new Trump administration would soon sink into chaos and drift – a bit like Boris Johnson’s British government following the December 2019 election. In fact the new US administration is revolutionary; it is changing things as radically as the Roosevelt presidency of 1933. The election of Kamala Harris would have stopped this, and probably done for Trump for good – though who knows what would have been cooked up for 2024.

Even after the election I compared the new regime to Mr Johnson’s, though I also offered Hitler’s 1933 ascension into the chancellery as a comparison. This latter is now looking the stronger parallel. Hitler was no details man, but set a vision in which groups of underlings competed with each other to destroy the old regime, with varying levels of competence, though with more violence than the current US regime has shown so far. The chaos that I predicted has indeed come to pass, but it has not stopped the destruction. And the checks to presidential power that I had thought might come into play seem to have been neutralised. Congress has been bypassed, and the Republican majorities seem to be shrugging this off, and offering little challenge. The courts have been stacked in the new regime’s favour – as evidenced by the shocking extension to presidential immunity made by the Supreme Court last year. A doctrine of unchecked presidential authority is taking hold. Even states’ power, a cornerstone of the Republican anti-establishment rhetoric until now, is being undermined. Mr Trump’s underlings, up to the level of Vice President, openly talk of ignoring court rulings anyway; it isn’t clear what could stop them. It will be no surprise if moves are made to further undermine the democratic standards of elections.

Pretty much all of this was predicted before the election, with plenty of evidential support. While I was broadly right on the administration’s economic policies, unlike many who really should have known better, I failed to understand what was coming for the reordering of the state itself. Not all that is happening is necessarily bad. Many aspects of the state work poorly, and sometimes shock treatment – “move fast and break things”- is the best way to achieve radical change. The problem is I have no confidence in the good faith or competence of this revolution’s leaders. This is the contrast with Roosevelt. They are leading their country to a bad place.

It starts with a complete failure to understand how a modern economy works. The country’s large trade deficit is not a sign of failure – of being ripped-off by foreigners – but a sign of economic success. As Americans become more wealthy, demand for non-tradable goods and especially services grows; to make room for extra supply of these things the country must import more tradable goods and export less. This is easy to fund as the country is attractive to foreign capital. It follows that trying to reverse this, by balancing trade and bringing more manufacturing “home”, the gains will be reversed. America becomes poorer. It’s worse than that, because the government is trying to put the toothpaste back into the tube, and its policies, notably punitive tariffs, are likely to to cause economic harm with doing much corresponding good. Whether this is leading to recession is an open question, but inflation and stagnation are a stronger bet. It is not what so many Trump voters thought they were going to get.

Then there is foreign relations, though this may be less of a concern to most voters. The abrupt tearing up of treaties and promises is destroying trust, which will ultimately make things harder for America. Bullying works by picking weaker subjects off; it doesn’t work when you are trying to bully the whole world. The regime might achieve a ceasefire in Ukraine, and at least a temporary halt to the killing. But its bullying of Ukraine while soft-pedalling Russia boads ill for longer term results. Likewise the regime is giving succour to the Israeli hard right, whose ultimate aim is ethnic cleansing. That does not bode well for long term peace. It will also ultimately undermine dealing with other Middle Eastern regimes. In the Far East things are unclear. The Trump regime is full of China hawks, but Trump himself is more ambiguous. The China hawks are useful for the securing of better relations with Russia, something Mr Trump clearly wants. But he can discard them when it comes to Taiwan, and China may get its opportunity to make the island into its control, which would be a disaster for America.

And what of Americans welfare (pensions and healthcare) and government services? These are being run down, and run by Trump loyalists rather than people with competence. These will surely be weakened. Corruption is likely to take hold.

Meanwhile Mr Trump has a solid base of fanatical support. These are a combination of frustrated conservatives who love that their side is doling it out to the hated liberals, and crooks and chancers who spy opportunities to turn a profit. They will not acknowledge failure, blaming things that go wrong on an array of conspiracies and usual suspects. There seem to be enough of them to keep the regime going. Others will be afraid to speak out or act out of line. Freedom of speech may have been a conservative rallying cry, but, likes states’ rights and rule of law, they don’t mean it.

The question now is whether things will go badly or very badly. In the latter case democracy is subverted and the current regime retains and extends power beyond Trump’s four year term. A successor is found – and there are clearly a number of candidates. I don’t think this is likely. The regime will increasingly be hobbled by infighting, made more vicious by a record of failure. Mr Trump’s charisma will start to fail. Opposition will cling on in many states, and even the judiciary might draw a line. 

But a winter approaches. This is not a good time to be an American.

First published on Substack

Are there modern lessons from slavery compensation?

In the 1837 the British government passed the Slavery Compensation Act, whereby slave owners were paid compensation following the emancipation of slaves in the British Empire. Recently I started to think about this given the repeated claims that governments can’t afford to do things: such things as extra defence spending, investing in the green transition, compensating WASPI women, and so on. The slavery compensation was substantial, but government finances weren’t derailed. Surely the question of affordability shouldn’t be reduced to the level of household budgeting? Sometimes it is quite safe for governments to spend freely without raising taxes. I did some gentle internet research. I was a bit shocked.

What shocked me was that nobody seemed very interested in how the British government was able to afford the compensation, or what the economic consequences of the scheme were. Instead they focus on political questions. More recently this has turned on the injustice of slave owners being compensated for an immoral practice, while the slaves received no monetary compensation at all. This, then, inevitably, gets tangled in the question of modern demands for slavery compensation, promoted by Caribbean governments in particular. You would have thought that the economic questions would have interested writers considering these issues, but apparently not.

The amount of compensation was £20 million. That was about 5% of GDP, by modern estimates (such things weren’t measured at the time). It was, apparently 40% of the Treasury budget – an oft-quoted figure though it isn’t explained whether that is the budget before or after the compensation. Overall government receipts at this point were about 10% of GDP. At the time government debt was about 150% of GDP, a legacy of the Napoleonic wars. There was no income tax, with government revenue primarily drawn from excise duties on imports (notably foodstuffs, including, notoriously, imported corn) and alcohol. So this was a substantial sum, paid when government revenues were highly constrained, and debt at very high levels. Much of it was paid through annuities (only finally bought out in 2015). This would have greatly softened the impact on government finances – but for the most part the receivers of compensation sold their annuities for cash, so the impact would have been significant on the economy as a whole. 

What about this impact? I have seen two things mentioned. A television documentary I saw on the topic a while ago suggested that much of the funding was invested in industrial infrastructure, and railways in particular, and so helped promote the industrial transformation of Britain. The Wikipedia article I have linked above suggests that it contributed to a banking crisis – though since the main ones in Britain were in 1825 and 1866, it could not have been all that serious. I have been unable follow the reference to the article that suggested this. 

A general survey of historic government finances by the Office for Budget Responsibility (OBR) fails to mention the episode. Income tax was introduced (or re-introduced, as it had been used in the Napoleonic Wars) in 1841, following the abolition of the Corn Laws, which reduced excise revenues. Government debt steadily fell until it was 40% of GDP at the outbreak of the First World War in 1914. This was primarily due to economic growth – the level of government revenue fell to about 6-7% until the Boer War in 1900, when it returned to 10%. This era saw little inflation – attributed to strict adherence to the Gold Standard.

A further modern article on the topic of how the compensation was afforded suggests that the debt for compensation was paid off by taxes from the freed slaves – with the author getting appropriately worked up about the injustice. It is very hard to see how that could have been the case. This looks like yet another example of economic illiteracy amongst commentators and historians. And that is as far as I was able to get. There seems to be no generally available study of the economic impact of slavery compensation. It appears to have been shrugged off at the time as well as later.

It occurs to me that ignorance about economic history is widespread and almost wilful. An example is the belief that Britain lived off its empire – that the relative wealth of British people was at the expense of poverty in the colonies. Economists that have tried to substantiate this idea have failed. Indeed the loss of Empire in the later 20th Century coincided with a period of significant growth. The economics of slavery is doubtless mired in similar ignorance. In this case though the impact of wealth made in the sugar and cotton trades, dominated by slavery in the West Indies and America, is very visible in such places as Bristol, Glasgow and Liverpool. Still, I doubt that anybody has attempted to construct counterfactuals with the use of free labour or alternative sources of trade. It remains a very influential political narrative – that British economic success was built on the slave trade. This is not wholly implausible (unlike the story of ex-slaves paying off the compensation debt), but surely the picture is far more complex. Germany had no slave trade but built an economy that became just as powerful as Britain’s in the 19th Century.

I was hoping to use the episode as example of how governments can make substantial financial commitments without having to raise taxes. That is hard to pin down as the financial system was very different. The government was able to make the settlement using perpetual debt – which is the easiest form of debt to service, though still requiring interest payments. That would not be done today. On the other hand, since most recipients appear to have sold their bonds, there would have a substantial cash injection into the economy. What was the impact?

The first thing to remember is that money is just a social convention: it’s not for real. It’s a lubricant and not a fuel. Overall what matters is how we use real resources – labour, infrastructure, and so on. Slavery compensation created a financial windfall without directly adding to resources – potentially boosting demand without any corresponding boost to the supply side. In a modern economy that could lead to inflation. In Victorian times it could cause financial dislocation – so linking it to a banking crisis is plausible, even if it is hard to pin down what the crisis actually amounted to. 

If a financial windfall is not spent immediately, however, but simply banked or invested, then the impact on the balance of supply and demand is limited. If this translates into immediate investment spending, however, such as building railway lines, then the same problems may arise – depending on the exact circumstances. It is usually reckoned that a surge in investment spending is easier to accommodate and consumption, however – and it should, after all, lead to an increase in productive capacity. The idea of the windfall helping to propel industrial capacity and growth is therefore quite plausible. If the money is directed abroad, then it won’t impact the domestic economy either. The Wikipedia article suggests that this might have been the case for slavery compensation. But I find myself in a fact-free zone.

What of modern times? Government is much larger, with revenue at about 40% of GDP, and debt smaller, at about 100%. The currency is freely floating, but under domestic control – unlike the days of the Gold Standard. Inflation is a constant threat now in a way that it wasn’t then. There are two particular problems with large government spending commitments. The first is that the impact could be inflationary, if the recipients quickly add to overall economic demand without any corresponding supply boost. The most effective counter to this is to raise taxes to reduce demand by a corresponding amount – or “funding” the spending. But not all taxes are created equal here: capital taxes, or taxes restricted to the very wealthy, affect demand by much less. Alas very few people in the current political debate have grasped this – instead thinking of this as an analogous to household budgeting. A recent example of this debate is the green investment splurge initiated by President Joe Biden’s administration. This is alleged by Republicans to have caused an inflationary surge. And yet the increase in American inflation was hardly different to other countries that were managed much more conservatively.

The second problem with government spending splurges is on the capital markets. The government may need to fund the spending through raising debt. The capacity of the market to do so is limited, though nobody is sure by how much. The government can fund the debt through the creation of money too – but this creates problems of its own (leading straight back to the inflation problem). Also if a country, like Britain, needs to sell the debt to foreign investors there may be constraints. Ultimately the government may have to borrow in foreign currency to bring such investors in – something that adds hugely to the financial risks. Britain has never been forced to do this – but is that because the Treasury is run so conservatively? It was the financial markets that undid Liz Truss in 2023. But Ms Truss was particularly inept – and we should be careful about using this as a general warning about increasing government debt. There are solutions, other than raising taxes on income and consumption – capital taxes can be used to balance the books, or the markets can be convinced that the government will continue to have the capacity to honour the debt. This would be the case if the finance was to be used for capital projects with a good return – including boosting economic growth and tax receipts.

So let’s think about three examples where people are advocating the government boost spending: defence, green investment and the WASPI women. Defence is the most straightforward. Expenditure is likely to be fed back fairly directly into demand, without a corresponding increase in productive capacity. Economic resources are to be repurposed, from things like healthcare and consumption, to armed forces and munitions. This is likely to be inflationary if not supported by tax rises – and these need to be on income tax, national insurance or VAT to work properly. Or else by reducing public spending elsewhere. This is why it is such a political challenge for the current government. I have heard more than one commentator suggest that defence spending can boost growth – but alas that is more economic illiteracy. This is only the case if it is used to soak up spare capacity in the economy (which was the case in the 1930s, for example). This is doubtful now, unless there is a way of bringing back lots of people from sick leave and retirement. It is sometimes said that war spending has boosted the Russian economy – but inflation is growing there, so this growth is illusory. There is a lot of activity but people generally aren’t better off.

The green transition is another matter. Here the funding is being used on capital projects that boost infrastructure. For the most part these projects have clear economic benefits – especially when used to boost solar power, whose economic benefits could be substantial. Carbon capture and storage, used to prolong the use of fossil fuels, is an exception here: this looks like deadweight loss. The Labour Party suggested that it would raise £80 billion a year for a hugely ambitious programme – but then they lost their nerve and scaled back drastically. The number was a bit of a nonsense, admittedly, but the idea that the government could fund substantial green energy projects through borrowing is perfectly plausible. Of course to the extent that energy is a profitable business, a lot of this could be done through the private sector – but a lot of the infrastructure probably is best done through public ownership, and in particular the electricity grid. The government is being too cautious.

How about the WASPI women? This case is closest to slave compensation. The WASPI women were those adversely affected by in an increase on pension age, equalising it with men. They claim that they weren’t informed of the change in time to do anything about it. I haven’t been following the debate in detail, though I am instinctively sceptical of the merits of their case. Still, many politicians, including those leading the current government, have expressed support for compensation in the past. I see that an amount of a bout £60 billion has been suggested – or about 2.5% of GDP. As a one-off cost this does not have the same implications as increasing defence spending, for example. In particular it is unlikely to have a huge immediate effect on demand. A lot of the money will be saved and invested. The people concerned are retired, and doubtless want to improve their lifestyle, but they are also likely to be conservative about it, and save much of it initially. It is unlikely to do much for economic growth, however, though to the extent that the funds are used for investment, there might be some benefit; if people use it to stop working, however, there would be a negative impact. The whole thing is probably much more affordable than it looks – not unlike the slavery compensation.

Alas we will not have a sensible debate on this. Doubtless the government fears that if it gave ground on the WASPI women, it would give a boost to many other aggrieved parties (those in leasehold flats, for example). Still the costs of economic illiteracy are great indeed if governments are needlessly constrained.

President Trump grapples with the Ukraine problem. It’s harder than he thought

I am finding it much easier to blog on Substack that here, and I’m starting to think that I should stop posting here at all, and subscribe my loyal email followers directly to Substack.

Anyway, I posted on Substack last week on the topic of Ukraine, and then went abroad for a few days – not posting it here. I returned yesterday and I’ve done an update. I’m posting both here.

Here’s the first, posted on 17 February

What can Trump achieve in Ukraine?

Don’t expect a lasting settlement

Gloom is spreading over European politicians as the nature of the USA’s Trump administration becomes more explicit. They are joining the legions of people shocked by that regime doing pretty much what they said they were going to do, and having to discard to the more optimistic gloss that they had been hoping for. Commentary is being overwhelmed by this sense of shock, which is not very helpful for people trying to understand what is happening. The forthcoming negotiation over the Ukraine war is about three things: a ceasefire, American military and financial support for Ukraine, and sanctions. The Trump regime simply doesn’t have the bandwidth to deal with more complicated problems, like a territorial settlement or a long-term security architecture.

First, let’s look at these three in turn. I have no doubt that Donald Trump sincerely wants the killing to stop. For all his violent talk he is actually quite squeamish about violence – and he craves the recognition that he would get from halting the actual exchange of fire. The only practical way of achieving this is an early ceasefire based on the current position of the two sides, pending some further form of negotiation – in which his regime will not really engage. Other members of the regime, such as the Vice President, JD Vance, are probably less bothered by this, however. And Russia does not want a ceasefire without getting more of what it wants to neutralise Ukraine and make it easier to attack at a future date. 

The biggest prize for the Trump regime is to stop financial and military aid to Ukraine. They have developed a narrative that this aid is creating hardship in America itself – and this seems to be accepted by the bulk of their supporters. They imagine that cutting all foreign aid (excepting Israel, of course), and waste within Federal bureaucracy, will transform the country’s budget deficit problem. Many senior people in the administration, including the President, almost certainly believe this. In fact it is only by tackling Social Security (i.e. state pensions) and health spending that a serious dent in the US finances will be made; that is off-limits. This is weakest part of the regime’s negotiating position. Russia thinks that it can win relatively easily if this support is withdrawn – after all the turning point in the war so far came when US aid was suspended at the end of 2023. However this does offer US leverage over Ukraine.

America’s negotiating position is much stronger when it comes to sanctions. Europe has a stronger incentive to lift these than America does – as that would allow European countries to diversify their sources of natural gas – and away from America. Because of this strength, the Trump regime is placing huge reliance on it. It is hard to know how important this is to the Russians.

The American hope is that the lifting of sanctions will be enough for Russia to agree to an immediate ceasefire, and that the prospect of loss of American aid will do the same for Ukraine. This might be combined with a limited swap of territory: with Ukraine withdrawing from the Kursk region, and Russia from the Kharkiv one. Some kind of negotiation process would then be put in place for a longer term settlement that will never in fact happen. America will block Ukraine’s access to NATO – but they will be unable to stop European countries from giving security guarantees. It is by no means impossible that the US will withdraw from NATO, meaning that it can’t veto Ukraine’s entry, but limiting the value of its worth. It is more likely that Mr Trump will seek to neutralise NATO by sitting fat, dumb and ugly inside its structure – much as the country does within the World Trade Organisation.

What if this plan doesn’t work? Russia calculates that America will stop its assistance anyway, and may not be so worried about the lifting of sanctions. And they might hope to talk Mr Trump into lifting them anyway. That may be too optimistic on Russia’s part. Mr Trump can sense when he’s being stitched up, and will walk away abruptly when he does. That is what happened in his attempt to negotiate a deal with North Korea – and this has many similarities. What happens then? My best guess is that US aid would continue, but would be renegotiated with Ukraine’s European supporters, and with Ukraine itself. The gloomier prospect is that he will walk away from the whole thing, blaming Ukraine and Europe, and ending the aid – which is the outcome Russia seeks.

This is putting the European powers in a tough position, as they at last recognise. If the war continues, they need to find an effective way of continuing to support Ukraine. This is, after all, the most cost-effective way to keep Russia at bay. If there is a ceasefire, then they need to reevaluate the Russian threat, in the knowledge that American support will be limited at best.

Much has been made of America giving away part of its negotiating position in advance. But there are many ways to negotiate and you shouldn’t listen to so-called experts on this. In negotiating terms The American government has put the ball in the Russian court. The Russians will be expected to move from their own hardline negotiating position in order to give proceedings a start – though they are unlikely to do this in public. An immediate ceasefire will be the critical point, though, and I doubt that they will concede this early. 

Donald Trump is not a great negotiator on the international scene – but he isn’t a dummy either. A ceasefire and frozen conflict is not the best outcome, but it would be an improvement on what is happening now. No better outcome is available for the time being. We must hope that Mr Trump has the patience to secure it.

And here’s the update, posted today, 23 February

How are the Ukraine negotiations going?

Not well, but there is hope

I posted last week on President Donald Trump’s negotiations to end the Ukraine war. I said that they would revolve around three things – a ceasefire, ending US aid to Ukraine, and lifting sanctions on Russia. There would be no long-term resolution of the dispute, which would be kicked into the long grass. How is it looking?

The Americans say that they are seeking a long-term resolution, rather than my rather short-term analysis. My prediction is that they will find this hard going. Russia is offering its own version of a long term resolution, but this will prove unacceptable to the Ukrainian government, even under extreme duress. Moving Russia from its solution will be just as hard.

The remarkable thing about events so far is that there seems to have been little negotiation at all. Mr Trump has spoken to the Russian and Ukrainian presidents; Russian and American officials have met in Saudi Arabia; the Americans have tried to strong-arm Ukraine in giving up mineral rights to the US in return for nothing – supposedly to recoup past American aid. Following the first of these Mr Trump has parroted Russian talking points, such as the war being Ukraine’s fault, and that President Volodymyr Zelensky’s mandate has expired, on top of his flat rejection of most ofUkraine’s war aims (starting with the reclamation of lost territory). After the talks in Saudi, American officials gushed about the business opportunities available in Russia for American businesses. But Marco Rubio, the Secretary of State, did not offer a date for a meeting between the Mr Trump and Vladimir Putin, the Russian president; he said this would be done once the Russians proved that they were serious. In other words the Russians hadn’t shown they were serious yet. I take this to mean that they haven’t offered a ceasefire. Mr Trump then backtracked on some of his remarks, and appeared to be showing the Ukrainians slightly more respect. 

The Russians are cock-a-hoop. Their plan is to get America to stop its aid and lift sanctions, without giving away a ceasefire, and then to force Ukraine into a humiliating defeat. Ukraine would be seriously hobbled if it lost access to the US Starlink system and to American Patriot missiles, if nothing else. They think things are going their way, because the Americans, and Mr Trump in particular, seem to be conceding all their negotiating points without a fight. This is surely too optimistic on their part.

What to make of the American attempt to bully Ukraine into conceding mineral rights? The curious thing about this is that it would give America a stake in a continuing Ukraine – especially since many of the minerals in question are in the Russian-occupied zone. Those rights would not be secure if Russia got its way in Ukraine – it would violate Russia’s sphere of influence. It is for this reason that Mr Zelensky may give ground on this. It would also be pretty useless without a ceasefire.

The Russians are not responding to Mr Trump’s negotiating tactics, which seem to a sort of tennis strategy – I make a concession and then it’s your turn. They are going to have to try putting real pressure on Russia for them to offer a ceasefire. I’m not sure that has dawned on Mr Trump yet. But it must have on some of his advisers – even if others (including the Vice President J D Vance perhaps) would happily cut Ukraine off and walk away.

What has become crystal clear, though, is that Mr Trump has no idea what the war is about. He seems to think that it was a stupid misunderstanding that got out of hand. He hasn’t grasped that for Russia the war is about incorporating Ukraine into its polity and suppressing Ukrainian nationalism – and for Ukrainians it is a desperate fight to stop this from happening. It is all much more serious that he appears to think. And it’s all much harder than he thought to stop it. 

I’m clinging to the hope that Mr Trump will realise that he is being stitched up by the Russians and start getting tough. And I’m sticking to my original prediction.

Is Rachel Reeves looking backwards or forwards?

Her growth ideas are a blast from the past

I have never really warmed to Rachel Reeves, Britain’s Chancellor of the Exchequer. She hid behind a wooden exterior without revealing anything beyond carefully-crafted PR messages. Still, she was eminently qualified for the job (more so than most of her predecessors) and she has helped transform Labour’s credibility, when her predecessor in the shadow role, Annaliese Dodds, was floundering. I also want to keep my inner misogynist in check: I bristle at a certain type of smartly-dressed, carefully presented, armour-plated, middle-class Labour female politician that has been prominent since New Labour days in the 1990s. I have been giving her the benefit of the doubt.

I forgave Ms Reeves when she announced the withdrawal of the pensioners’ winter fuel payment (or the means-testing of it, to be precise) leading to a blizzard of vituperation. I still think that it is a good policy, even though it is now clear that its political presentation was disastrous. And when she quickly settled many public sector pay disputes I thought this showed evidence of some welcome risk-taking in trying to fix longer-term problems against short-term financial pressures. Her first budget, though, was underwhelming. The only thing that was remotely bold about it was increasing the cost of lower paid employees through adjustments to employers’ National Insurance contributions, and raising the minimum wage. This seems to be a move against employers trying to solve problems with cheap labour. And the budget was sold with a patently dishonest narrative, that the government had discovered a black hole in the country’s finances. The black hole is real enough: but Labour had known its basic contours long before the election: these had been set out by pretty much every intelligent commentator, including, for example, the Institute for Fiscal Studies. Labour simply chose not to call it out. 

My reaction to the budget seems to be widely shared – it helped sustain a negative zeitgeist around the economy, which is discouraging investment. Lacklustre GDP statistics (which in reality are pretty meaningless as a performance indicator) supported the negative mood. Ms Reeves has then decided that she needed to lift the mood a bit, with a string of public appearances pushing the idea that the government will not compromise in its search for growth. The good news is that this extra exposure at last seems to be breaking down her woodenness and she has been more inclined to answer questions rather than just spout pre-prepared sound-bites. The bad news is that what she is communicating is pretty disappointing. 

Clearly Ms Reeves is anxious to get across the message that the government is really, really keen to encourage investment by reducing red tape. This is a popular theme right now, with the Trump administration trumpeting the message in America, and The Economist has a long article on the subject this week. I have a lot of sympathy. Most regulation is badly designed and implementation is usually even worse. Bureaucrats (in both private and public sector) lay on cautious over-interpretation, and then spend their time chasing innocent minor infractions and slowing down worthwhile projects, rather than tackling the harms that the regulations were designed to prevent. Sometimes this is a necessary evil, but surely we should aspire to do much better. Alas, all this is popular thing for government ministers to say, but there is a huge creditability gap, as they rarely deliver anything worthwhile. And that is especially true of Labour politicians. Their core supporters adore regulations (they are often the ones tasked with managing them) and any worthwhile deregulation hits stiff political resistance. Ms Reeves clearly knows this and realises that she needs to make an unpopular gesture to show that she means business. So she chose airport expansion, and expansion of London’s Heathrow airport in particular.

This has a great deal of symbolic value. Heathrow expansion has been a political football for as long as I can remember. Its advocates have always justified it in terms of “growth”, and there is a fierce NIMBY opposition. These can be presented as London elitists – but there are no obvious beneficiaries to the project outside the country’s richest region. Driving this through would be a signal achievement, showing that the government really does mean business.

There is a plausible economic case to be made for expanding Heathrow – The Economist makes an attempt this week, based on its value as a hub airport for Europe. Ms Reeves failed to make it on her media round. This included an extended interview with Justin Webb for the Today Podcast. In it she insisted that the potential impact on carbon emissions has been neutralised since it was last reviewed by the use of biofuels. Well there are ambitious targets for the greening of aviation fuel globally – but these lack credibility and look more like a smokescreen for the aviation industry. There is no way that Britain’s pressurised agricultural sector could produce these fuels itself. The Economist doesn’t even try to suggest this (though another article suggests that Brazil might turns itself to this fuel, if it can find sufficient investment); it just says that the use of electric ground vehicles (a lot of the pollution comes from the ground, apparently) and the diversion of flights from other other ports mean that the impact on carbon emissions is reduced. I don’t understand why Ms Reeves chose to make her central argument on such tricky ground.

I am personally unconvinced by the economic case for Heathrow expansion, even though it is no longer in my backyard (though Gatwick is, but that’s another story). I have a more quotidian worry. The new runway would cross London’s orbital M25 motorway, which would have to go through a tunnel underneath. The western M25 is a critical road artery (pretty much unavoidable if you want to travel to western parts of the country from here in East Sussex); it has already been badly disrupted by the rebuilding of its A3 junction. That work will barely be finished before it would again be disrupted by the construction of the tunnel. That will have its own impacts on economic activity. That’s small beer – but the prospect of re-launching the expansion programme for the managers of Heathrow remains a very daunting one – and notwithstanding government support for the next 4 years – they may not be willing to risk another failed project.

What is striking about Ms Reeve’s dash for growth, though, is how retro it looks – and not just Heathrow. The infrastructure projects are concentrated in the already prosperous South East (including two more airport expansions) and the government promises to play fast and loose with environmental objections. Gone is the idea of “Levelling up” or a “Northern Powerhouse”, to try and secure growth by helping less prosperous regions catch up. These ideas were admittedly Tory – but they helped keep the so-called Red Wall of seats in the North, Midlands and Wales in play. Labour won these seats back in their landslide, and it is striking that the government is leaving them out of its flagship programme, given that these same seats are subject to a surge of support for Reform UK. But it represents economic orthodoxy (the prevailing culture in the Treasury after all) – and thus the government’s seriousness about the whole thing.

That’s striking because the government is still pushing back against two other bits of orthodoxy. It won’t seriously engage with the EU about substantive trade integration for fear of reopening the Brexit wounds (this time in deference to that Red Wall). And it continues with its ambitious strengthening of workers’s rights; orthodox economics would suggest that this will discourage investment. Businesses are now hoping that they can pressure the government into watering these down. They may well make headway.

All this is rather depressing. Some of the ideas are perfectly sound, and it would be really encouraging if the government could push them through – the Oxford-Cambridge corridor (including rebuilding a railway line stupidly closed by Beeching in the 1960s, in accordance with the then economic orthodoxy), and a further lower Thames crossing. But a retreat into old-fashioned orthodoxy feels like the government is trying to revive a lost past, rather than providing a vision of a hopeful future.

Perhaps that’s unfair. The government is desperate to try and create a more hopeful zeitgeist. Attempts to try and paint a more hopeful and optimistic vision, around green energy for example, have fallen flat in its absence. One of the government’s ideas for regional development involves reorganising local government. also the government sets great store by the gutting of planning laws (and the local government reorganisation into bigger units may also have the aim helping drive through planning applications). These will take time to yield results. Ms Reeve’s budget will increase public spending over the next year, and this should rev things up a bit. Once the mood shifts to something better, it may be time to be a bit bolder.

Perhaps so, but my abiding impression is of a Chancellor who lacks a bold vision of a new, modern economy, and is unduly reliant on the conventional wisdom of her Treasury civil servants. I hope I am wrong.

First published on Substack

Liberals must rethink the state to renew their appeal

Were the neoliberals right after all?

People on the political right are still enjoying themselves now that Donald Trump has assumed the US presidency. Unlike his first term, but much as was forecast, he has established real momentum. He has surprised even me in how he has managed to bend his narrow majorities in the legislature to his will – in contrast to his last presidency. Opponents seem largely stunned into silence. Even The Economist is trying to put a hopeful gloss on things. But it is not enough to predict that this is hubris before a fall: the alternative liberal and left narratives have been shattered. How are they to be replaced?

The Trump euphoria puts me in mind of two episodes, one from the recent past, and one from history. The recent one, which I have already written about, is Boris Johnson’s landslide victory in December 2019. This was accompanied by much hubris, which rapidly unraveled for the same reasons that Mr Trump’s will: impossible promises and valuing loyalty over competence in senior appointments. Such euphoria is common – I can also think of Joe Biden in 2021, Barack Obama in 2009 and Tony Blair in 1997. All led to various levels of disappointment, notwithstanding some genuine achievements. Opposition appeared muted at first on these occasions too. Interestingly, there was no euphoria last year when Labour achieved a landslide victory after 14 years of Conservative-led government in Britain. 

The other episode is much darker because it did not precede a fall: Hitler’s assumption of power in 1933. Hitler’s democratic mandate was a weak one, but he used his access to the levers of power ruthlessly to generate momentum that won over some of the sceptics and many of the undecided. He used this momentum, including the propagation of many fascist narratives, to dismantle the checks and balances of the constitution and secure his power. It took twelve years and the worst war the world has ever seen to dislodge him. There are elements of this in Trump’s accession: he has shown disregard for the constitutional order; he relentlessly promotes false narratives; he commands a party that is intensely loyal to him personally; there is a willingness to threaten violence to get his way. But Mr Trump is no Hitler – he is much more driven by personal narcissism; he is less shaped by a racist narrative (though he’s happy to co-opt many who are racist); he is more influenced by a libertarian narrative, quite unlike the Nazi one; he appears to genuinely dislike war, even as he likes to issue threats, where Hitler saw war as destiny. And he is much older and time-constrained. And the USA in 2025 is not Germany in 1933 – democracy is much more deeply embedded, government is much less centralised, people are much wealthier, and there is no shadow of a major military defeat. But some very bad things could happen. In the end, though, this brand of politics is likely to get weakened and collapse as it will self-evidently be unable to deliver. Hitler had the opportunity of a Keynesian expansion of the economy to transform incomes and jobs; Mr Trump does not.

But such an insight is little help to liberals. Mr Trump’s victory marks a serious defeat. The actual margin may have been small, but he was a manifestly unsuitable candidate, promoting extreme policies. He has a base that accepts pretty much all of what he says – but he also persuaded many millions of less committed people, who saw through his schtick but nevertheless still thought he was a better bet than the liberal alternative. And the momentum following his victory will have only consolidated his support. After his first victory in 2016 there may have been a “Did we really mean to do that?” moment amongst many who voted for him. There will be few doubts this time – indeed people will be anxious to prove to themselves that they made the right choice. The relatively muted liberal (and left) response is warranted. This is a necessary step on the path to renewal. In 2017 there was denial and anger; now we are in negotiation and depression. One of the things that I have learnt since my idealistic 20s is that all lasting change must go through these stages of grief. You must get beyond the anger, but that path leads through depression. You can speed the process up but you can’t avoid it. So depression now is a good sign – it means that people understand how serious the problem is and are a step closer to renewal.

I find myself thinking back to 2017. Then, in the aftermath of the Brexit referendum, Trump’s first victory and the rise of the far-right in many European countries, I pondered how to save liberalism from the rising tide of populism. But the mainstream response was less to reflect on failure, and more on the call to resist. Denial and anger won. Emmanuel Macron won a remarkable victory for liberalism in France; Joe Biden was elected in America on 2020; Boris Johnson’s populist coalition fell apart almost as soon as it had been created. But then Mr Trump came back harder and wiser. Mr Macron came unstuck not despite his attempts to promote serious economic reform, but because of them. Mr Biden’s path of hope and denial was no more successful than Mr Macron’s telling of hard truths. Sir Keir Starmer’s Labour Party may have won in Britain, but he secured only 34% of a relatively low turnout, with the populist Reform UK surging. And now his government finds itself prisoner of its denial of the problems that the country faces.

The problem is that the world has changed. The economy has changed so much that a reordering of government and society is required to meet it. Current ways – with a substantial government payroll and vast social safety net – were based on a growing economy, which allowed an ever increasing tax take, and an ever-increasing workforce as the baby bulge worked through its working years and women were drawn into the workforce. The production side of the economy steadily expanded, allowing the state to expand, and especially to provide services and benefits to older people. But the baby bulge is joining their ranks – they are now living much longer previous generations too. Those older people, either retired or winding down productive work, are delivering a double whammy – exiting the productive, taxable economy, while demanding ever more resources from the state. To sustain this in the traditional way, requires a combination of three things: increased productivity, gains from trade, and immigration. But productivity gains are harder to get, and require unpopular disruption; the opportunities for gains from trade have diminished; and immigration is creating social stresses, especially in housing, where in most countries supply is not keeping pace with demand. The result, right across the developed world, is economic stagnation and widening government deficits. This may not be as unsustainable as many pundits profess, but it can’t go on indefinitely. The capital required to keep things running, from domestic savings or from trade surpluses in the less developed world (notably China) must have limits. 

There are opportunities as well. The two big ones are clean energy – and especially solar power – and information technology (including, but not restricted to, AI). Also the need to reduce over-consumption in developed countries can be linked to a compelling case to protect the environment, especially from climate change. Further developments in life sciences also offer the prospects for improved length and quality of life: not just from more effective treatments and procedures, but also from a better understanding of how to live healthily. 

The right are currently thriving on a diet of denial. They think that good, and improved, standards of living can be sustained without higher taxes, adaptation to clean technologies, or higher levels of immigration. But they have no coherent plan for doing this and are heading for disaster. They are in denial and anger, while liberals are in negotiation and depression. What does renewal look like?

The first thing to say is that the political left has proved an utter failure and is imploding. These have been liberals’ traditional allies – and indeed in America most people make no distinction between liberals and the left. The left has lost its connection with working classes – not keeping pace with how these classes have changed. Instead their base is government workers, and workers in non-governmental organisations which are mainly sustained by governments. They have a huge stake in maintaining the size of government, and giving the government more to do through creating and enforcing rules and regulations. This amounts to managing social problems rather than solving them. This was evident in the left’s shrill opposition to “austerity” in Britain following the great financial crisis of 2007-09, and especially the policies of Conservative-led governments from 2010. This is increasingly unsustainable. Furthermore the left has disappeared into a rabbit hole of identity politics focused on ethnic minorities in particular. They have developed a new language – “cultural appropriation”; “white privilege”; “micro-aggressions”; “critical race theory” – which they seek to impose by regulatory fiat, meaning that majority communities feel they are constantly treading on eggshells, while minorities are encouraged to express offence at a broader and broader range of things. Challenge is suppressed (“cancelled”) rather than taken on. I suppose the hope was that regulations would lead and hearts and minds would follow. But instead they have created stress and people are reeling – including increasing numbers from minority communities. Many are cheering Mr Trump’s roll-back of DEI (Diversity. Equity and Inclusion) initiatives, and not just those on the hard right. It is not that the aims of DEI are wrong, but that they seem more of a job-creation scheme than a solution.

Just how far the left appreciates its failure, and how much they are stuck in denial and anger, I don’t really know. But it is clear that the left is losing political traction everywhere. They may yet be part of a liberal-led political coalition, but they are not enough to defeat the right. Liberals need to distance themselves from the left and attract the centre-right, who will become rapidly disillusioned with the radical-right.

What does that mean? I think it means that liberals need to take a more robust and critical view of government – seeking to make it much more effective and efficient. I am taking care not to say that it should shrink – but it does need to achieve more with the same level of resource, and retreat from areas best left for people to work out for themselves. Fundamentally that means trying to create a better-ordered society with healthier lifestyles – so that fewer public services are needed to fix problems. Funnily enough this is pretty much exactly what the British Conservative leader, Kemi Badenoch, is saying – though she is much better at diagnosing the problem than offering any coherent solutions. In policy terms I think we can see a number of specifics, thinking especially of the British perspective:

  • The drive by the government to improve efficiency by the application of AI is half-right – but it is in danger of being a solution in search of a problem. The objective should be to re-engineer public services holistically – with AI and other technologies enablers. Otherwise we will simply automate bad practice. The key is to break down departmental silos – with solutions based on the needs of people rather than a collection of abstract problems.
  • The NHS presents a particular problem. No amount of reengineering is going to allow it to keep pace with increased demand. And trying to solve those problems without addressing social care, as the government seems to be trying to do, is nonsense. Vastly more resources are needed for social care and health services – especially if we are to rely less on cheap labour imported from abroad. This means higher taxes or a much enlarged private sector, or some combination of the two. Funnily enough the last government, between Boris Johnson and Rishi Sunak, made an important step in that direction with their hypothecated National Insurance. Reversing this may have been may have been Liz Truss’s most consequential and most destructive achievement. Now mainstream politicians seem unable to face up to the challenge. That has to change.
  • Taxes will surely have to rise on exactly the “working people” that the current government is trying to avoid raising taxes on. These taxes are the most economically efficient for a number of reasons. My vision of a smaller state is based largely on reduced demand for its services (except health); but this will take time to achieve and there will be short-term costs. Achieving all the required investment through additional borrowing presents some big risks.
  • The current government is right about many of the things it wants to do. Investment must continue in clean energy infrastructure, requiring NIMBYs to be dealt with more robustly. Social housing must be expanded – as lack of availability of housing is behind so many social problems. Deregulation may be helpful but it would be better if this was part of a vision of more effective overall governance than an invitation for lobby groups to peddle their hobby-horses. I am less convinced about expanding air travel, though.
  • The UK needs to re-embrace the European Union. This will have to be gradual – focusing on making trade more efficient. For all the Union’s many flaws, economic integration with our closest neighbours is one way to make the economic activity more effective, and we will need all effectiveness we can find.
  • Mass immigration, however, for so long the safety valve for the British economy, will need to be brought down. It is creating too many stresses and does not provide a long-term solution. That is the main reason why both taxes will need to rise and public services made more effective and efficient. Politicians should start making that connection with the public. Lower immigration does not come for free.
  • The private sector – and capitalism – must be embraced as the most efficient way of reconciling supply and demand. But there must be minimum levels of income so that all have a degree of consumer power. And monopoly capitalism must be closely watched. Some services are genuinely better provided by the state.

It strikes me is how much overlap there is here with old neoliberal ideas, which emphasised smaller government, a less regulated private sector and lower taxes. I don’t think lower taxes can be part of the equation, because of the demographic pressures, especially in a lower-immigration environment. And neoliberals were more relaxed about migration. Neoliberals are an object of loathing by the left – who are inclined to suggest that capitalism has failed, without providing any idea of an effective alternative. This is another reason that liberals need to break free of the left until and unless it goes through its own process of renewal.

And what is the vision? It is of a well-ordered society with low levels of crime, inured into healthy lifestyles and carbon-negative. Nobody should struggle to secure some level of decent housing and other basic needs, provided that they make a positive contribution to society in some way. I don’t think that is impossible, but we have a long way to go. Perhaps above all liberals need to think more about what this vision is and how it might work. Only then will we have a persuasive case to make to people who do not currently think of themselves as liberals – on both right and left.

This post was first published on my Substack account.

What do we learn from the grooming gang scandal?

A political pile-on distracts us from institutional failures

One of Elon Musk’s tamer tweets over the New Year

Over the New Year the grooming gang scandal flared brightly here in Britain, inflamed by tweets on X by its owner, Elon Musk. Politicians of various stripes piled on; establishment types came back with “nothing to see here,” with varying levels of indignation, before making interventions that should have been done some time ago. It has now died down again, as Mr Musk’s attention has moved on. But the episode is instructive.

The scandal concerns the grooming and abuse of teenage girls in a number of English towns (and presumably other British towns too) by groups of Pakistani-heritage men from the late 1980s on. The scandal was brought to public attention in the 2010s and has been flaring up periodically since. Abuse is probably continuing in some places – it has been so hard to contain because it was so widespread, especially if you consider group-based abuse more widely than that perpetrated by this ethnic group. The abuse was not investigated at the time it was occurring because the girls, from a lower class background, weren’t taken seriously, because there was a perceived sensitivity around the ethnicity of the perpetrators, and because authorities were generally struggling to take child sexual abuse seriously. It is far from the only child sexual abuse scandal circulating – others include the Church of England and the Catholic Church, and children’s homes (i.e. what used to be called orphanages).

Political exploitation of the scandal was led by what I will call the “far-right”, because I can’t think of a better term. Unfortunately different people mean different things by this term – so I need to explain what I mean. I am talking about extreme white-nationalist groups that believe in the use of violence to promote their beliefs. The de facto leader of this fringe is “Tommy Robinson” (not his real name, but that’s another story), now in prison, but with a following in social media, including in the United States. This group focuses explicitly on the racial aspects of the scandal (the victims are overwhelmingly white). Their political objective is the removal of people with brown or black skins (doubtless with exceptions), and a stop to their immigration. They have very little public support – their tendency to violence and the explicitness of their racism puts people off. Tommy Robinson has been vocal about the scandal for many years, and so far as his supporters are concerned, he is being victimised by the establishment for his troubles, and should be freed. Mr Musk has piled on his support for this, though how far he actually supports far-right objectives I am less clear; more likely he doesn’t really know who he is. 

The next group to move in are what I will call the populist-right – which includes the Reform UK party led by Nigel Farage, and the Substack activist Matt Goodwin. These eschew the violent methods and explicit racism of the far-right, though their critics accuse them of implicit support of both. Their objective is to stoke up anger at an out-of-touch liberal elite. They don’t put forward specific policy solutions (though opposition to immigration is a central theme of theirs): in this case they are simply calling for any kind of public enquiry that the political establishment doesn’t want. They just want to scratch the itch until it bleeds. Ultimately their aim is to take political power. Reform UK polled in the teens in the 2024 election, and have 5 MPs, including Mr Farage. They now poll in the 20s, in the same ball-park as Labour and regularly overtaking the Conservatives. They are much more popular than the far-right, though to date a majority of electors has a strong dislike of them – which doesn’t stop the populist-right, especially Mr Goodwin, claiming that they speak for the majority.

And then finally came the Conservatives. In government they followed the establishment line, but now in opposition and worried about Reform, they are calling for a national enquiry, after calling for the publication of an ethnic analysis of abuse statistics that had already been published. The focus of this enquiry seems to be different from the call for a public enquiry that precipitated this particular flare-up – which just focused on the town of Oldham. The government had turned down the call for a central government-led enquiry in favour of a locally-led one. Some Conservatives, notably shadow justice secretary Robert Jenrick, are channelling the populist-right.

What about the establishment? They want to generalise the case of the Pakistani gangs into the wider problem of child abuse (which they say is much, much bigger) and adopt general solutions to the whole field, marginalising the racial aspect. They point to a public enquiry by Alexis Jay that reported in October 2022. There is no need for a further high-level enquiry, we just need to get on with implementing the Jay recommendations, they say – though it turns out that this implementation has not been particularly rapid. If further enquiries are needed for specific towns, these are best to be locally-led – and, indeed, there are several successful examples of these. Labour are following this establishment line, and, though I have heard nothing explicit, the Liberal Democrats and the Greens are too.

What of the victims? Everybody claims to be putting them first, but that is hard to swallow. The BBC has found a few, and interviewed them. These women want a public enquiry – the motivation seems to be the feeling that the world has moved on since the original scandal broke, and they want more attention paid to it. I suspect they want the circle of accountability to broaden, beyond the direct perpetrators, to include those whose poor judgement and prejudice allowed the abuse to persist for much longer than it might have done. That would be a valid concern – though many local political leaders have paid a price, following local enquiries.

The victims seem to have been mainly from what used to be called “broken homes” – lacking a secure family life, and in many instances in institutional care. The authorities regarded them as unruly and badly behaved, and the authors of their own fate. Lacking a loving home environment, they were very vulnerable to grooming tactics. The police and those responsible for their care were unwilling to help. This has been put down to class prejudice, though the difference in social class between the victims and those that might have helped probably wasn’t that great – so the prejudice was a more complex thing. I would like to think that things have moved on, but I am constantly surprised about how persistent prejudice can be.

A further aspect of these cases is the accusation that the authorities were soft on the perpetrators because of their ethnicity. This aspect is played up by both the far-right and the populist-right. The police are accused of fearing accusations of racism. There does seem to be at least some basis for this. But from the accounts I read when the scandals first emerged, it was a bit more complicated than that. Local government in the towns concerned was typically run by Labour councils who had a monopoly or near-monopoly of councillors. This meant that the key politics was between the various factions of the Labour Party and not public elections. These included paternalistic ethnic groups (typically referred to as “community leaders”) who were allowed to run their patches as their own fiefdoms. The problem largely stemmed from this: these leaders would rally round the accused individuals to protect their community’s reputation – and did not seem to be overly worried about it themselves. (Much as churches have in their own abuse scandals – lest anybody think this behaviour is specific to ethnicity). Any attempt to disturb this arrangement would indeed have been branded as racism – a standard defence of such community leaders and their political associates. The way that the British electoral system (more precisely English one now, as Scotland and Wales have reformed theirs) creates local one-party states is a democratic disgrace that both Labour and the Conservatives shrug at. It is much harder for such unaccountable relationships to flourish in properly competitive electoral systems. One of the biggest mistakes of the Liberal Democrats in coalition in 2010 was not to insist on local government electoral reform – rather than accepting a referendum on the Alternative Vote that set the cause of electoral reform back. This is beyond the scope of any mooted enquiry into child abuse, of course.

What of public enquiries? This is the standard British response to any scandal. The British way is to adopt a cumbersome process that usually takes years to get anywhere, and usually without any serious impact once it is finished. Politicians are accused of using them to kick issues into the long grass. As this episode shows, though, that isn’t entirely fair. In this case it is the voting public that seems keen, with politicians taking their lead from them. There seems to be something about the process of compelling witnesses to testify in public that the public likes – a case of the process achieving a degree of accountability that the wheels of justice don’t. The government’s case against the need for a new national enquiry is a sound one though. It actually delays the process of justice.

But this case is about a lot more than ensuring that criminal sanctions are brought against the perpetrators. It is about getting a degree of accountability for those who enabled the abuse to go on, often in open sight. Local enquiries can do that – and the government has announced five more. But there are also wider systems failures – and we are not likely to see much recognition of this.

I have already mentioned the tendency for one-party states to dominate the political leadership of local government – and this often creates a culture of paternalism and coverup. There is a further problem with the management of children and young people who lack a stable home life – and especially those who are institutionalised. Some public institutions actually work quite well: primary schools for example. But social services are hopelessly overstretched. Attitudes of the professions involved may have improved in the last 50 years, but resourcing has not kept pace. It is widely known that early interventions are the most effective – and the Labour government of 1997 to 2010 was making some headway – but this gets lost amid shorter-term public spending priorities, and the austerity years did for any progress. There was indeed too much waffle and verbiage (consultant-speak) in the government’s approach – but the direction was right. I am not as critical of austerity as many – but this is one of the areas (along with the criminal justice system) where very short-sighted cuts were made. The failure was both allowing the abusers to get away with what they were doing, and not looking out for vulnerable young people.

What is required is not more inquiries. What is needed is good political leadership, both locally to strengthen communities, and nationally to ensure that adequate resources are made available. This is not totally lacking, but it should be much, much better.

First published on Substack here

Understanding MAGA economics: the thinking of Peter Navarro

Former Director of the Office of Trade and Manufacturing Policy Peter Navarro speaking with attendees at The Believers Summit at the Palm Beach County Convention Center in West Palm Beach, Florida in July 2024. Photo: Gage Skidmore, CC BY-SA 2.0 <https://creativecommons.org/licenses/by-sa/2.0>, via Wikimedia Commons

President Donald Trump plans a radical economic policy that ditches conventional macroeconomics. This week’s Economist refers to three strands of economic thought within the administration: conservative mainstream, America-firsters, and the tech tycoons. The conservative mainstream favours low taxes, deregulation and small government, but favours trade. America-firsters are hostile to international trade and immigration. Tech tycoons have a particular slant towards regulation of the tech industry, favouring some businesses but not, generally, the giants – and like some types of immigration. It is the America-firsters who present the biggest challenge to conventional economics – and lie at the heart of the way Mr Trump himself thinks, and it is likely to be the regime’s guiding philosophy. 

Mr Trump himself has shown no grasp of economic thinking. But he is advised by people who are economically literate, and who do promote the America-first stance. Chief among these is Peter Navarro, who is close to Mr Trump. Last weekend the FT published an article about him by Gillian Tett, featuring an interview. I think it is important to understand the thinking of people I disagree with, so this article gave me the basis to try and understand America-first economics, which might also be called MAGA economics. 

To get a flavour of Mr Navarro’s thinking, here are some quotes from him, drawn from Ms Tett’s article. Each paragraph is a separate quote:

Ricardo is dead!

America, the piggy bank, will continue to be plundered by a trade deficit that transfers more than half a trillion dollars of American wealth a year into foreign hands . . . [through] industrial espionage, rampant cheating, intellectual property theft, forced technology transfer, state capitalism and currency misalignments… It’s long past time for the ivory tower to reimagine and re-engineer its models of trade!

Net tariffs will lower the US trade deficit and thereby boost real GDP growth while slowing the transfer of US assets into foreign hands, thereby preserving US wealth. 

As domestic investment and production increases and supply chains become more stable and resilient, real wages will rise, inflation will fall and our nation will be more secure.

Saying that Ricardo is dead is akin to saying that arithmetic is obsolete. Indeed some commentators think that many MAGA types, including Mr Trump himself, don’t have a grasp of arithmetic. David Ricardo’s theory of comparative advantage, a regular topic on my blog, is cold, hard and irrefutable logic – and there is plenty of evidence of its operation in the global economy. So what do people mean when they say it is “dead”? They mean that this theory has lost its power to guide policy. In the MAGA context I think there are two aspects to this. First is that the USA is a huge and diverse economy in its own right, and should be close to self-sufficient, with a huge variety of comparative advantage within its own borders. And, indeed, the country’s dependence on foreign trade is generally low compared to other developed economies.

But more attention is given to the fact that the US trades with a large deficit to the rest of the world – creating a current account deficit of 3.4% of GDP. This is one of the biggest deficits in the world (according to The Economist’s statistics only Greece and Egypt have larger ones amongst the economies they report on). And this is the focus of Mr Navarro’s second quote. In a well-ordered, one might say “fair”, economic system, deficits and surpluses should be small and temporary, except in situations where there is a strategic intention to transfer resources from one economy to another. A substantial and continuing imbalance, in the absence of such a strategic intent, is evidence of misalignment. Conventional economists talk in terms of currency valuation – but industrial espionage and the other unfair practices doubtless contribute – and there is evidence of all them in the case of China (running a surplus of 2.1%, not counting Hong Kong, which has a 12.2% surplus on its much smaller GDP).

The result of a current account deficit is that it must be funded by the supply of capital by foreigners, or by the running down of the nation’s own assets held abroad. In America’s case, this may be through direct investment in businesses or property on US soil, through to the purchase of US Treasury bonds, funding the US government. US ownership of US domestic assets is being steadily diminished. An aggressive policy of tariffs would encourage more businesses supplying US consumers to be based in the US. This would create more demand for US workers, and so raise their level of pay, as well as creating an economy less exposed to the vagaries of world events. That is the essence of the last two quotes, and it is surely the thinking at the heart of MAGA economics.

That logic has as many holes as a sieve. But the interesting thing is not to pull it apart, but to understand the broader philosophy that makes this weak logic sustainable. The clue is in the name “America First” or “Make America Great Again”. It is the horror at the idea that the US is losing relative ground to other economies, and especially China – and that this is being facilitated by a open approach to trade and investment that seems to say “Walk all over me”, or, in more Christian terms “Turn the other cheek”. Good quality American jobs have been disappearing abroad. A pandemic in China snarls up US supply chains. China is finding the wealth to build up huge armed forces which are pushing against US influence in the Far East and elsewhere. In this view economic policy is as much about political power and social stability as about economic efficiency and wealth. Tariffs policies may not be enough to sort out America’s trade deficit, for example, but they might if combined with other policies – and that is where the debate should be. Liberal economists want to make the world as a whole a better place, and are relaxed about other countries doing well, so long as this is not at anybody else’s expense – and most would argue that is the case for China’s rise, by and large. America gets cheaper products, and it’s easier to run a budget deficit allowing more public spending or lower taxes (because all that foreign funding enables it).

One interesting aspect of this idea of economic policy is that it is very similar to how the Chinese government sees things on its own behalf too. That is illustrated by another article in The Economist, showing how nervous China’s leadership is about Chinese firms investing abroad – with anxieties about exporting jobs and technical knowhow. This is in contrast to how America’s governments used to see things. India’s government has this tendency too. I think comes back to an earlier point of mine: big economies aren’t so dependent of foreign trade in the first place, and can think of being economically self-sufficient. Of the world’s large economies only the European Union (arguably not a single economy) has a liberal outlook to international trade. Smaller countries, like Britain, can’t afford such an outlook – which is making the world a more difficult place now that America is retreating from those ideals.

This post is published on Substack here

The populists are looking forward to 2025, but they will be disappointed

Happy New Year to my readers! These few days are thick with journalists making predictions for the year ahead. This is probably a good discipline for them – and even better if they revisit them at the end of the year to see how they did. But it makes less attractive reading, and I don’t tend to do it myself. Mostly the fare is gloomy stuff. But one group abounds with optimism: the political populists, and supporters of Donald Trump in particular. I want to reflect on that.

As usual my starting point is Matt Goodwin. I rarely read more than a couple of paragraphs of his Substack – and since I’m not a paid subscriber that is often all I’m offered. The writing is high on rant and low on content. It’s only good reading if you want to be wound up, one way or the other. His New Year post offered a note of optimism: “things are moving our way” he said, with the hated “elites” getting their comeuppance. The main driver for this was that he anticipated that the Trump administration would prove that radical-right solutions would work, contrary to the heaps of scepticism from the liberal elite. And this success would strengthen the growing populist movements around the world.

Thanks for reading Thinking Liberal! Subscribe for free to receive new posts and support my work.

This rather captures the zeitgeist of populists. Extreme pessimism about how the world is going to hell in a handcart is combined with excessive optimism about what their favoured leaders and policies can achieve. Optimism from Trump supporters, and corresponding pessimism from their liberal critics, is currently rampant. It is behind the strong performance of US shares (I have just dumped the two funds most exposed to this effect in my pension pot – but the profits have been welcome). The idea behind this is that tax cuts and deregulation will drive up corporate profits, while tariffs are either a negotiating bluff or will favour big American companies. 

There are two big problems with this outlook. The first is that the politics is much trickier than most people seem to realise. The second is that the policies won’t work either. Consider the politics. In spite of Mr Goodwin describing Mr Trump’s victory as a “landslide”, it was actually very close. He secured slightly under half the popular vote, with a margin of about 1.5% over Kamala Harris. This is a big victory by recent Republican standards, and gave him a comfortable majority in the electoral college, but hardly overwhelming. More to the point, the Republican majorities in both houses of Congress are very tight; it even shrank in the House of Representatives. This will not make getting controversial legislation through easy – and especially from an administration whose political negotiating skills are pretty weak (especially compared to Joe Biden, the outgoing president). Some aspects of Mr Trump’s policy don’t require congressional approval – but the tax cuts, such a central part of the business optimism for Trump, do require this. It will be more than hard going. The response of many liberal commentators is “pass the popcorn” as they seek to get some entertainment from the Republican infighting. Meanwhile the flurry of executive orders will doubtless be subject to a blizzard of legal challenges. That is the American way.

And the policies themselves are bound to disappoint. Mr Goodwin confidently expects mass deportations to take place rapidly, as promised by Mr Trump. This will be much harder and slower going than he expects, and will have adverse short-term economic consequences, as it will throw uncertainty into the labour market. Tariffs cannot possibly meet the expectations placed on them by the policy’s supporters. And so it goes on. There is no great pool of untapped economic potential waiting to be unleashed (as there was in the 1930s, say). Just how the economy will play out is very uncertain, however, largely because the politics is so difficult that it is hard to predict which policies will be enacted and when. A common view, which I have put forward myself, is that tax cuts and tariffs will drive inflation up. An alternative is that the economy stagnates as these policies fail to get started, and uncertainty undermines investment. 

The Trump administration may achieve some good things. There is bound to be a lot of nonsense going on in the current regime. Funnily enough, I think the prospects for Mr Trump’s foreign policy are better than for domestic policy. His highly transactional approach is easy to grasp, and accords with how many foreign governments like to do business. I am really hoping he can force a peace in Ukraine that does not neutralise that country. Mr Biden seems to have run out of ideas (incidentally it is entirely possible that a President Harris would have accomplished a peace settlement too). My hopes for the Middle East are weaker – it looks as if Mr Trump will give Israel free rein. But that is pretty much what Mr Biden was doing. There is talk of a deal on Iran, but I’m not sure if the leaders of that country have enough to offer to make any deal look good. The Trump administration may simply play a long game for regime change. In the longer term my main fear is that the muddle and confusion of Trump’s Taiwan policy will encourage China to launch a military attack while the window of opportunity persists.

Overall, though, I see that the populist movement be disappointed, and the politics among Republicans will turn toxic. This will take some wind out of the sails for populists elsewhere. But the long term drivers of populism remain. Demographics and the changed working of the global economy are forcing difficult choices on governments, on tax, on spending and on immigration policy. The public as yet shows no sign of facing up to these difficulties – so the populist message that this is all the fault of an out-of-touch elite still has potential. The floundering of Britain’s new Labour government; the political impasse in France; and the prospect of something similar in Germany – these all show that the mainstream political parties have no answers either. 

Something has to give. As yet I don’t have a feel for what this will be. But populists don’t have any workable answers and populist-led governments are likely to fail. Or if they don’t fail, it will be because they will adapt to reality and manage to sell it to the public and reduce their expectations to something more realistic. Some governments might succeed (Georgia Meloni; perhaps even Marine Le Pen); but not Donald Trump.

This post has been published on Substack

Thinking Liberal moves into Substack

I started my blog, thinking liberal.co.uk, in 2011, when political blogs were quite popular. I used Facebook and Twitter to find interested readers. That was quite popular then. My blog had quite a reasonable impact – people mentioned it to me at party conferences. I interacted with people on both Facebook and Twitter. That was a brief moment of glory – it has since faded into something followed by a few friends and a small band of others whom I have picked up on the way. I don’t know how many, as the statistics seem to be dominated by bots and fakes; even the rather limited mailing list seems to have quite a few dodgy items.

Facebook and Twitter are now well down the path of enshittification, a process first described by Cory Doctorow in 2022. An online service starts by favouring the interests of customers and people to the point of lunacy: everything is free and under your control. Gradually the process of monetisation takes over until customers (and staff) are left with a very weak product, but little alternative because these have been squashed through network effects. Facebook made it harder and harder to use for the distribution of political thought. It was attracting too much controversy (mainly because of its use to promote conspiracy theories and fake news), and the simplest solution was to block all of it, not just the bad stuff. My feed is now full of things I never asked for, driven by sponsorship or an algorithm. Posts from a few friends show up from time to time (to which I need to respond if I am to have any chance of seeing them regularly) – but blink and you miss it. The feed refreshes and the post vanishes. You can find things by searching for the poster, but it’s hard work. For a while I could mitigate some of the problems by creating a Facebook page for my blog, which if people “liked”, they were much more likely to pick up posts on their feed. When I most recently visited this page, however, I was shocked. It was full of junk content put there by algorithm. I had expected to see a sequence of the posts I had made. It has been completely enshittified. To make it work I would need to buy promotion.

Twitter, meanwhile, made it harder for me to post links to my blog long before Elon Musk decided to trash it. Tools that allowed an automatic post ceased to work. I have long since ceased to post, though my account still exists, as some of the notifications are interesting, though even this has tailed off.

Then along came Substack – a blog distribution system. This has proved very popular amongst political bloggers, and so I thought I would give it a try. I’m not entirely sure how it works, or how far along the path of enshittification it has travelled – though the journey has clearly started. One particular feature, though, I will not use: paid subscriptions. I write the blog for my personal pleasure, and because I find that writing helps clarify thought. It is irregular, and I have long since abandoned any idea that it can be seriously influential. I don’t need the money. I suspect that subscriptions are an important part of the Substack business model, though, so this may not be sustainable in the long term. We’ll see.

My plan is to publish all my future posts here. The WordPress website will keep going – this at least is pretty much under my control, and acts as a record of my writing. Email subscription there seems to be costless and easy, so I will keep going with it; Substack will simply been an alternative channel. I may drop the Facebook page – though it does seem to be pretty costless to keep going. I will also keep posting on my main Facebook feed, as I know a few of my friends are picking it up. I will probably stop the silly AI pictures (unless people say they like them). I put these on to improve the chances of the Facebook algorithms favouring them – and to avoid the copyright issues arising from using real pictures. 

So let’s see what happens!

You should be able to find my Substack page and subscribe here.

The SNP needs a reinvention

Copilot again. This is too optimistic for the current state of the SNP, but climbing a high mountain in shorts may be an apt metaphor

The last in my post-election survey of Britain’s main political parties concludes with the Scottish National Party. Alongside the Conservatives, it was a big loser in the general election, being reduced from 48 seats to just 9. But they still control the Scottish parliament, with no election until 2026. They are down but definitely not out. But they will need to do some should searching if they are not to sink back further.

Firstly, though, I must offer a health warning. I am not Scottish, and I have few political contacts north of the border. I am not plugged into politics there in the way that I am in England. So this is very much an outsider’s view. Still outsiders’ views can have value – and Scottish politics does impact English politics through our shared nation.

The SNP’s fall over the last two years has been dramatic. Until 2023, the party was sweeping all before it in Scotland. Nicola Sturgeon, its leader, was one of the most experienced in British politics, and presented a calm, reasonable face to the party – she was a gifted political communicator. And yet behind this calm exterior, all was clearly not well. The performance of the Scottish government under SNP control was lacklustre, on such basic issues as health, education and law and order (Glasgow having an astonishingly bad record on drugs). Ms Sturgeon presented a much more credible public face during the covid pandemic than England’s Boris Johnson – but Scotland’s results were no better. The SNP seemed too interested in politics and not enough in administration. It preferred to stay close with interest groups, rather than undertake tough reforms – apart from a botched reform of Scotland’s police. The reforms that there were centralised power to the Edinburgh government. Its Green coalition partners proved highly ideological and spent little effort engaging with the public. The Scottish government then took on a reform of gender recognition laws that was aligned with the leftwing-liberal consensus, but poorly aligned with general public opinion. This was heavily promoted by the Greens, but actually drew support from across the political spectrum. Public protests and celebrity opposition (notably from Scottish author J.K. Rowling) seemed to take the Edinburgh elite by surprise. When the UK government (led by the very unpopular and chaotic conservatives) blocked the law, it won rare approval north of the border. Meanwhile the party’s goal of Scottish independence remained a long way off, as the UK government refused a second referendum.

And then the incestuous goings on in the SNP’s internal management were exposed in a police investigation into possible misuse of funds. Ms Sturgeon retired as leader just before the storm broke. The alleged abuse (using funds donated to support an independence referendum for general electioneering) was not necessarily all that serious – and its illegality has yet to be resolved. But the scandal exposed very unhealthy governance. The party’s reputation was in tatters, not helped by the selection of a hapless new leader, Hamza Youssef , who seemed to expose the party’s lack of depth in talent. Was this party really capable of running an independent country? And that led on to the collapse in SNP vote and representation in the UK parliament. Labour surged in Scotland.

But all is not lost. The goings on at the SNP have not had much impact on support for Scottish independence, which runs at about 40%. This is not enough to win a referendum, but it is weighted towards younger voters, promising a majority in future. And the SNP has no serious rival in its leadership of the independence movement. The attempt by former leader (the late) Alec Salmond to establish a rival party was a dismal failure. Meanwhile Labour’s hapless start in government has wounded its main rival for votes north of the border, while the Conservatives remain weak, and Reform UK lacks the punch it has in England or Wales.

But the party must pose deep questions to itself. Politics has changed. The Scottish political elite has converged around a social democratic consensus. A big inspiration seems to have been the social democratic governments in Scandinavia – countries which, after all, are comparable in size to Scotland. While social democrats have been in retreat in England (and Wales), they assumed Scotland was different. The country produced a Remain majority in the EU referendum after all. But the whole world is moving against the social democratic – liberal – left consensus, including in Scandinavia. Immigration has become a top political issue. Gender-critical views, rejecting the extremes represented by Scotland’s self-identification laws, are mainstream. People are becoming wary of minority identity politics. A rising dependency ratio means that people question state benefits. Tax rises are resisted. Scotland can no more escape these trends than Scandinavia, where populist parties have been doing well. And more conservative views within the SNP, represented by leadership challenger Kate Forbes, are becoming more visible. Indeed Ms Forbes is clearly the most dynamic of the party’s senior politicians.

The question for the SNP is how far it follows these trends, and adopts Ireland as its model rather than Denmark or Sweden. Low taxes and a weaker welfare state are core to politics there. So far it has managed to scoop up the anti-establishment vote, by virtue of its support for independence, alongside more mainstream supporters. This could easily fray, with the Conservatives and/or Reform picking up support.

The current leader, John Swinney, is one of the party’s elders, and looks like a stopgap before the party takes its next bold steps. He will doubtless try to pick up disillusioned Labour voters while ignoring the conservative threat. I don’t think this will work, although it could lead to a messy result at the next Scottish election, whereby no majority can be formed without either the SNP or the conservatives.

The SNP would surely be better off if Mr Swinney stepped back, and let Ms Forbes take the reins. The left is in retreat, and the SNP needs to recognise that.