January 2025 – thinking liberal

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.

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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