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
In Britain, we already have a demonstration that populist policies don’t work – in the outcome of Brexit. With an informed political debate, this should rebound against Farage as well as against the Conservatives. But we have not got a sufficiently well informed debate at present. In my view, we need to subject the broadcasting of opinions through social media to the same degree of regulation and control as applies to broadcasting opinions through TV and radio; and we need to stop personal wealth influencing politics, – as illustrated by the activities of that rich person Trump, now aided and abetted by an even richer person – Musk. .
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The populists can be beaten in political debate – but the problem is that if mainstream politicians are unable to deliver on their promises, then the populists will simply bounce back – as Trump has done. There was quite an interesting piece by Vince Cable https://commentcentral.co.uk/the-trust-deficit-grows-with-every-broken-promise saying that broken promises by the last Tory government, and prospective broken promises from Labour, are destroying trust in mainstream politics. They have to stop over-promising – which means more realistic expectations on public services and tax.
The liberal establishment tends to classify anything with which it disagrees as “populist”. The hoi polloi shouldn’t really have an opinion.
The current mainstream macroeconomic consensus can be characterised as ” market-oriented reform policies such as eliminating price controls, deregulating capital markets, lowering trade barriers and reducing, especially through privatisation and austerity, state influence in the economy ”
The question shouldn’t be whether or not this is populist but whether it is incorrect. Both the left and the right would agree that at least parts of it are incorrect.
The global financial crisis in 2008 was clear evidence that it isn’t totally correct. The problems the Europeans have with their euro, which is governed by rules which have their origins in a faulty mainstream understanding is more evidence that we need to open up the subject to reasoned debate.
Naturally the pro EU factions will say that life would be so much better if we were back in the EU. I don’t know who they are trying to convince. Don’t they read about the problems that being in the EU causes France? The French are told to tighten their fiscal policy even though their inflation level is around 1% and unemployment rate is double the UKs.
How does this make any sense?
Hmm.. that’s all a bit debatable. Labour is discovering that the limits of the state and the case for austerity. There isn’t the political consent for tax hikes, and inflation is lifting the scope for both fiscal and monetary policy. The production side of the economy simply isn’t strong enough and we can’t just boost by importing workers. And the dependence on foreign capital is becoming a bit painful. That, too, is a debatable, and I’d agree that this is where more of the national conversation needs to be.
Of course being in the EU isn’t the magic wand that many claim – and even they aren’t talking about joining the Euro, which is much of the source of France’s woes. Then again France’s fiscal position is clearly unsustainable. But there are benefits to the Euro too, and not even Ms Le Pen is suggesting it should be dumped.
There is much to dislike about the liberal establishment and its breathtaking arrogance. But its view represents a much broader strand of the population than its critics seem to realise. It’s not just an elite. Populism, in my mind, is a have-your-cake-and-eat-it political philosophy which pretends that there aren’t any genuinely hard choices to be made, e.g. between immigration, tax and public spending levels. That’s not true of all of the establishment’s critics, but it is true of a lot of them.
It’s not so much the euro, as the rules that go with it which is the problem for France. You say the French fiscal position is unsustainable, but this is true only because of an obligation to meet the rules of the Stability and Growth Pact.
Not being in the euro is certainly better than being in it but, even so, we were still signed up by Treaty obligation to meet the rules too.
I appreciate there does need to be some rules for a common currency but they haven’t been workable since the 2008 GFC. The EU had the good sense to discontinue the rules during the Covid crisis but they haven’t had the good sense to modify them or at least phase them back in gradually.
You’ve come up with an interesting definition of what populism actually means. It’s still questionable. It’s fair enough to agree that there are some difficult choices to make on tax, for example, but the mainstream narrative of “black holes” isn’t doing anything to foster any kind of sensible discussion.
Most mainstream parties promote “have your cake and eat it too” arguments. In the 2024 Lib Dem manifesto, for example, we read that LibDems are fighting for a “A fair deal where everyone can afford a decent home somewhere safe and clean – with a comfortable retirement when the time comes.”
It all sounds very nice, but what is being proposed? There are only two ways housing can become more affordable. Wages and salaries will have rise considerably, maybe even double, or the housing market has to crash taking prices down with it.
Either way the economic consequences will be huge and certainly your fairly affluent Lib Dem voters in the Thames valley won’t welcome having to struggle with the arithmetic of deep negative equity.
A comfortable retirement? Yes, sure, as long as we don’t need expensive social care. I’m hoping I’ll be OK one day but gone the next! We’ll have see how that works out!
I did walk into that one! Yes the mainstream parties, very much including the Lib Dems, are promoting have-your-cake-and-eat-it policies too – based on unrealistic ideas about economic growth. That makes them populist by my definition… but my reaction to that is that populism has become mainstream. I am particularly disappointed that the party of Vince Cable, the only mainstream politician to warn about the great financial crisis before it happened, doesn’t feel the need for any kind of economic realism. But then mainstream parties that try to be a bit more realistic get punished – look at what is happening to Macron.
On the French I guess that I have some rather conservative instincts that big budget deficits and mounting public debt are unsustainable in the long term, even when trade is in balance and you control the currency. You might argue that Japan proves otherwise – but its public spending is not high. Still I admit that is as much instinct as any kind of coherent economic argument.
Yes I’d agree that the rules binding the Euro together are a mess, but I don’t think the impetus to pressure France to improve state finances is wrong. Unemployment there looks chronic and not a matter of cyclical fiscal management.