This story does not start with the bond market, though it might end there, as it did for Liz Truss. The lesson of her short premiership is that when you walk through the doors of No. 10 for the first time as prime minister, you’d better be prepared and have a fully worked-out strategy. Keir Starmer and Rachel Reeves had a strategy. It wasn’t a great one, but they’d had time to develop it in Opposition. What they lacked was a plan B, ready to unroll when the external environment began to deteriorate.

Right now, Burnham is as unprepared as Truss. He has strong views about the economy, but he has not had time to develop a coherent strategy. A strategy is something you draw up, stress-test, gather opinion on, fine-tune, cost, and sell. This takes years. Burnham has not even started. Nor will he start any time soon because he will be fully focused on his campaign.

Compare this with the extraordinary time and effort Tony Blair and Gordon Brown invested in developing their economic strategy ahead of the 1997 election, or with Margaret Thatcher’s effort in the late Seventies. The economic success of the UK in the Eighties and early 2000s was built on hard work and hard thinking. Brown was probably the most formidable chancellor the UK has had in living memory, precisely because he did the math himself.

During the global financial crisis, something profound happened to the British economy, from which it never recovered. The rate of productivity growth slumped. Until then, the UK economic model had relied critically on the City of London. Finance was the gift that kept on giving. When that ended, financial regulation became stricter. Lending practices became more restrictive. Profit margins fell. A stream turned into a trickle. 

The UK has had seven prime ministers since Blair, but none of them has addressed the problem of low productivity growth. The economy bumbled along, but political disenchantment built up over the years, as became clear during the Brexit vote in 2016.

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What Burnham can learn from Boris

By Aaron Bastani

After the Brexit referendum, I went through the UK’s economic statistics to see why people were so dissatisfied with the status quo. At first, I could not find anything in the official macroeconomic data; but eventually I did. It was an obscure statistic, published by the Department for Work and Pensions, on net disposable income, adjusted for inflation, and after housing costs. Essentially, this is what your wage buys after you have paid your taxes, your rent or mortgage. The lowest and the highest income groups did well in the period from 2007 until 2016. But the ones in the middle did really badly. That’s the median voter, the income group behind most electoral swings.

I recently looked at that same statistic again, now updated to 2025. The situation today is even more dramatic. While everyone above the average did moderately well, the incomes of households with lower and average income did really badly. The worst relative performer was the group that was just below the median income — technically the fourth decile in the income distribution. Their net income after housing costs was £23,500 in 2000. It was exactly the same last year: there had been no change. I would not be surprised if many of them were Reform voters.

There is an interesting quirk in these statistics: the situation was much, much worse in 2024, the year when Starmer was elected. During the first year of his government, the low-middle-income group saw a rise in net disposable income after housing costs by 5%. Given the context, this is as good as it gets. We don’t know what happened in Starmer’s second year because the data hasn’t yet been released. But as of now the Prime Minister can make a credible case that for low to medium income groups, the situation is improving. 

Brexit and the rise of the Reform party did not come out of the blue. Political dissatisfaction builds up over time. What made the politics of Britain’s post-2008 structural slump so much worse were unforced economic policy errors, such as quantitative easing, fiscal austerity, and Rishi Sunak’s excessive stimulus during the Covid years. The triple lock that keeps pensions rising at the minimum of inflation, average earnings, or 2.5%, is an inflationary Doomsday machine. When you have a price shock as bad as that which followed the Covid years, the last thing you want is to perpetuate pension increases.

At its heart, this is a macroeconomic policy crisis. Yet that doesn’t mean you have to revert to Thatcherism to solve it. There exist, in theory, plausible strategies on the Left. But they don’t exist in the Labour Party right now. 

What Burnham calls “Manchesterism” is the least plausible of all. Maybe we should call it Burnomics. This is basically the idea that what worked so well for Manchester will work for the UK. It is the very definition of a fallacy of composition: the generalization from a single example to the whole, from a city to a country. There’s a saying in America that all politics is local. That statement is true to a surprising extent, but it does not work the other way round. The main difference between a country and a large city is not size. It is macroeconomics: cities don’t have currencies, and they certainly don’t have bond markets. Becoming acquainted with the latter will be an entirely new experience for Burnham. 

The one substantial point on which Burnham differs from Starmer and Reeves is his idea of more flexible fiscal rules. This will be the test. In fiscal policy, “flexible” is always a euphemism for a higher debt. 

There are good and bad fiscal rules. The UK’s fiscal rules in the past were better than most. The EU’s system of fiscal rules, by contrast, has never really worked. The reason you need rules is to guide expectations, especially those of the bond markets. 

Burnham said last year that the UK needed “to get beyond this thing of being in hock to the bond markets”. You never heard that from Reeves. One of Burnham’s supporters, Paula Barker, Labour MP for Liverpool Wavertree, told Times Radio last week that once Burnham comes to power, “the markets will have to fall into line”, insisting that investors would be impressed by the new leader’s progressive policies.

It would be interesting to watch, albeit from a safe distance, what would happen if Barker’s proposition was put to a test. The bond markets are not political activists. They trade on available information. Contrary to rumors, they don’t always favor austerity. Bond investors were, for example, skeptical about Javier Milei’s fiscal shock therapy in Argentina because they did not think that it would be politically sustainable. 

If Burnham ended up raising Britain’s taxes and incurring a higher deficit to fund programs of public spending, the bond markets would almost surely question the sustainability of his strategy. They care about the economic program as a whole, not just the deficit itself. And Manchesterism is not a coherent package: it is a bunch of disconnected, virtue-signaling, progressive slogans. 

Reeves started by capping the deficit by following her fiscal rules and then worked out taxes and spending from there. When she did this, the Government invariably hit spending limits. It is possible to do it the other way round — letting the deficit fall where it may — and to succeed. But you would need to persuade a lot of people in business and in the bond markets that you have a viable growth strategy. Judging by the comments made by Barker, and by Burnham himself, that process has not even started.

If Burnham were to become prime minister, he would be the most unprepared premier since Truss. The smartest thing he can do in this situation is to betray his followers, double down on Starmer’s policies, and keep Reeves as his chancellor. That way, he would get the bond market vigilantes off his back. His supporters would hate it, but what can they do? Surely they’re not going to have another leadership contest?

There are worse scenarios. Like Truss, Burnham might pick the wrong advisers. He might want to let rip. He has got three years ahead of him, with a whopping parliamentary majority. That might be tempting. And that’s where our story ends: with the bond markets. 

Such violent mood swings have become a recurring feature of this strange war, reflecting Donald Trump’s whimsical decision-making. But one consistent theme has been that the US President would like to keep the war as brief as possible and has been frustrated by his inability to force it to a rapid conclusion. 

The Iranian regime, which has been prepared to absorb a lot of punishment, has used Trump’s impatience to its advantage, and still appears to believe that time is on its side. Nonetheless, it too is showing signs of exhaustion, with its negotiation team reportedly staying back to craft a fresh proposal after the Americans left. The resulting willingness of both sides to carry on talking has thus brought a wave of relief to investors. 

Still, we should hold our breath and hope for good news. There’s already a lot of damage baked into the economy — damage that will become more apparent, and more painful, as the year progresses. Everything now hinges on these peace talks succeeding. If they fail, things could turn south quickly.

So far, the economic harm of the war has been fanning out across the world gradually, at the lumbering pace of an oil tanker moving across the world’s oceans. It showed up first within the Gulf region, then in nearby Asia and Africa. It turned up in Europe last week, and this week began to reach the United States, with the last tankers to have left the Strait of Hormuz before the war broke out now arriving at their destinations. As a result, if the Strait is not reopened soon, refineries across the world will soon have to start cutting production. Should we reach that point, even the supposedly most sheltered economies, like the United States, will start experiencing shortages.

Given how badly the global economy was affected by oil shocks in the 20th century, it’s fortunate that panic-buying, long queues and energy rationing haven’t shown up in more places, being confined so far largely to Asia. After all, given that something like a sixth of global oil production has been taken offline, along with crucial exports of fertilizers and helium, the head of the International Energy Agency declared the resulting shock to the world economy worse than any previous energy crisis, including those of the Seventies. 

But what has softened the blow so far has been a buffer of oil accumulated by many countries prior to the war. Some countries, such as China and Japan, had long-standing strategic reserves. They and others have also benefited from the fact that it takes weeks for cargoes to reach them — again ensuring that shortages have taken a while to kick in. J.P. Morgan estimates that refineries have been able to run through those stocks until now, minimizing the impact of the sudden shortage. But the Bank expects that, over the coming days, those buffers will run out. While $4-a-gallon gasoline may seem excessive to Americans, it may only be the start.

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There’s no method in Trump’s madness

By John Rapley

All this is contrary to the simplistic narrative that was circulating after the war broke out. The war’s victims, the narrative went, would be those countries which depended most on Gulf oil. China, by this telling, would suffer, whereas the US, since it was a net exporter of petroleum products, would come out a winner. But this isn’t how the war is doing its harm. What matters is not the scale of the shock to hit the economy, but its ability to absorb it. 

So, while China imports a lot of Iranian oil, it also accumulated large buffer stocks before the war and has been decarbonizing its economy for years, giving itself considerable resilience. The country was thus able to absorb a temporary hit. Nevertheless, it now appears to have burned through its fat. The strains are beginning to show, with rising costs and supply shortages starting to affect the manufacturing powerhouse. Moreover, the impact on global demand is hitting Chinese exporters, which in March recorded a sharp drop from earlier in the year.

Although further removed from the conflict, many Western economies had less of a cushion to absorb the inflationary shock. The dependence of many European countries on natural gas supplies from the Gulf was rapidly exposed. Britain, which was already struggling with relatively high inflation and interest rates, has taken a particularly big hit, since consumers already struggling with rising expenses now face the added burdens of pricier petrol and steeper electricity and heating bills. And as for the US, its relative distance from the conflict, the stimulus of tax cuts and its status as a net exporter of petroleum products have given it some resilience. 

Nevertheless, it matters little that the US can gain a windfall off new oil sales, because the oil and gas sector accounts for a measly 1% of the country’s economy. Everyone else, not least the beleaguered manufacturing sector that Trump promised to revive, is facing higher prices, which are helping to both drive up interest rates and empty out wallets. Not only did the recent reports on Consumer and Producer Prices reveal US inflation shooting up on the back of rising energy costs, but inflation had already been rising in recent months, and not just due to energy prices. In short, this inflation problem probably won’t be transitory.

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How Trump keeps Europe weak

By Thomas Fazi

Price increases are manageable when outstripped by wage growth, but this is not happening in Western economies. Until now, American wages have stayed afloat on the back of lavish government spending, but it seems unlikely that a prolonged decline in real wages will not eat into consumption. Ordinary Americans hardly care that other countries have it even worse than theirs. They elected Trump to restore good jobs and bring down prices, but instead, prices are soaring, job growth is all but stagnant and real wages, which have declined since he took office, have now turned negative. That is, expenses are rising faster than paychecks can hope to meet them.

This helps to explain the recent collapse in consumer confidence, which last week was reported to have reached the lowest point ever recorded, with consumers expecting their finances to worsen and prices to rise over the next year, which will likely make their spending behavior more cautious. As of now, the only thing propping up the US economy appears to be rich consumers whose incomes have been swollen by tax cuts and the wealth effect of a buoyant stock market. 

As far as that goes, the Trump administration has so far managed the messaging to investors fairly effectively, repeatedly sending signals that peace is around the corner and thereby minimizing anxiety. This has helped to keep the market steady, which is for Trump the acid-test of his presidency and indeed of his conduct of this war, but at a possible cost: it buys more time for the administration to negotiate, in the hopes of securing the sort of surrender the Iranians are currently unwilling to contemplate; but it also prolongs the standoff. The markets haven’t collapsed, but nor has the Strait reopened, not least since the US is now enforcing a blockade of its own.

In the meantime, cracks in the wall of complacency are emerging. Goldman Sachs estimates that the rising cost of inflation will wipe out the stimulus from the tax cuts. That leaves the stock market to do the heavy lifting of keeping rich Americans spending. Expectations of a strong US earnings season, which just got under way, may well produce a rally in the next couple of weeks. But as the year progresses and the baked-in impacts of the war hinder the economy, the market could subsequently settle into a funk. In the best case, if the war ends very soon and normal business resumes, pent-up demand and damaged supply-chains could keep inflation higher than before, hurting the earnings of consumer-facing firms. In the worst case, if the war goes on for months, inflation and interest rates could rise sharply, potentially triggering a market meltdown and perhaps a recession. As it stands, Polymarket puts the chance of an American recession by the end of 2026 at around 30%. A prolonged war would raise those odds, and a market meltdown would probably push them over 50%. And in the event of a downturn, rising debt levels would make it hard for governments to commit to counter-cyclical fiscal policies without driving up interest rates and thereby choking off investment, while rising inflation would make it hard for central banks to cut interest rates.

Put it all together and we have a fragile European economy, a Chinese one whose export-engine may slow down amid weakening sales, and an American economy headed into possible difficulties. With the world economy looking decidedly fragile, it’s no surprise the IMF this week warned a re-escalation of hostilities could knock its growth down to the lowest levels since the pandemic.

Right now, optimism that an end to the showdown is nigh has kept oil prices from spinning out of control. Nevertheless, the gap between the futures market, where oil is trading at under $100 a barrel, and the physical market, where a barrel of oil now fetches $150, is growing huge. The first price reflects the hope the war will end soon, the second the reality that it hasn’t and the global shortage is worsening. 

That divergence can’t continue forever. If the peace talks fail and hostilities resume, the future price will move upward. If they succeed and the Strait reopens, the spot price will fall and everyone will be able to start rebuilding. All eyes will therefore be on Islamabad this week, to see if the peace talks resume and yield progress. If they do, we can resume breathing. But if talks fail and hostilities resume, we can head for the proverbial bunkers.

It’s the kind of bet that Nathan Detroit might call “very big potatoes”. But for the tech barons, it’s nowhere near big enough. Meta, Alphabet and Amazon announced earlier this month that they needed to raise more than $600 billion this year to fund spending on AI data centers. And although Elon Musk’s xAI raised $20 billion in December, he’ll need far more if he wants to remain competitive. Hence his proposed IPO this summer, when he’ll invite millions of ordinary people to finance the “Muskverse”.  

Much of this money is being spent on building vast, energy-guzzling data centers to power the smarter-than-human machines. Such infrastructure will be vital for any tech oligarchs hoping to win the war for AI dominance. “We have decided,” said OpenAI boss Sam Altman in October, “that it is time to go make a very aggressive infrastructure bet … But to make the bet at this scale, we kind of need the whole industry, or a big chunk of the industry, to support it.”  

Now that tech giants are raising and spending other people’s money, how confident can investors be of getting repaid? The truth is companies such as OpenAI are likely to run out of cash before their tantalizing new technology produces profits. That is why, having used up their own voluminous supplies of cash, AI companies are now being forced to borrow, or go public — with no certainty that the billions of dollars invested will generate revenues sufficient to compensate millions of small-time investors. Last November, Big Tech stocks sold off sharply as shareholders balked at what the Financial Times called “the gargantuan capex plans” of Silicon Valley tech bros, and worried that their investments were unlikely to generate a return.

Big tech gamblers have deceived us before. After all, it was not long ago that we, the trusting public, were offered an equally enticing product: the internet. The original internet wasn’t just a network. It was meant to be a nervous system for humanity. A decentralized oracle. A library of Alexandria that no empire could burn. “Information wants to be free,” we were told. “No one owns the net — it belongs to us all,” we believed. 

Their promises turned out to be false. Instead, the internet has become utterly enshittified. There are few platforms or devices whose user experience has not degraded.  

Nor was it long ago that Mark Zuckerberg made a bet of more than $100 billion on the “metaverse” — a virtual-reality world to which he was so committed he changed Facebook’s branding to Meta. Yet now it seems that bet is off. As financial journalist Robin Wigglesworth noted: “The whole metaverse thing now seems to be completely memory-holed by everyone — including Zuckerberg himself.” As of the end of 2024, the cumulative losses suffered by Meta’s Reality Labs division stood at $68.9 billion. Big potatoes indeed. 

It seems that AI, too, is on the path to enshittification. Last October, Altman announced that, as part of OpenAI’s “treat adult users like adults” principle, the company would be allowing erotica on the platform. Now, he’s gone further. Because AI is expensive to run, OpenAI has started testing advertising on ChatGPT. Zoë Hitzig, a former researcher at the company, resigned over the issue last week. In a New York Times article, she warned that: “For several years, ChatGPT users have generated an archive of human candor that has no precedent, in part because people believed they were talking to something that had no ulterior agenda … People tell chatbots about their medical fears, their relationship problems and their beliefs about God and the afterlife. Advertising built on that archive creates a potential for manipulating users in ways we don’t have the tools to understand, let alone prevent.” 

The extraterritorial, largely unregulated space in which tech billionaires wheel, deal and speculate is defined by economists as the “international financial and monetary system”. I, however, in the spirit of J.M. Keynes, would call it the “Global Casino”. Tech titans are joined in this space by big corporate and individual speculators in the Casino’s markets for money, food, energy and pensions, and by an unregulated shadow banking system that spews out easy, if shady, money.  

Though the Casino operates in an unregulated sphere, it remains tethered to the real bailout economy that the rest of us — the “little people” — live and work in. If the Casino goes down, central banks will have to bail it out. The gamblers know, as we do, that they are too big to fail, and too big to jail. 

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Can we escape AI slavery?

By Yanis Varoufakis

Of course, capitalism has always produced daring, creative risk-takers — those who dreamed of, invested in and built the railways, computers and the internet. What’s different today is that unlike railways, computers and the internet, AGI doesn’t exist. The AGI bubble may just be a vast techno-dystopian power play designed to put Silicon Valley bosses in political and financial control over a weakened global labor force. This is class war at its most brutal.

The Casino’s activities have already had a damaging impact on the real economy, and ignited a global political backlash. To my mind, it is the volatility, instability and imbalances of the Global Casino, rather than wages or the pandemic or even Big Tech, that is largely to blame for the ongoing cost-of-living crisis endured by most of the world’s economies since 2020. It is the Casino’s speculative global markets for agricultural goods and energy that have led to volatility in the prices of key commodities, and that in turn has driven up the cost of living. That has led to a worldwide clamor for protection from markets that deny consumers affordable food and energy, and in some countries affordable housing, health and education. Voters are increasingly turning to authoritarian leaders who promise to protect the public from the out-of-control Global Casino and the system’s attacks on living standards. 

To restore stability to the global economy, and protect consumers from Big Tech, we must bring the Casino back down to earth and comprehensively transform the international financial architecture. This may be a grand ambition, but in the event of another global financial crisis, or even a catastrophic world war, it will be a necessary one. 

In the meantime, we must address the problem of speculation. It’s hardly a new phenomenon. For centuries people have gambled on future outcomes. For much of that time, the most honorable purpose of speculation was “hedging” — a form of insurance to deal with the uncertainty of the future. Judges, courts and the law have long recognized that there is a difference between hedging that serves a social purpose and hedging that is mere speculation. Speculation increases risk, leading to price bubbles, volatility, manipulation schemes and inflation — all characteristics of the AI bubble. In its worst form, it must be understood as rent-seeking: the attempt to acquire wealth not by creating it but by effortlessly extracting wealth from another.

Harvard Professor Lynn Stout suggests that we return to an older system. “The old common law rule against difference contracts was a simple, elegant legal sieve that separated useful hedging contracts from purely speculative wagers,” she argues. Under this system, the law would no longer be used to enforce the terms of a speculative contract if it were broken. 

This reform would bring speculators — and tech billionaires — back to reality and force them to think carefully before making bets at scale by inflating bubbles and encouraging speculation that cannot be honored by reference to real-world conditions and law.

All the quagmires of government failure are distilled into this sector. An aging population puts the Treasury under ever more strain, but successive governments are too afraid of upsetting the asset-rich gray vote. Staffing crises are assuaged by importing cheap foreign workers, and local authorities are bankrupted by ballooning costs. All the while, council tax payers wonder where on earth their money goes.

Health Secretary Wes Streeting wrote in The Guardian at the beginning of the year to tell us how seriously he was taking the crisis. Despite our aging population, the number of people receiving state-funded social care has fallen by 10% in a decade, adding huge demand pressures on hospitals and GPs. Around one in seven hospital beds are taken up by fit patients with no discharge plan in place. What’s more, social care costs are expected to double by 2038. But there’s no idea about what to do. As the ratio of workers to pensioners becomes more and more lopsided, fewer taxpayers will have to foot the bill for larger numbers of dependents. One of the larger items on the bill will be a rapidly expanding workforce in an already enormous sector; while over 1.5 million people work in social care today, even amid chronic shortages, by 2040 that number is expected to rise by 470,000 to over two million.

Meanwhile, ultra-liberals wrap their gratitude for bargain-basement social care workers in paeans to diversity and cosmopolitan tolerance. I’m thinking, of course, of Zack Polanski. “One in five care workers are foreign nationals,” he reminded a Question Time audience earlier this month. “I don’t know about you, but I don’t particularly want to wipe someone’s bum, and I’m very grateful for the people who do.” It seems the progressive mindset is now so flexible that it can accommodate an attitude to labor relations that would be familiar in an autocratic Gulf petrostate: grossly underpaid foreign workers are invited and maintained as a vast, low-waged service army, while the middle classes engage in more dignified work, like making podcasts about “eco-populism”.

There’s a more essential challenge here, too, as services including residential care homes are hollowed out by parasitic ownership models, hedge funds and private equity — a model which has been adopted across the public sector, not just in social care. Councils often award contracts to large providers based on “value for money”, handing over service provision to private firms that can supposedly deliver with economies of scale. But studies have shown that the outsourcing of provision almost never has a positive impact on quality of care — it simply increases costs for service users. Currently, anyone with assets over £23,250 contributes to their own costs of care, while local authorities shoulder much of the increasingly heavy burden. To make matters worse, research released last month found that, over the course of just three years and in only three English regions, £250 million in profit was extracted from social care provision, often by companies registered in tax havens.

This is the end result of a particular kind of political economy. It was in the 19th century that Joseph Chamberlain, then the Liberal mayor of Birmingham and later a prominent pro-imperialist Tory, pioneered what was called “gas and water socialism”: municipal authorities would provide basic public utilities directly. Yet somehow we’ve regressed over the last century and a half, with anyone now proposing a model like Chamberlain’s liable to be dismissed as a socialist fantasist. Instead, for almost 50 years we’ve advocated a model that sells England by the pound: the government structures that once promised cradle-to-grave care are now emaciated and powerless in the face of foreign investors. Everything is put out to tender and outsourced, with the local and national state as the customer. Around a third of government spending now goes on procurement from the private sector. And ultra-dry Thatcherites, the Blairite modernizers, and their Cameroonian heirs have all played their part, extending the practice and allowing the core capabilities of the state itself wither. The taxpayer pays, but it’s often an opaque world of para-state private behemoths delivering everything at the coalface, disguised behind a government logo.

The results are mixed, at best, and the only sure winners are the investment groups themselves, and perhaps the expensive lawyers that oversee the Byzantine tendering process. As for the state’s own capacity, institutional memory, expertise and personnel — all these are now woefully inadequate.

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What does Blue Labour stand for?

By Samuel Rubinstein

In social care, it wasn’t until the Eighties that local authority-run homes began to be sold off. The NHS and Community Care Act of 1990 took away councils’ responsibility to provide care directly, replacing it with a requirement simply to buy care from private providers. Where 89% of care provision used to be delivered by public providers or charities, today the proportion of private provision stands at 83%. Service users are left vulnerable, as care homes are taken over by the sovereign wealth funds of more entrepreneurial, agile states — ones that patiently invest in long-term assets rather than rushing to sell them off to the highest bidder.

Taken together, the sector encapsulates our embrace of the twin liberalisms that have defined the last decades. The economic liberals first insisted we break up the state monoliths, and introduce internal markets, the spirit of entrepreneurialism and healthy competition into public service delivery. Soon after, the social liberals demanded that we welcome historically unprecedented numbers of arrivals into the country. The British labor market at the lower ends of the wage scale has paid the price.

Perhaps unsurprisingly, successive governments have avoided tackling this crisis head-on. Fine words aside, Streeting is no exception, ordering yet another lengthy review, not due to report until 2028. Andrew Dilnot, the respected author of the last review, was openly disparaging of Labour’s delays. He has already offered his own solutions: one involves a national criterion of eligibility for care. Beyond replacing the current postcode lottery hodgepodge, this would, in effect, create a National Care Service of sorts, paid for with capped contributions from individuals with social care needs, and levied upon estates over a certain threshold. The Holy Grail for local authorities would be a truly integrated national service, taken out of the purview of cash-strapped municipalities. They would be then free to focus on the services used by the majority of people who do not use social care, but who nevertheless pay up to two thirds of their council tax bills toward its failing institutions.

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Who comes after Starmer?

By Jonny Ball

At its best, care work could be transformed into a secure, decently paid profession, on a similar footing as nursing or teaching, ending the doom-loop of high turnover, chronic shortages and low skills. That would have a fiscal cost, of course, and may require controversial incursions into the enormous real-estate portfolios of human history’s most fortunate generation: the Baby Boomers. But the point is that Streeting already knows what needs to be done, and yet he is unwilling to expend the political capital to do so. Memories of Theresa May’s ill-fated “dementia tax” are raw.

Such timidity is grimly to be expected. For if it’s impossible to escape the feeling that nothing now works, it’s equally hard to avoid the fact that our politicians seem totally adrift, powerless amid the global forces swirling around them. What’s worse is the growing realization that this impotence has been self-inflicted. It’s the result of conscious decisions to wind down and outsource the direct functions of state, to diminish the powers of the executive, to degrade and then offload assets, in effect to sell the family silver. We’ve got ourselves in chronic indebtedness and at the mercy of international lenders and speculators — only to then turn around and cry “not me, guv” when things fall apart.

One might expect a Labour government that talks of “resilience” to grasp the nettle and finally start rebuilding the capabilities of the British state, taking on private interests and rebuilding the public realm in public hands. But why wreck a career on social care, as so many senior ministers have before, especially for a man as clearly ambitious as Streeting? The dysfunction is such, after all, that any attempt at reform may open a Pandora’s Box, leaving even the best of our secretaries of state without a future. And so, when it comes to social care, nothing is to be done, and nothing sums up our very British dysfunction quite like it — the truest icon of our national decline.

The other pack that will go after Reeves are the journalists and political commentators who will criticize her for breaking her tax promises. My view is that making tax promises is a bigger crime than breaking them. The economy is changing all the time. What politicians should offer instead, and what voters should demand, is to have clarity about the underlying fiscal philosophy.

Labour’s manifesto was especially stupid, because it made a “non-negotiable commitment” to fiscal rules together with a promise not to increase income taxes on working people, not to increase National Insurance contributions, and to instead increase value-added tax, or corporate taxes.

You don’t need to be a math genius to understand that the taxes received by the government, minus the spending, is the net deficit. And the deficit, in turn, is funded by borrowing. If you give iron-clad commitments on taxes and the deficit, you have entered a battle with the laws of arithmetic. It is very difficult for a government, especially this government, to reduce spending. Most spending is pre-committed, like spending on the NHS, or defense. And the parliamentary Labour party did not support Number 10’s attempts to marginally reduce spending on welfare.

Our fiscal equation is, in reality, a tad more complicated. It is not exactly taxes minus spending. Instead, it is expectation of future tax revenues minus expectations of future spending. Massaging these expectations is the only real wiggle room for chancellors. And this is also the only way to divert the bond market vigilantes and journalists that come after you.

This is where Reeves is failing. Her job is to make a credible case that her policies will raise productivity growth. That in turn would lead to more tax revenue, and less spending on welfare, as people get back to work. She is clearly not making that case.

The trouble in the UK, as in many other countries, is that chancellors cannot do that anymore. They have given that one last lever to an independent bureau, the Office for Budget Responsibility. The OBR is what is called an independent fiscal council. This type of institution is relatively new — it was popularized in the early 2000s. The OBR opened in 2010, and the experiment was emulated by other countries.

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The rot at the heart of Europe

By Wolfgang Münchau

If you want to know why Reeves always looks so miserable in pictures, this is it. If you impose so many constraints on yourself, the job of chancellor is no fun. She is not legally obliged to accept the forecasts of the OBR. She can take somebody else’s or make up her own. I have been told the story of a former UK chancellor, who shall remain unnamed, who once received a forecast of negative growth. He took out his pen and drew a vertical line through the minus sign. “There, I fixed it,” as the modern internet-age meme goes. At the stroke of a pen, literally in this case, he eradicated the tyranny of the forecasters. But doing this requires confidence, together with the ability to string together a convincing story.

This is also why Liz Truss and her chancellor, Kwasi Kwarteng, failed. If they had linked their tax cuts to economic reforms to raise productivity growth, there would have been no problem. But by front-loading the tax cuts, they gave everyone the impression that they did not have a clear strategy.

Last week, the bond markets panicked when one of Reeves’ many budget leaks suggested that she will not, after all, raise income taxes. They know that she is not a chancellor with the confidence to cross out a minus sign. She won’t ever tell the economists that they are wrong, or tell her own party that she is running the show, and not them.

Confidence is an important quality for a chancellor. What matters a lot less is knowledge about economics. Denis Healey and Nigel Lawson had confidence, and so did Gordon Brown and George Osborne. Healey was a classicist by training. Brown was a historian, and so was Osborne. Lawson studied Politics, Philosophy and Economics at Oxford. This did not really qualify him as an economist, more like someone with a license to talk about the economy. And talk he did, first as a financial journalist, later as a politician. I picked two Labour chancellors and two Conservatives. They were the most impressive occupants of Number 11 in the last 50 years, not because they were experts in fiscal policy, but because they understood the politics of fiscal policy. Reeves is educationally better qualified. She holds a master’s degree from the London School of Economics. She probably understands the technical side of fiscal policy better, and has more respect for the work of economists. This is exactly where the problem is. She is the chancellor who, as the saying goes, knows the price of everything but the value of nothing.

Another quality that Healey, Lawson, Brown and Osborne had in common was that all four of them were at one point thought to be future leaders. Of the four, only Brown became one. It is telling that in all the speculation about Keir Starmer’s future and his possible replacement, Reeves’ name never comes up. She does not have the political nous to lead.

To understand fiscal policy in its broader political, economic and financial context is intellectually hard. No university course will ever prepare you for this. In economic models, humans are called “agents” — dehumanized entities that rationally respond to incentives. In politics, you are dealing with actual humans. Even the bonds market consists of humans.

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Labour’s technocratic tyranny

By Wessie du Toit

A good example of how a government turned the tables on the markets was this year’s US Budget. Donald Trump’s One Big Beautiful Bill is more irresponsible than anything I have ever seen coming out of Number 11 Downing Street. The bond markets panicked after he announced his tariffs in April. But his treasury secretary, Scott Bessent, knows how to talk to the markets. The overall level of tariffs is higher today than it was in April when the markets panicked. And yet the markets have calmed down again.

That’s the job of a finance minister, a treasury secretary or a chancellor. The Trump administration has quite a few people from the financial sector in senior positions, including Bessent himself. The workshare at Cabinet level is that Trump does the political selling, and Bessent keeps the investors happy. Neither of them plays by the rules. They ignored the economists over the tariffs. And then again over the stablecoins, a cryptocurrency-based financial instrument that is now actively sponsored by the US government. Trump and Bessent create their own facts, and make their own moves, like successful businesspeople do. They are not asking the Congressional Budget Office, the equivalent of the OBR in the US, for permission.

More often than not, such policies, irresponsible as they may appear at first sight, work surprisingly well. Remember all the forecasts by economists who predicted that the first Trump presidency would end in economic disaster? Or the recent estimates about what tariffs will do? Trump does not understand economics, but his policies always end up surprising economists. I don’t think this is a case of luck. A monkey with a dartboard can easily outperform a macroeconomist armed with a faulty model.

Contrast the cocksure behavior of Trump and Bessent with Reeves’ pre-Budget antics. She has already lost the political battle. We know that the OBR has set the parameters of the Budget. She has no choice but to raise money through taxes. All the leaks were trial balloons because she wanted to know how they would go down. She is driven by fear, and that means she is not in charge. Reeves’ Budget is not only predictable. It is predicted. And the bond market vigilantes know it. They are often excellent judges of character.

The original vigilantes arose in the American goldrush towns of the 19th century in places like California, Montana and Texas. They were citizens taking the law into their own hands. But it was a dangerous life. Many of them ended up killed by other vigilantes.

Today’s bond market vigilantes also play a risky game. They hunt in packs, but they die on their own. Together, the Bank of England and the Treasury have many instruments at their disposal to inflict heavy losses on speculative bond investors. But in the UK, investors know that this is not going to happen. They see Reeves running away from them — and they smell fear.

Ten years on, Donald Trump has waved aside decades of climate science as a “con job”, recently joining Saudi Arabia in sinking a landmark deal that would cut global shipping emissions. Meanwhile, Europe, bound by the knots of its own climate bureaucracy struggles to execute an ambitious industrial strategy. At COP30, Brussels will speak the language of leadership — but with diluted goals and waning momentum. Washington, turning inward as a newly unapologetic petrostate, may arrive only to heckle from the wings. The climate consensus is fracturing.

China will arrive in Belém with confidence — and control.Over the past decade it has built the world’s most complete clean-energy manufacturing base: it now produces well over 80% of global solar modules, leads the battery supply chain from raw materials to final assembly, and dominates the rare-earth mining and processing vital for EVs, wind turbines and electronics. Clean-energy projects around the world depend on components that pass through its industrial ecosystem. Put simply, Beijing controls the infrastructure of decarbonization.

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By Elizabeth Lindley

As the principal architect of the low-carbon era, China can build what others only promise — but at a price. For some, Beijing remains an indispensable partner in decarbonization, able to mobilize capital, equipment and contractors faster and cheaper than Western institutions. But others are more cynical, regarding China’s strategy as a new form of green colonialism. China’s ascent as the world’s system-builder inspires as much admiration as unease.

With its grip on global supply chains, China has de facto control over certification regimes, pricing structures, and emergent standards for green finance, all of which increasingly govern market access. The electric-vehicle sector offers a glimpse of what is to come: Chinese batteries and EVs may have higher life-cycle emissions than Japanese or Korean rivals, yet cost and scale have allowed Beijing to dictate the terms of competition. Falling emissions are reinforcing China’s claim that state direction delivers results.

But Beijing’s path to decarbonization is riddled with contradictions. China is both the world’s dirtiest industrial behemoth and its leading green architect. In 2024, China broke records for wind and solar installation even as it approved more coal plants than at any point over the last decade. Critics interpret this as “green-washing” or bad faith, but for Beijing, it’s “sequencing” — the belief that industrial might in strategic sectors must come before emission cuts.

It is a transition philosophy without precedent. “The path, method, pace and intensity… must be determined by ourselves,” Xi Jinping has insisted. What has followed is a multi-trillion-dollar experiment: China is attempting to reach its dual carbon goals — peaking CO2 emissions before 2030 and achieving carbon neutrality by 2060 — without dismantling the largest industrial base on Earth.

For Beijing, industrial strength is the foundation of geopolitical power. Commanding roughly 35% of global manufacturing, with projections of 45% by 2030, manufacturing is not something China is willing to trade for climate credibility. On the contrary: it believes the world’s low-carbon future can only be built by those who still know how to make it.

In Beijing’s view, whoever builds the clean-energy economy will write the rules of the next world order — just as the United States once did through oil, arms and the dollar. Decarbonization, by this logic, is statecraft, not climate stewardship. Domestically, it doubles as an insurance policy,  securing water, food, and energy on China’s terms before scarcity and climate shocks arrive. This strategy grants Beijing the mandate to plan decades ahead and mobilize entire sectors.

China can also pursue policies that would be unthinkable in pure market economies. While Western governments set climate targets and leave delivery to the market, Beijing intervenes directly. Strategy is directed from the top, and capital is treated not as a market outcome, but as an instrument of national power. Policy banks funnel cheap finance into strategic sectors often years before they are commercially viable. State-owned firms absorb early risk, allowing new technologies such as carbon-neutral steel and advanced battery chemistries to be trialed without needing to turn a profit. Once a technology shows promise, the state withdraws protection and unleashes a brutal survival-of-the-fittest competition: the strongest are rapidly scaled up, the rest are abandoned.

Contemporary Amperex Technology Ltd. (CATL) is a product of this system. A decade ago, China granted subsidies to dozens of battery startups before ruthlessly pruning the sector. Graveyards of failed EV startups now ring the outskirts of Hangzhou and Nanjing. CATL survived the cull, and was quickly scaled up into a “national champion”. Today, its dominance in battery technology anchors China’s lead in the global EV supply chain.

It is not tidy or efficient, but waste and failure are built into the system. Duplication builds capacity; missteps refine technology. Beijing doesn’t care about short-term profitability, instead incubating firms that will dominate the industries of the future.

Foreign expertise has also helped to accelerate industrial innovation. Tesla’s experience in China is a case in point. Lured into Shanghai with tax breaks, land grants and regulatory exemptions, it was welcomed not just as an investor but as a benchmark against which domestic firms would be forced to compete. Silicon Valley might have interpreted this move as market openness for Beijing, though, it was a controlled experiment in technological transfer. Within a year, nearly 90% of Tesla’s Shanghai-made components were sourced locally. The company thrived, but so did the rivals it helped train. Elon Musk laughed off BYD as a joke in 2011; by 2023, it was outselling him. China hosted the world’s most celebrated innovator to train its own, and then scaled beyond his reach.

This dual system — ruthless competition steered by state direction — has already delivered China’s overwhelming manufacturing dominance in solar panels, batteries, and electric vehicles. Now Beijing is applying it to the dirtier, harder-to-abate sectors.

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China is back in business

By John Rapley

Greening heavy industry is one of the toughest frontiers in climate action. Steel, cement and aluminum are responsible for a third of China’s emissions and more than half of global output. These sectors are the backbone of the modern economy — and they are almost entirely coal-dependent. Replacing that foundation is  technically daunting and financially risky;blast furnaces burning at over a thousand degrees cannot be wished away. Instead they must be carefully reengineered with new, low-carbon technologies. Those alternatives, including hydrogen-based steelmaking, carbon capture and low-carbon smelting, demand deep pools of capital and years of industrial trial and error. China’s system is built to keep funding the effort until one of them works.

Now, China has an opportunity to experiment with changes to production without disrupting growth. A prolonged slump in the property sector and population decline have lowered demand for carbon-intensive cement and steel, driving a fall in emissions. This slowdown affords Beijing breathing room to trial hydrogen and carbon capture technologies, all while embedding its own certification systems into supply chains.

The stakes are enormous: Beijing is betting that it can decarbonize the world’s largest industrial base and then export the model abroad. Success would not only yield clean factories, but would grant China the power to define what counts as “green” and thus shape the standards of global trade.

Beijing is seizing the opportunity to build a parallel economic order. Through carbon certificates, “zero-carbon” industrial parks, and an expanding taxonomy of green finance, it is embedding Chinese standards into global regulation and capital flows. These mechanisms are fast becoming the plumbing of 21st century commerce: converting carbon footprints into tradable data, and data into passports for goods and investment. In the coming decade, carbon content will likely become a default value — printed on everything from car batteries to shipping containers. Beijing wants to be the one writing the label.

The longer the United States and its allies delay a credible counteroffer, the more likely it becomes that the world’s low-carbon future will be wired, financed, and standardized in Beijing. Western policymakers increasingly recognize the scope of China’s industrial strategy — but their responses remain piecemeal and defensive: tariffs, tax credits, and talking points in place of coordinated vision. As COP30 convenes in Belém, that asymmetry is laid bare. All eyes are on China.

Even if the crash wiped out only a vocal and desperate minority of leveraged retail traders, it revealed how dependent many Americans, especially young men, are on various forms of gambling for income. Other symptoms of this dynamic included the “Liberation Day” mini-crash in April and the Gamestop stock craze in 2021. The risks that retail traders are taking seem more and more dramatic; a few make millions and post their winnings on Reddit; thousands seek to emulate these gains and get wiped out.

The economy of the 2020s is marked by a nervous, Zyn’d up desperation. The emergence of prediction betting markets like Polymarket, Kalshi, and Robinhood, moreover, suggests that an entirely novel economic system — the casino economy — has emerged from the information economy, the same way the information economy emerged from the midcentury industrial economy. 

Platforms like DraftKings, Robinhood, or Kalshi clearly incentivize us to engage in gambling behavior. And an extremely fragile labor market and future for labor means gambling to survive is increasingly necessary. The crypto crash illuminated, but did not create this reality; gambling (like OnlyFans, to cite another adjacent phenomenon) happens in proportion to a decay in dependable, salaried wage labor.

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The Millennial virtue economy is dead

By Matthew Gasda

We are pushed and pulled into the casino economy. This is an enormously complex phenomenon, but it’s worth trying to understand why this is happening and what the ramifications are.

One factor is that the information economy — sometimes known as the economy of bullshit jobs or email jobs — de-conditioned millions of college-educated Americans to tangible toil, as technical or laboring jobs were shipped overseas or taken by cheap migrant labor at home. These shifts, determined by Wall Street, the cheap-labor lobby, and neoliberals in both major parties, were of immense public consequence; yet the public had little input into them. Between 2008 and 2023, the real economy shrank. Young people entering the labor market either managed to secure email jobs (IT, management, human resources, and the like) or fell into an abyss of service-sector precarity; many straddled both sectors, serving as adjunct philosophy teachers by day and as baristas by night. 

The Obama economy’s rebound after 2008 was partly driven by the lottery-like dynamics of NGO jobs and tech jobs — by private and public email jobs. Getting an email job at a startup that succeeded could mean being set for life, while the runners-up would remain economically insecure. These jobs were also ideologically aligned, meant for and granted to so-called coastal elites with the requisite progressive views. This was the economy of New York, LA, DC, and Seattle (the heartlands were buoyed by natural gas, but those jobs also came under attack from the green agenda).

The problem with the Obama-era version of the information economy was that the products minted by NGOs and tech companies and advertising firms didn’t help us do anything — didn’t improve our quality of life. NGOs too often took up niche causes (while laundering their donors’ money). Tech companies visibly eroded quality of life (addictive social feeds, for example, mean going to restaurants where people at the same table scarcely look at each other, let alone, you know, talk). Private equity and hedge funds asset-stripped the real economy, piling debt atop debt to buy up legacy firms, refusing to invest in them, and thus dramatically boosting the likelihood of bankruptcy.

Getting an email job in 2011 was like winning the lottery (especially when those jobs came at startups that vested equity in the company); but the “good” jobs that Millennials found or created in the early Obama era were largely fake in the sense that they what they “produced” was bad for everyone who didn’t work in tech, finance, or advertising. These jobs contributed to the erosion of community life, and detracted from the well-being of Americans at large, and so there was never growing prosperity, or — to borrow the buzzword du jour — collective “abundance.”

The Millennials who were doing well in the Obama economy were doing so at the expense of many  others who weren’t. The product manager who made Facebook more addictive enriched himself at a cost to its users. NGOs that pushed ideological propaganda into school districts or hospitals or the arts achieved narrow victories for themselves, but inflamed social tension, disempowered parties and other mass-membership organizations, and eroded the quality of discourse. 

This economy was value-negative, and its economic benefits, what there were of them, were not well-distributed geographically or across class lines. It was an economy of gross inequality. It now appears to be giving way to something else. Between 2009 and 2019, the top 1% of US households captured roughly two-thirds of all wealth gains; median household wealth, by contrast, barely returned to pre-recession levels. During the same period, private-equity assets under management mushroomed to more than $5 trillion, up from about $1 trillion, and tech giants became Leviathans.

As the email economy falters, and as email jobs are either cut in Washington by a populist Trump administration or replaced by AI, elite laptop-class and credentialed coastal professionals are still habituated to expecting a lot for not a lot of work. That’s where the gambling mindset comes in. Stated bluntly, whether you got into the email job economy and are now feeling precarious, or whether you, like myself, never made it in, you have incentive to gamble.

Yet we have neither the skill nor the taste for the daily, dependable, reliable labor of our grandfathers and grandmothers. The insignia of the information economy — bloated degrees, bloated grades, bloated accomplishments, ideological hypothyroidism — are increasingly useless, and probably should be useless.

The casino economy stands at the threshold of the information economy and whatever comes next. What’s less clear is whether it’s transitional or semi-permanent. It may define the whole next era. Americans have some agency yet in this historical unfolding.

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Beware San Fran’s rationalist cult

By Matthew Gasda

While the long-term success of the Trump administration’s economic agenda is far from guaranteed, there’s a refreshing long-termism in the integrated platform of tariffs, corporate reinvestment, and public stakes in private companies — especially companies related to national security, chips, heavy metals, aerospace, and defense. Reduced dependence on migrant labor, which suppresses wages on the lower rungs, would also have long-term benefits. The Trump administration would like to get America back to making things, and for those things to be made by Americans. (On the other hand, Trump’s embrace of crypto and rampant speculation provides reason to be skeptical. There’s a worrisome, even loathsome, enthusiasm for vapor over material abundance.)

And the revitalization agenda is somewhat bipartisan. The most salutary aspect of both parties’ economic ideals is connected to re-embracing the real, rather than the informational, fake product and fake productivity. The general popularity of economic visions predicated on material, street-level reality is encouraging (in contrast to the 2010’s emphasis on ideological and digital “progress”).

At the same time, both parties and politicians across the spectrum are speculators themselves, trading inside information for massive stock gains. (Members of Congress consistently outperform the market by 6% to 12% annually). The casino economy has also been casino politics for a long time.

As for me, I buy dividend stocks, having gotten burned by day trading in 2021. Occasionally I’m tempted into losing money on a football or basketball game. I really enjoy my weekly poker games and the friends I’ve made playing poker. But what I’d like is to not be quite as excited as I am when I can buy groceries with my poker winnings, and for my friends to not be worried about the price of Etherium as it drops in real time during our game. I’d like gambling to be fun (again).

Across the globe, the nationalist Right, from Elon Musk, Benjamin Netanyahu and Donald Trump to Giorgia Meloni and Britain’s Daily Telegraph, lionized him. Niall Ferguson, the financial oligarchy’s court historian, declared a “man-made miracle” in the making. For a few brief months, as Argentina’s inflation rate plunged from its peaks, and even the poverty rates seemed to decrease, the chorus of fanboys grew deafening. Until everyone fell silent.

Today, the miracle has been exposed as a mirage. Argentina’s economy has nose-dived and its peso is in a death spiral, with a desperate $20-billion lifeline from the US and yet more rescue loans from the IMF keeping the Milei show on the road until the forthcoming mid-term elections. Closer inspection of the poverty reduction sub-miracle also reveals a mirage: the only reason the relative poverty index dropped was that median incomes had fallen faster than those at the bottom with the result that that fewer people now count as poor. The situation in Argentina is what you would call a meltdown — but is it really a surprise?

Milei’s explanation is that he was undermined by the poisonous casta and its Leftist handmaidens. The alternative explanation of many of my Leftist comrades is that we are witnessing the inevitable failure that comes when libertarian ideology is put into practice. But I don’t buy either explanation. The truth is, I believe, far simpler, more sinister and depressingly familiar. Milei never really broke with Argentina’s sad oligarchic practices of the past. He merely rebranded a type of heist practiced by a long succession of his predecessors — from Peronist Carlos Menem and anti-Peronist Fernando de la Rúa to hapless Adolfo Rodríguez Saá, whose presidency lasted a mere seven days, and, more recently, neoliberal Mauricio Macri who now supports Milei. While Milei used libertarian narratives successfully to distance himself from these people, his actual policies fail the most important libertarian litmus test.

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Britain’s Thatcherite doom loop

By Yanis Varoufakis

Before you, dear reader, dismiss me as a Marxist (that I admittedly am) intent on dismissing a political opponent’s success as a dismal failure (something I avoid like a mortal sin), let me put it to you in simple, libertarian terms. If you (unlike me) truly believe in the markets’ superior wisdom, and want to rid Argentina of political constraints placed on the market mechanism, which market do you liberate first? The money market, surely. Which price distortion do you drive your chainsaw through first? The fixed (or bounded) exchange rate, unquestionably. And what is the last thing you do? Precisely what Milei did: borrow zillions of dollars, pile them up on top of an already unbearable heap of public debt, to prevent the money market from choosing freely the exchange rate of your currency.

Why did Milei do this? Why did he break his promise to neutralize, even abolish, his central bank and, instead, use it to prop the peso up to levels that the free market considered ruinously high? Milei’s answer is that, had he not defended the peso, the prices of imported goods would rise, thus undermining his fight against inflation. Maybe so. But that was the argument of previous Argentinian presidents whose legacy Milei’s chainsaw was meant to pulverize. A libertarian would never espouse that logic, which is in my view largely responsible for Argentina’s never-ending crisis.

In other words, if you truly believe that prices for medicines, bread, petrol and iPhones must be left to the ruthless but ultimately wiser forces of demand and supply, you must surely believe the same thing about the price or exchange rate of the peso. You would surely believe that pricier imports would help the peso to recover automatically and strengthen your prized disinflation process in an organic, rational manner.

As a libertarian, Milei should also know that propping up the peso is a fool’s wager. When your central bank’s dollar stash runs out, you need to do what no self-respecting libertarian does: enter into an unwinnable chicken game against merciless financiers who can always amass a war chest larger than any credit card the IMF or US Treasury Secretary Scott Bessent will provide you with. Bessent knows this better than anyone: as George Soros’s deputy, the pair of them broke the Bank of England playing exactly this type of game.

Unwilling to assume that Milei is a fool, the only remaining explanation is that he knew damn well what he was doing. Argentina is a highly unequal society combining mass poverty, a sophisticated polity, and an antiquated industrial sector alongside a rich, highly competitive export-oriented agricultural and mineral sector whose dollar proceeds allow first-world living standards to a small segment of society. Its oligarchic segment would love it if the peso were replaced, as it was in Ecuador, with the dollar, so that their domestic assets could be infinitely transferable to New York or Geneva. Otherwise, they demand a strong peso whenever they feel like liquidating a domestic asset and transferring its value abroad. Argentine Presidents have seldom failed to do this.

In 1991, Domingo Cavallo, President Menem’s Economy Minister introduced the so-called “Convertibility Plan”: pegging the peso to the dollar on a one-for-one exchange rate while borrowing enormous quantities of dollars to defend it. The artificially high peso value crushed exports, setting off a peso doom loop that led to a $40-billion IMF loan in 2000. Sound familiar?

During Menem’s presidency, Argentina’s ruling class knew that it was only a matter of time before those loans ran out and the peso crashed. So, they indulged in “carry trade”, borrowing pesos locally, converting them into dollars at the artificially high exchange rate, and wiring the dollars abroad. The longer the inevitable devaluation was delayed, courtesy of the burgeoning dollar debt, the more risks they took by buying domestic assets in pesos to liquidate a little later — hoping to benefit from the runaway domestic inflation before the crash came. Between 1998 and 2001, when the peso dropped like a stone, $70 billion was transferred out of Argentina by the very few, with a gigantic dollar burden of more than $100 billion falling on the impecunious multitudes and causing a humanitarian crisis.

More recently, something similar happened under President Mauricio Macri. After borrowing heavily from international markets to ingratiate himself with foreign creditors (who had bought Argentinian debt for pennies and demanded dollars) and maintain a façade of stability founded on an overvalued peso, Macri’s administration was forced to secure the largest standby loan in IMF history, $56 billion. It proved sufficient to bolster the peso’s value for long enough for institutional investors and the local oligarchy to complete the same ol’ heist: liquidate assets and transfer the dollars abroad.

As a result, Macri lost the 2019 election to Peronist Alberto Fernández whose government restructured its debt. While the peso’s value collapsed and inflation raged, the mechanisms remained the same: using external loans to facilitate an orderly exit for international capital at the potential expense of the domestic population did not end.

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By Wolfgang Münchau

That’s when Milei entered the scene. Promising to drive his chainsaw through the corrupt practices supporting this type of heist, he did the opposite: he followed the heist script to the letter, but with a chainsaw as its new logo. His so-called libertarian revolution was, in reality, a highly disciplined operation to distort the markets in the service of a time-honored oligarchic ruse. Raising new, unpayable dollar debts to effect a money market manipulation, he created yet another window for the wealthy and the well-connected to liquidate assets and move capital abroad at a favorable rate. The result will be to heap unfathomable costs, once the predictable collapse happens, on the shoulders of the weakest of Argentinians who had already been further weakened by Milei’s earlier austerian cuts.

But why this unprecedented, vicious austerity of Milei’s first months in office? If he was going to push public debt through the stratosphere to prop up a currency that would crash-land anyway, what was the point of his chainsaw slashing of government departments, the evisceration of social welfare, and the reduction of infrastructure spending to zero (the silliest form of austerity)? In his mind, creating a primary budget surplus at all costs would demonstrate to bond vigilantes and currency traders his fanatical determination to defeat inflation so that they would help him maintain the peso’s value just a little longer. It was, in short, a scorched-earth policy to buy time for the same heist (bolster-liquidate-transfer) that has made Argentina fail again.

On a personal note, if I may, I am the last politician who has the right to judge another for sporting a leather jacket and appearing, almost out of nowhere, with an agenda of radical change aimed at ending a doom loop of unpayable debts caused by an unsustainable currency. But I would be remiss if I did not draw the reader’s attention to the real parallel: that of Milei to my prime minister at the time, in 2015, who, though never seen in a leather jacket, also used a radical (albeit Left-wing) language to inspire a population before ending up serving the local oligarchy perfectly well through the adoption of the sad ol’ policies of his predecessors.

Like in the case of my former prime minister, whose true legacy was a betrayal of the Left’s values, Milei’s true legacy is not freedom, but a country stripped even more bare than before. He had an opportunity to try a libertarian “single shot” experiment but he, instead, used it up to facilitate yet another fire sale of Argentinian assets. Had he stuck to his libertarian guns, we would have at least had the pleasure of observing a natural experiment by which to judge whether libertarianism (contrary to what I believe) can deliver any goods at all. Milei’s subservience to the Argentinian ruling class denied us even this small mercy.

And so, the global search for authentic alternatives to the depressing recapitulation of oligarchic practices continues.

All the announcements only revealed Labour’s curious blind spot about how most people have to live their lives. Chancellor Rachel Reeves continues to make this clear. Her own checklist of achievements indicate just how distant Starmer’s strange, technocratic government is from New Labour. Where Blair and Gordon Brown sang the praises of unfettered globalization, Reeves puffs up her interventions against the market, from British Steel to loans for Jaguar Land Rover. And though Reeves and others will praise New Labour, with creatures like Peter Mandelson and Blair circling the Government, Starmer’s party is far more prepared to intervene on the economy than its most recent predecessor.

But intervene for whom? Big numbers, big companies, big talk of economic growth: this is the tone Labour wants to set when doing economics, to the point of absurdity. A claimed £110 billion investment by mostly US “financial firms”, the centerpiece of last week’s Trump bootlicking, was to produce just 1,800 jobs — perhaps every lucky new employee will simply be given £61 million each? And so it goes for data centers, the shiny new toy for all parts of the party, including new Business Secretary Peter Kyle and even the leader-in-waiting Andy Burnham, with seemingly little thought as to what tangible economic benefits these resource-guzzling monsters actually produce. It’s all radically disconnected from the daily experience of life in Britain, which remains much as it did pre-Labour: a sense of everything being too expensive, and nothing really working properly.

It’s not too hard to guess where the real impetus for data center enthusiasm has come from. Keir Starmer has been happy to pose with Palantir’s CEO, Alex Karp, a man otherwise given to pontificating about “the superiority of the West” and “scaring our enemies”. Perhaps Starmer was hoping some of Karp’s mildly unhinged confidence would rub off on him; sadly, the PM’s own enemies do not appear to be the remotest bit scared. Nigel Farage certainly isn’t.

Starmer’s government is shaped by one, overwhelming factor, something Burnham had the temerity to point at in an extensive pre-conference interview: “fear” of the bond markets. He wasn’t wrong: the Government has an increasingly fraught relationship to financial markets, as repeated mini-crises and the steady creep upwards of government borrowing costs suggest. The result has been a kind of economic paralysis in which the Treasury tiptoes as close as possible to the spending limits allowed by its own fiscal rules, in the hope of not frightening the bond markets, but never does enough to break out of the doom-loop. Attacks from the Left are starting to have some bite. Starmer has been unable to persuade his own backbenchers of further austerity, with messy reversals to at least some planned cuts (and rising interest rate charges) adding another £10 billion to expected borrowing, but his government is also tied, painfully, to pre-election promises to keep the main taxes untouched.

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Labour’s war on workers

By James Meadway

Add to that weak economic growth and rising demands from health and social care and you have a hole in the government’s plans that is likely to be somewhere between £30 to £50 billion. Reeves will find out the exact number at the end of this week, when the Office for Budget Responsibility presents its latest forecasts; leaks beforehand suggest a further reduction in Britain’s productivity growth is on the cards. We are rapidly approaching two lost decades for the British economy. And there doesn’t seem to be a way to square the circle of low growth and politically impossible tax rises and spending cuts that is generating this economic instability. There is no particular reason for anyone trading government debt to believe that this messy government will be able to either magic up chunky tax rises (which Chief Secretary to the Treasury Darren Jones hinted at over conference) or persuade its increasingly restless backbenchers of the need for more cuts.

This fundamental lack of confidence is causing a steady increase of borrowing costs. In a world already beset by multiple shocks, from the big and obvious like the Trump tariffs to the more subtle like the impact of extreme weather on harvests, Britain is particularly badly exposed. Not only because government debt hovers at around 100% of GDP, but because the economy is fundamentally, materially weak: importing about half the natural gas it burns for electricity and heating, and about half the food it eats. It’s an economy that now has no remaining fertilizer factories, relying solely on imports from an increasingly turbulent world. The obvious, immediate things to do — a wealth tax, and an end to the absurd Quantitative Easing-related payments to the Bank of England — have been proposed only by the Government’s opponents to its Left and Right respectively.

Starmer can and should call Reform’s plans to mass deport Indefinite Leave to Remain holders “racist”. Relative to the complete spinelessness Labour has previously displayed towards Farage, this is a step forward. It is useful when confronting a political enemy to be able to actually attack them for something. But it will prove no more successful a strategy, by itself, than the same trick did for Joe Biden. For sure, he could be rude about the unique threat Trump presented to US democracy — and his points, broadly, would be correct. Biden and his supporters could talk up the huge investments made through the Inflation Reduction Act, or the CHIPS Act. They were real cash and major interventions, far bigger than anything Labour has contemplated, that would, over time, deliver some manufacturing jobs. But if all Trump had to do was ask, repeatedly, at every rally, whether ordinary Americans felt better off now than they did four years before, it amounted to nothing. Worse, when the hapless Kamala Harris attempted to float a few mild proposals to restrain grocery prices, the hue and cry from the liberal economics establishment about the evils of “price controls” meant her campaign never touched the core issue of overpriced essentials, and corporate profiteering, again. Lacking any real ideological scruples on economic issues, Trump’s administration has proceeded to rip up much of the free-market rule book — imposing dramatic, politically motivated tariffs, and taking part of chip manufacturer Intel into public ownership, for example. Reform in the UK has shown a similar flexibility — Nigel Farage has pledged to nationalize British steel while Richard Tice has taken on the Governor of the Bank of England over the costs of Quantitative Easing.

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Britain’s wage slaves are revolting

By Jonny Ball

Biden, Harris and the Democrats could go round and round the core economic issues. They could point to all their marvelous interventions. They could highlight the real dangers of their opponents’ plans. But if they did not address the central economic issue for millions — the cost-of-living crisis — it would all amount to nothing. And so they lost.

This should be taken as a warning for Labour. UK inflation remains above the Bank of England’s 2% target and, crucially, it is food prices that are helping to keep it there. Britain imports so much food that disruptions in the rest of the world (crucially now including extreme weather disrupting harvests) turn quickly into higher prices in the supermarkets here. Living standards have barely moved since 2019, creating fertile ground for the kind of resentments against migrants that Reform, and those further to the Right, to flourish.

Labour has dragooned more establishment economists into advising them, now including former Bank of England deputy governor, and former Columbia University President, Minouche Shafik. But their attachment to establishment economics is part of their problem: it means they will run scared of intervening on prices in the name of free-market economics, and it means they will duck out of taxing wealth — instead leaning still harder with Budget tax rises on the “working people” they once pledge to protect. Charges of “racism” against Reform will count for little if all Farage has to do at the next election is ask, like his mentor Trump, if people feel any better off.

This is one of the most memorable scenes in Charlie Chaplin’s The Gold Rush, a rollicking action comedy which premiered 100 years ago this week. To mark the occasion, the silent film is returning to cinemas worldwide in a 4K restoration. And it hasn’t aged a day.

The Gold Rush is set in the 1890s, when chancers flocked to the Klondike region of Canada, near Alaska. Rumor had it that the world’s largest gold reserves were buried there. Most returned home empty-handed; an unlucky few never came back at all. Causes of death included avalanches, typhoid fever, alcoholism, murder and starvation.

Into this perilous world Chaplin drops his most famous character: the Tramp, played by Chaplin himself, in his trademark bowler hat, cane and ragged suit. The Tramp, ever the optimist, fancies his chances of hitting it big.

A century on, The Gold Rush still packs a wallop. Chaplin — who not only starred in the film, but also wrote, directed, produced and edited it — has lost none of his genius. If anything, the film’s snappy gags and raffish sense of play makes it well suited to our TikTok age. In today’s world, the moment Chaplin picks up two loaves of bread, sticks forks into them and makes them dance like little feet would almost certainly go viral.

But The Gold Rush is far more than just good entertainment. It always is with Chaplin. The film is a biting critique of free-market capitalism. It lampoons an ideology — influential in the Twenties — in which everyone was expected to pull themselves up by their bootstraps. Chaplin shows what happens when that doesn’t work: you end up eating your own boots.

The film’s political commentary rings as true today as it did in 1925. Faith in unfettered markets lives on. Since the neoliberal reforms of Margaret Thatcher and Ronald Reagan in the Eighties, governments have preached individual responsibility while dismantling the welfare state and removing checks on corporate power.

The results are plain to see: Western societies are marked by wealth disparity and precarity. Take the United States, where Chaplin spent most of his career. The richest are getting richer at record speed. Meanwhile, nearly half of Americans have less than $500 in savings. And only one in five has more than $5,000. Any emergency could put them on the streets. “I don’t want the old rugged individualism,” Chaplin once said. “Rugged for a few, ragged for many.”

Work hard, we’re told these days, and you’ll succeed. But in The Gold Rush, Chaplin tells us the opposite: fortune doesn’t favor the industrious, it favors the lucky. At the end of the film, the Tramp becomes a millionaire. But his success has nothing to do with merit. One night, his cabin is caught up in a snowstorm and carried right next to a gold deposit. The Tramp literally struck gold in his sleep. It’s the ultimate send-up of the American Dream. As George Carlin, another comedian, quipped decades later: “It’s called the American Dream because you have to be asleep to believe it.”

Ultimately, The Gold Rush argues that the rich and powerful aren’t all that special. They owe their status more to quirks of fate — or accidents of birth — than to any intrinsic worth. It’s no wonder, then, that it was Chaplin who told this story. He always identified with outcasts — a habit which stemmed from his Dickensian childhood in London at the tail end of the 19th century. His father was out of the picture. His mother suffered from severe mental health issues, and was in and out of asylums. When she was institutionalized, a young Chaplin was sent to the workhouse. There, like Oliver Twist, he was berated for his plight. “To me it was a prison and a house of shame,” he said later. “We had gone through extreme poverty, and poverty was a crime. Even at the early age of seven I realized this.”

No matter how rich he became, Chaplin never forgot what it was like to be down and out. “My memory is so clear of the days when meat once a week was a luxury,” he told a colleague. Chaplin was certain that if only a few things had turned out differently, he’d have spent his life as a member of the underclass. “I might have become a thief in the London streets. I might have been buried in a pauper’s grave,” he said.

Instead, Chaplin became one of the most illustrious men of the 20th century. He got his start in vaudeville in the West End of London. By 24, he was in Los Angeles starring in a new art form called moving pictures. By 28, he was a global star making more money than almost anyone else on earth.

Chaplin’s extraordinary rise personified the American Dream: the penniless immigrant who became a legend in sun-drenched California. He was supremely talented — as inventive in front of the camera as behind it — but he worked damn hard too. The irony is that he did pull himself up by his own bootstraps. His creative process was simple: “sheer perseverance to the point of madness.”

It would have been easy for Chaplin to portray himself as a self-made man. That he chose instead to make the Tramp his on-screen double is a testament to his powers of empathy. No matter what, he was always Charlie from the workhouse. A shrink at the time looked into his case. “He always plays only himself as he was in his dismal youth,” wrote Dr Sigmund Freud. “He cannot get away from those impressions and humiliations of that past period of his life.”

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With the Tramp, Chaplin set out to lessen those humiliations not just for himself, but also for the huddled masses. His goal was to give the poor and downtrodden their dignity back. Humor was his weapon: “We must laugh in the face of our helplessness against the forces of nature — or go insane,” he said.

Chaplin was a rare kind of artist: a megastar who was also genuinely subversive. They don’t make ’em like that anymore. You know subversion is dead when Barbie is called subversive, or when Kneecap, a band that projects “fuck Israel” at gigs and chants “up Hamas, up Hezbollah”, is treated as brave.

But Chaplin never missed his target. In Modern Times (1936), he went after industry. In The Great Dictator (1940), he went after Adolf Hitler. Next, at the dawn of the Cold War, Chaplin came out with Monsieur Verdoux (1947), a dark comedy that condemned the capitalist system. It was also his first film without the Tramp. Chaplin plays Henri Verdoux, a man who loses his job of 30 years during the Great Depression. To support his disabled wife and son, Verdoux turns to crime. He uses his considerable charm to marry wealthy women, then murders them to get their money. Verdoux is the mirror image of the Tramp. Where the latter takes misfortune on the chin, the former goes for the jugular. As Verdoux himself puts it: “This is a ruthless world, and one must be ruthless to cope with it.”

Monsieur Verdoux was satire, but it revealed the ugly toll that exclusion takes on people. “One thing I know is that poverty taught me nothing,” Chaplin said, “but on the contrary distorted and twisted my sense of values, gave me a wrong concept of life.”

Chaplin paid a high price for his subversion, as the historian Scott Eyman recounts in Charlie Chaplin vs. America. In 1922, the FBI had opened a file on him on account of possible “socialist beliefs”. Over the next 30 years, the Bureau accumulated nearly 2,000 documents on the filmmaker. By the early Fifties, Chaplin had become public enemy number one. The Cold War was in full swing, and the red threat was everywhere. Criticizing capitalism was now anti-American. The FBI, never one for nuance, denounced Monsieur Verdoux as “anti-capitalist propaganda”. The House Un-American Activities Committee, the Congressional body that investigated Soviet influence in Hollywood, suspected Chaplin of being a communist.

To make matters worse, Chaplin’s private life also shocked Puritan America. He’d been married four times and had a penchant for younger women. His fourth wife, Oona O’Neill, who would remain with him until his death, was 18 when they tied the knot. Chaplin was 54.

Before he met O’Neill, Chaplin had been romantically involved with a 21-year-old named Joan Barry. After they broke up, she became pregnant and claimed Chaplin was the father. He denied it, and Barry took him to court.

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The US Department of Justice seized the opportunity to smear Chaplin, prosecuting him for transporting Barry across state lines “for the purpose of prostitution or debauchery, or for any other immoral purpose”. He faced 23 years behind bars. But the case was flimsy — all Chaplin had done was take Barry on a trip to New York. In the end, he was acquitted.

Nor was Chaplin the father of Barry’s child. A blood test made that indisputable. However, back then, blood tests weren’t admitted in Californian courts. Chaplin was therefore ordered to pay alimony for a child that wasn’t his.

Although Chaplin was ultimately vindicated, the trials bruised his public image. In the court of public opinion, he was not only a communist but also a pervert. For many, the two went hand in hand anyway.

And so in 1952, when Chaplin traveled abroad, the Department of Justice barred him from re-entering America, revoking his visa, even though Chaplin had lived in the country for 40 years. The Attorney General called him “a menace to womanhood”; Congress blasted him as “left-wing and radical”. Chaplin didn’t try to go back. “Whether I re-entered that unhappy country was of little consequence to me,” he said later. “I was fed up with America’s insults and moral pomposity.”

Chaplin settled in Switzerland with O’Neill and their children. He made two more films — neither one good — and only returned to the US in 1972 to pick up an honorary Oscar. He died five years later at 88.

One question remains: was there ever any truth to the charge that Chaplin was a communist? The answer is a resounding no. How could anyone believe that the maker of The Great Dictator could support any totalitarian system?

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Clearly, Chaplin was a critic of capitalism. But that didn’t make him a communist. Rather, the filmmaker believed that the market should be subservient to a democratically elected government. Power should lie with the people. And a government of the people, by the people, for the people should look out for the common welfare. The reason: there can never be true freedom while some struggle to get by.

Chaplin’s politics were in the vein of the economist John Maynard Keynes and US President Franklin D. Roosevelt. The New Deal of the Thirties, which was based on Keynesian principles and carried out by FDR, was perhaps the most successful experiment in reclaiming power from the market. It delivered prosperity and social justice. FDR dedicated it to “the forgotten man at the bottom of the economic pyramid”, or, if you will, to the Tramp.

Throughout his life, Chaplin never wavered in his commitment to the Tramp and his ilk. He supported shorter hours for the working man, and a generous minimum wage for both skilled and unskilled labor. He also supported a “national dividend”, or what we would call today universal basic income.

Chaplin’s vision has lost none of its relevance. Precarity is on the rise. Governments look more impotent than ever. And AI threatens to kick millions out of the job market. In this context, we would do well to remember what Chaplin stood for. “Naturally, I am progressive,” he said. “I just want to see everybody pretty well happy, and satisfied.” In his view, no one should ever be so hungry they have to eat their shoe.

But what a difference a half-century makes. After Israel launched its attack on Iran last week, the oil price rose sharply, but only back to the level at which it spent most of the last three years, merely reclaiming recent lost ground. As for fears of a global recession, stocks briefly fell before regaining most of their ground too. At least initially, the world’s investors regarded this war as an irritant rather than a catastrophe.

It’s a bit surprising, not least because the war lands at a delicate time for the world economy. In the last couple of weeks, both the OECD and World Bank issued their updated economic forecasts for the world economy. Neither is optimistic: global growth is expected to stay below 3% this year. Leading the way downwards are the developed economies, all of which are growing slowly if at all.

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Trump will make China great again

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So, despite the serene sense in markets amid a major war, the risks to the global economy remain high. The tenuous balance of the moment may not last. For now, the world’s major powers are standing by while Israel and Iran slug it out. When US President Donald Trump suddenly left this week’s G7 Summit and tweeted that Tehran should evacuate, speculation was rife that Americans were about to join Israel’s fight. But when the night passed without further incident and Trump subsequently said he was looking for a “real end” to the war, its future course remained as unclear as ever. While Israel enjoys the upper hand, having apparently established complete air dominance, the conventional wisdom is that it does not have the ordnance or air power needed to deliver a decisive blow. To completely destroy Iran’s nuclear facilities, Israel would therefore need the Americans to join their mission. But a rift has opened in the administration between those who want to back Israel’s war, like the US ambassador Mike Huckabee, and those who want to continue the pivot towards containment of China.

This raises the possibility that Israel will be left to continue this war alone and, unable to bring it to a resolution, will succeed mainly in motivating the Iranian leadership to double down on the creation of a nuclear bomb. It’s a safe bet that if the Iranians do that, the Saudis will move to do so quickly as well. The insecurity in the region will then only worsen.

Yet accurate predictions would require knowing the President’s mind, and it’s not clear if anyone does. Although American presidents have enjoyed a great deal of discretion in foreign affairs, there has always been a general predictability to the behavior of American presidents. Trump’s predecessor Joe Biden, for instance, could be counted upon to grumble incessantly about Netanyahu but always give him what he wanted, in light of his ideological commitment to Zionism. But with Trump, it seems to come down largely to who he is listening to on any given day.

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By Heather Penatzer

During his second presidency he has indicated quite unambiguously that the United States is tired of playing the role of hegemon in global affairs and will thus base its future decisions on its own priorities, as expressed by the President himself. He apparently believes that nimbleness allows him the freedom to do deals and rework the rules of international economics in a way that maximizes American interests.

But if the renunciation of long-standing commitments and alliances gives the President the freedom of maneuver he apparently envies in leaders like Vladimir Putin and Xi Jinping, Trump’s approach differs in one crucial respect. Whereas Xi and Putin — and even North Korea’s Kim Jong Un for that matter — root their decisions in strategies and ideological visions that are identifiable and consistent, Trump’s America First vision remains inchoate and unclear. One day tariffs are on because they’ll restore American manufacturing, the next they’re off because they were only ever intended as bargaining chips in trade negotiations. One day mass deportations are on to protect American jobs, the next they’re off because they’re hurting American farmers and hoteliers. And on it goes.

Amid this uncertainty, long-term planning has become challenging. So far, most American business managers haven’t changed their investment plans for this year, although early signs of an increase in the number of firms aiming to scale back investment amid rising uncertainty are starting to emerge. But more tellingly, the evidence that foreigners are starting to lose faith in America, and are consequently pulling their money out, continues to accumulate.

In this light, the most significant development of this Middle East war is that a decades-old rule of the global economy — that in a geopolitical storm, everyone heads to the safe bastion of the US — appears now to be broken. In the past, amid increased tensions in the region, the oil price rose, the dollar strengthened and US bond yields fell, as global investors rushed to park their money in the safe haven of the US. This time around, the opposite has happened. The oil price has remained in its recent range, the dollar has continued sliding and bond yields haven’t fallen. In the meantime, gold continues its relentless upwards march as the world retreats from the dollar and returns to the ancient metal as a favored reserve currency.

What appears to be unfolding, therefore, is a global economy that resembles that of the period between the last century’s two world wars — a time when a declining empire, the UK, lost its hegemonic role but the rising power, the US, wasn’t ready to replace it. Britain had ceded its place as the world’s biggest economy to the US, but the Americans weren’t yet ready to build a military force to match their status as an economic superpower: on the eve of the Second World War, Douglas MacArthur lamented that the entire US army, which was smaller than Portugal’s, could have fit into Yankee stadium to watch a baseball game. Britain, meanwhile, was desperately trying to avoid conflict at all cost, and could not play the role of world policeman. Equally the pound sterling was gradually weakening, but the US dollar didn’t yet replace it as the world’s reserve currency. Amid that de-centered world economy, there followed an era of volatility — financial crises which were poorly managed, trade relations which worsened — and which climaxed in the Great Depression and the onset of war.

The world economy today may be moving into a similar interregnum. That would make it vulnerable to any kind of major economic shock, of the sort seen in the 2008 global financial crisis or again in the 2020 Covid crash. But those crises occurred at a time when there still existed a broad political consensus among G7 states about the global order, one based on open markets and relatively unhindered flows of money, goods and services. As a result, financial and political leaders were able to manage those crises swiftly and effectively with a high degree of coordination, involving such measures as central bank swap lines, and a widely shared consensus on the basic contours of policy: a blend of loose fiscal and monetary policies and a commitment to keeping global trade flowing.

Faced with a similar economic shock today, it’s possible such harmony will prove elusive. And while the Middle East war may not provide the shock, other tensions are building in the global financial system. Some see private equity headed for a moment of crisis, while the formal financial system’s recent embrace of crypto, despite still not being able to make a use-case for it, has strong late-bubble vibes to it — the sort of vibes which become contagious shortly before a fall.

Barring a dramatic escalation — say a mass casualty event that takes the war into an entirely new phase, the closure of oil shipping lanes, attacks on Western or other regional forces — this Middle East war may not pose a 1973-style shock to the world economy. But it has uncovered the looming problems in the Western economies, and highlighted the growing risks to future growth. The longer the war continues, the worse that will get, so the US — which will ultimately be decisive — will have an interest in bringing the conflict to a rapid conclusion. Whether or not Trump proves able to do that, though, will reveal how far the hegemon has fallen.

The chances are that Trump will win this latest legal battle, just as he won the previous ones. The Supreme Court, where this legal battle may ultimately end up, has a majority of conservative justices. Six have been appointed by Republican presidents, three of them by Trump himself. The court’s most recent rulings have tilted heavily in favor of Trump. It ruled before last year’s election that Trump enjoyed immunity for actions he committed as president. It ruled in favor of the Trump administration in a case involving his decision to remove two members of an independent federal agency; on a case involving the protected status of Venezuelan migrants; and on a case that limited the scope of environmental reviews. The Supreme Court went against him in a decision to deport a Venezuelan accused of gang affiliations. This history of the court’s ruling would suggest the odds are 80:20 in favor of Trump.

But the deeper reason why I think Trump will win is that the New York court’s legal argument would set a very dangerous precedent if confirmed. It would be dangerous for Democrats too. Trump invoked the International Emergency Economic Powers Act from 1977 to justify his “Liberation Day” tariffs. That act was signed into law by Jimmy Carter. It was meant to enable a president to take emergency measures after the oil shocks of that decade.

Trump’s lawyers argued that the persistent US trade deficits constituted a national emergency that would justify the triggering of the Act. The New York court rejected this line of argument because the US has been running trade deficits since 1976. How can something be an emergency if it has been going on for that long?

The argument is sheer sophistry. In finance and economics, most crises occur due to things that have been going on for a long time. Remember subprime mortgages? They started in 1988. It took another 20 years until they triggered the global financial crisis. Or think about diseases in medicine. Life is full of emergencies whose causes started to build over long periods.

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Why the EU should fear Trump’s tariffs

By Wolfgang Münchau

But let’s suppose I am wrong. Trump loses the court case. Then what?

He still wins. This is because he has so many other ways of imposing tariffs. And on top of that, many more ways of achieving similar outcomes.

It already started on the weekend, when he said he would double the steel and aluminum tariffs to 50%. These tariffs come under a different heading: Section 232 of the 1962 Trade Expansion Act. I have counted five Acts that allow a president to impose tariffs — and there are probably more. Section 232 deals with national security. Joe Biden used it to impose a 100% tariff on electric cars from China. Trump’s car tariff also falls into this category.

Could the courts challenge him over Section 232? I doubt it. Historically, courts have not gone against the President over national security. Trump invoked Section 232 with the argument that the US has become dependent on imports for certain critical goods and materials, like vehicles, steel and also drugs. This is factually correct. You cannot use Section 232 to put an import on champagne and argue that you need to block its flow for national security reasons. But Trump can still do what the Europeans do: establish some food and wine standards that only domestic suppliers can fulfill.

The jargon of US trade and finance politics includes a lot of numbers, which all happen to be in the hundreds. There is also Section 301 of the 1974 US Trade Act. This is about unfair trading practices. Section 301 is triggered by an official investigation by the US Trade Representative. It is a powerful act, but slow. It follows strict procedural rules. They have to launch an investigation, hold hearings, and allow people to raise objections. But when all this is over, the President decides.

And then there is the nuclear device: Section 338 of the Smoot-Hawley Act from 1930. That is the Act that triggered the Great Depression. Smoot-Hawley allows the President to impose tariffs of up to 50% for the most quotidian of reasons: to shield American industry from foreign competition. Smoot-Hawley is surprisingly still on the statute books.

You want more numbers? There is also Section 122 of the Trade Act of 1974, which gives Trump the power to impose tariffs of 15% for up to 150 days, no questions asked. If you deep-dive into the current bill, which passed the House of Representatives by a single vote last week, you might come across Section 899. This introduces a tax on foreign investors whose countries are deemed to run tax regimes the US considers detrimental to the interests of US business.

I am going to stop here with the numbers. But the bottom line is that Trump will find a way. Only a fool would bet on Trump being stopped by the courts. It did not happen in the past. It won’t happen now.

Behind these serial misjudgments lies a deeper problem. One of the reasons why centrist, liberal democracy is in retreat is its tendency towards lawfare. The German military historian Carl von Clausewitz described war as the continuation of policy with other means. Lawfare is the continuation of policies through the courts. If you don’t win elections, you still have the courts. This is an abuse of the legal system. Democracy is not meant to work that way.

Lawfare also has a tendency to backfire. There are many examples other than Trump’s criminal trials. The UK Supreme Court’s decision to stop Boris Johnson’s prorogation of parliament in 2019 represented another campaign whose efforts did not have the intended effect. The ruling was celebrated by the Remain campaign, but it also triggered new elections that Johnson won with an unexpectedly large majority. The European Commission also commits lawfare through a procedure they call “rule of law”. It is where politicians vote to withhold payments to recalcitrant EU members. Courts in France and Romania have banned the lead candidates in presidential elections. In Germany, centrist politicians are actively discussing whether to seek a ban of the Alternative for Germany. If you can’t beat them, ban them. That’s lawfare.

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The death of the centre-right

By Wolfgang Münchau

Lawfare fails for two reasons. It rallies the broader support base of those who are subjected to it — which is what happened with Trump, and with the Leave campaign during the Brexit years. But, perhaps more importantly, it has a terrible effect on those who pursue it. The lawfarers relied on the courts to do the dirty work for them. They were not sufficiently focused on defeating Trump in the elections, because the courts lurked in the background.

I see centrist-liberal complacency everywhere. Here in Europe liberals wrap themselves in the Ukrainian flag and promise that they will support Ukraine for however long it takes to defeat Russia. But for that promise to mean anything, it would have required some real sacrifice, like higher taxes, a gas and oil embargo, or comprehensively cutting off Russian banks from the Western financial system. I feel sorry for Ukraine that it has such spineless allies. The problem with liberal centrists is that they fight battles that are legal rather than political. They like something done. But they don’t like to do it themselves. They don’t fight wars themselves but prefer somebody else to fight it for them. The European centrists hate Trump in part because he ended that toxic game.

The reality is that Trump has won two elections, and he has got almost four years left to govern. The intelligent question for his opponents to ask is not how to defeat him in the courts, but how to move forward when they take over from him, and what parts of the agenda they should focus on if they were to win the mid-term elections next year. What should the US-China relationship be? Or US trade policy after 2029? Do you really want manufacturing to come back? What kind of manufacturing?

The reason why electorates are disaffected with incumbents is that many voters are not partaking in the fast lane of the 21st-century economy. It would be a massive job trying to fix this. It would mean reconnecting the average voter with the 21st-century economy. Trump managed to connect with the average voter better than his Democratic opponent, but in the end I don’t think he will deliver for them. The Trump presidency is more likely than not to end in disappointment. The sole purpose of the tariffs is to pay for the tax cuts that will benefit mostly the rich. If you want to defeat Trump, forget the courts. Start solving the actual problem.

Trump has been unfazed by such warnings, glibly stating that children will “maybe” have fewer “dolls” than they used to. And for those who believe Trump is playing four-dimensional chess, fundamentally shifting the makeup of the American economy, decoupling from China, and reducing the overall trade deficit — all this is worth the pain. This, even as few of these cheerleaders have indications of what it is that Trump wants America to produce more of, and fewer still have realistic estimates of how long it will take to achieve all these ends.

The problem is that stagflation isn’t a blip or temporary “market correction” from which it will be easy for the US economy to emerge with greater dynamism. Rather, it is a series of mutually reinforcing negative trends that sap the willingness of firms to expand while progressively exhausting purchasing power for household essentials. That leaves less money in the economy for hiring and training, innovation, and the productive risk-taking Trump purportedly wants. Unless he imposes price controls and leans on the 1950 Defense Production Act and other emergency measures — “statist” decisions which even a MAGA-fied GOP is likely to denounce — Trump has no Plan B to simultaneously restrain costs and compel industries to reshore.

Many, then, have remarked that Trump’s main economic policies will have the opposite of their intended effect of reinvigorating the US industrial base. But there is another irony here. Despite his unflagging drive to browbeat firms and the Federal Reserve into supporting reindustrialization, this radical “conservative” President may soon encounter what all progressive and Left-wing governments have feared since the “great inflation” of the Seventies: a capital strike. In other words, the CEOs and financiers who rallied to Trump in 2024 may decide his whims are too disruptive to stay onboard — and that his apparent indifference to their profit margins, logistics, and ability to reasonably plan investments aren’t worth the candle.

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The Left can’t go back to free trade

By Justin H. Vassallo

The darkening forecast for growth precipitated so single-handedly by Trump’s management and priorities certainly has no modern precedent in US politics. But the deep uncertainty at all levels of the economy also underscores how difficult it is to alter, much less dramatically reverse, globalization. It is much easier to transfer supply chains from high-wage countries to low-wage ones than the other way around.

During Trump’s first-term trade war, Vietnam, not the US Rust Belt, was the primary beneficiary of high tariffs on China’s exports. Unless Trump resumes some of the punitive rates he paused after his “Liberation Day” tariff formula was roundly maligned, capital expenditure will be rerouted to other emerging markets — some of which the Biden administration tried to cultivate as part of its own “friend-shoring” strategy of Chinese containment. Yet swinging back to a uniformly aggressive tariff regime could rock the global economy, needlessly punishing foreign workers in textiles, small appliances, toys, and other entry-level sectors while precipitating shortages for American consumers.

Trump’s isolationist tendencies — which aren’t congruent with a positive of vision of economic nationalism — are also impeding efforts to improve America’s global share of manufacturing. Trump needs the cooperation of allies he’s gravely alienated if he intends to effectively curb Chinese trans-shipment of inputs that he wants American firms to make. However, neither he nor his closest advisers appears temperamentally prepared to make that case. Likewise, it seems impossible for them to accept that “near-shoring” of key components with strict limits on Chinese content is preferable to China’s increasing command of critical supply chains.

In turn, Trump’s constant jaw-boning could result in fewer concessions of a strategic nature. Trade barriers without multilateral coordination that fosters “reciprocal” industrial policies and content standards among close allies will do more to isolate America than insulate it from practices which undercut its manufacturers. While some unfair trade practices can be addressed by eliminating loopholes like de minimis, which allowed Chinese producers to sell and ship goods valued $800 or less directly to American consumers, Trump still lacks a plan to persuade multinationals and mid-size firms to transition away from third-party suppliers that perpetuate dumping and other harmful practices.

The ostensible carrot in all of this is Trump’s insistence that lower corporate taxes and deregulation will lure foreign investors to build in America. On the face of it, the logic is quite simple: if major foreign competitors want to avoid tariffs, they should treat the US labor market as worthy of investment. But Trump has not pursued the types of industrial policies that Biden launched, which could convince more foreign firms of the benefits of doing just that. There are clear downsides to Trump’s approach, too. The risks posed to workplace safety and pollution standards are worrisome enough, but there is also the matter of business’s confidence in America’s domestic political stability and the skill-level of its workers.

Contrary to the libertarian notion that enterprise wants only a nightwatchman state, fanatical deregulation and slashing state capacity are not particularly encouraging for firms concerned with high-value-added manufacturing and standards compliance across the supply chain. In fact, the Left-wing school of thought which critiqued “corporate liberalism” delineated why a strong administrative state was integral to making and stabilizing modern American capitalism. While some government policies have made it onerous to build efficiently in America, new research indicates that DOGE’s actions and similar cuts to federal research and development are likely to retard growth and make Americans significantly poorer, compounding the near-term losses imposed by passed-on tariff costs.

All else being equal, that will have a chilling effect on long-term fixed investment. Many companies will doubt that the broader political economy, which already favors financial rents over productive investment, and which Trump seems unwilling to reform in this respect, will justify opening new plants and keeping them operational for decades.

Given the limited policy options the Trump administration is working with, there are few other levers to pull. Trump may create enough instability in the interim to significantly lower the dollar’s value, theoretically enhancing the competitiveness of American manufacturing. A possible analogue here is the 1985 Plaza Accord orchestrated by the Reagan administration, which temporarily boosted American exports, albeit at considerable cost to developing nations that had piled up debt to diversify their economies. However, America’s industrial capacity is far more diminished than it was after the 1981-1982 Volcker Shock and ensuing recession, again illustrating the “input” dilemma created by decades of offshoring. Trump wants to replace foreign inputs with American-made ones, but a weaker dollar would make plant investment more costly, since to some extent the country needs to temporarily increase imports of capital goods to efficiently rebuild domestic supply chains.

Some may counter that the dollar has long been overvalued, and that this has worsened inequality by rewarding short-term financial gains, favoring consumption of cheap imports, and eliminating the pathways to middle-class prosperity historically provided by American manufacturing. In fact, Sen. Elizabeth Warren (D-Mass.) and other prominent voices on the progressive Left made these arguments in the last decade. Yet Trump has not signalled how a weaker dollar in the current context would reduce, rather than exacerbate, international supply chokepoints. Nor has he indicated in the slightest how it would translate into a less financialized economy. Tanking global confidence in the dollar — and US Treasuries as a safe haven — is not a recipe on its own for curbing speculative finance, which Trump has otherwise encouraged through his alliance with the libertarian Tech Right and support for cryptocurrencies.

In the meantime, it is possible the early phase of stagflation is already unfolding. In anticipation of broad price hikes from tariffs, consumers binged on spending the last two months, likely masking the extent to which a slowdown has been set in motion by Trump’s capricious strategy to boost domestic industry. Unease over supply costs, meanwhile, has further reduced manufacturing orders and output, according to the Institute of Supply Management, a leading industry association. On the positive side, the hiring freeze detected last year appears to be gradual, unemployment remains low, and the last two job reports were better than expected. But the long-term jobless still number 1.7 million people, or nearly 1 of 4 unemployed workers; that level, reached last November, is a half million more than a year ago.

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As falling consumer confidence underscores, spending is based on fears of rising inflation, rather than optimism about wages and spending power, and that tariffs are cooling, not spurring, plant investment. Historic levels of household debt also suggest necessities are eating into disposable incomes. That is not an auspicious sign for manufacturers worried about whether new investments will be met with stronger demand. Another consecutive quarterly contraction would officially mark a recession, which is increasingly accepted as a fait accompli by many analysts.

Trump, of course, mounted his unexpected comeback in 2024 due to widespread disgruntlement with Biden’s economic performance. Despite a suite of policies that fueled an uptick in plant investment and construction, Biden and his anointed successor, Kamala Harris, couldn’t escape the ire over the drop in real incomes from 2021 through mid-2023. Thus far, Trump’s policies promise another decline in real wages without either the Biden-era regional investments or the tight labor markets that helped the economy rebound faster from the pandemic. Considering Team Trump still partly frames tariffs as a tool for negotiation, it is conceivable they will eventually retreat on the basis of some symbolic concessions by major firms and trade partners to support more balanced trade.

However, it is not beyond the realm of possibility that Trump will keep a stubbornly tough tariff regime in place and eventually force American firms and consumers to adjust. US Presidents, particularly Republicans, are caricatured as fearing experiments that spark market volatility and derail consumer sentiment. But the unfading populism of recent years has prompted leaders from both political parties to take protectionist risks considered irrational during an earlier, more painful stage of industrial decline in the late 20th century. That pattern is unlikely to change anytime soon, despite immense pressure from Wall Street to scrap radical changes to how America does business with the world.

That doesn’t mean Trump or his heirs will emerge victorious after the initial economic shock. Americans are paradoxically wary of major changes to the modern consumer economy and voting for politicians promising major disruptions to the status quo, and they may continue to punish incumbents for results that do little to improve their own sense of economic security. While Trump has taken an axe to globalization’s main pillars, it may be a Democrat who ultimately capitalizes on the outcome. The question, then, will be whether they try to turn back the clock or refine the unfocused autarky Trump has embraced.

All of the occupations the president mentioned typically require college degrees, as well as advanced professional degrees for doctors and lawyers. But no college diploma is required for the three occupations in the United States with the greatest number of workers — home-health and personal-care aides, retail salespeople, and fast-food workers. In discussing economic opportunity, both Republicans and Democrats often overlook the 62% of Americans who lack a bachelor’s degree or higher.

This oversight is no accident. The debate about meritocracy in both parties is dominated by people who are college-credentialed meritocrats themselves. In promoting “equity” or equality of result, progressives focus obsessively on the racial and gender compositions of university admissions and university faculties. For their part, conservatives typically reject equality of results, in favor of equality of opportunity — which they tend to equate with the successes of highly educated professionals or entrepreneurs.

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But fewer than 15% of Americans have a professional or other advanced degree, and only 7% own and run their own businesses. Equality of opportunity, with its promise of delivering exceptional success to individuals with exceptional abilities, is not enough. Broader social progress involves raising the economic level of those with mediocre abilities, because, outside of Garrison Keillor’s Lake Wobegon, it is mathematically impossible for all children to be above average.

The word “meritocracy” was originally coined as a term of abuse. In his 1958 book, The Rise of the Meritocracy, Michael Young, a Left-wing policy expert in Britain’s Labour party, treated the idea of a society of successful test-takers as a dystopian nightmare. In 2001, Young complained that under Tony Blair, Labour had adopted meritocracy as an ideal. He warned: “If meritocrats believe … that their advancement comes from their own merits, they can feel they deserve whatever they get.” In our time, a similar point has been made by the British thinker David Goodhart, with his distinction between college-educated “Anywheres” and working-class “Somewheres”.

Debates over meritocracy often focus on college admissions. For many centrist Democrats and Republicans, the golden age of the American university was between the Second World War and the Seventies. In that era, quotas limiting the number of nonwhite, Jews, and Catholics fell away, and new quotas to help black and Hispanic students and faculty were not yet widely adopted.

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For those who define merit in terms of academic ability the structures of the university and the workplace in the United States are essentially sound. What is needed is rejection of “diversity, equity, and inclusion” (DEI), the progressive doctrine that rejects equality of opportunity for equality of outcome, defined as policies to make the demography of every social institution mirror the racial and gender breakdown of the most recent US Census by means of reverse racism, of the kind called for by Ibram X. Kendi: “The only remedy to racist discrimination is antiracist discrimination. The only remedy to past discrimination is present discrimination. The only remedy to present discrimination is future discrimination.”

But the crusade to end DEI in higher education is more important to conservative activists and donors than to the working-class Americans of all races who put Donald Trump in the White House a second time. Most of those voters did not graduate from college, and they are more concerned about grocery and gasoline prices than about the roster of authors in the literary canon.

Some want the rethink the assumption that an elite college degree is the standard pathway to success. The high-tech libertarians of Silicon Valley include many who are skeptical about traditional liberal-arts education and professional schools. They believe that ambitious young entrepreneurs and innovators should not have to compile diploma after diploma on campus before beginning their working lives until their late 20s or 30s. Peter Thiel has endowed a two-year Thiel Fellowship, described thus on its website: “The Thiel Fellowship gives $100,000 to young people who want to build new things instead of sitting in a classroom.”

“Move fast and break things”, in the words of Facebook Founder Mark Zuckerberg. Indeed, in the natural sciences, mathematics, and technology, the greatest geniuses often do their best work when young. But entrepreneurial meritocracy is as irrelevant to most people as academic meritocracy. Most Americans neither go to college nor found successful startups. For the majority of people of middling ability, both equality of result and equality of opportunity may be less beneficial than a third option: equality of condition.

Equality of condition means that you don’t have to be a high achiever in order to have access to the things that define a decent life. In 19th-century agrarian America, the promotion of equality of condition took the form of policies that helped people to become farm owners. Widespread ownership of family farms was encouraged by the federal land laws of 1796, 1800, and 1820, which provided for the partition of federal lands into small and inexpensive plots, as well as by the Homestead Act of 1862, which allowed Americans to own 160 acres of free public land after cultivating it for five years.

In the urban and industrial America of the 20th century, equality of condition meant well-paid factory and office jobs that permitted mostly male breadwinners to buy homes and cars and enjoy some economic security along with their families. Leisure is also important, because, unlike hard-driving professionals and business tycoons, most working-class Americans are not married to their jobs.

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A growing number of thinkers and policymakers in both the Republican and Democratic parties are interested in creating pathways to success that do not require graduation from a four-year college or graduate or professional school. These alternatives include apprenticeship programs, community colleges, and skills certificates.

But these alternatives to conventional higher education can only succeed if employers are willing to hire workers without traditional academic degrees. Some corporations have removed degree requirements from their online job listings or announced programs to hire and train more workers without college degrees. But according to Burning Glass, a labor-market analytics firm, this has not led to a significant increase in the share of workers without college diplomas in many of those firms.

It is not enough for employers to be willing to hire more people without college diplomas. Skills certificates and apprenticeship programs may be avoided by young people if those alternatives do not lead to jobs with pay and benefits comparable to those of many jobs that require undergraduate degrees. Indeed, the multiplication of worthless skills credentials would be no improvement over the multiplication of worthless college degrees.

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Dismantling race and gender preferences in higher education and hiring is a necessary and long-overdue reform. So is the creation of alternatives to college. But politicians of Left, Right, and center should complement these reforms with initiatives that foster a rough equality of condition, allowing more Americans to achieve a middle-class lifestyle by 21st-century standards. What it means to be middle class in contemporary America and similar societies is somewhat subjective, but most people would agree that it includes adequate wages and benefits, access to affordable health care, quality education for children, and access to home ownership for those who seek it.

How to achieve these goals can be debated. But there can be a consensus in favor of equality of condition, to ensure that the rich, the poor, and the middle class do not live so differently that they might as well belong to different societies.

But Trump has a fighting chance in what would otherwise be a hopeless contest — because, today, the crowd acts more like a herd than a group of people who come to their views independently.

Whether Trump wins or loses will depend on what he does next. Will the President fold? Short answer: no. Tariffs define him. They are where he differs from all the other leaders of the Right. They agree on immigration and on gender politics, but I cannot think of a single one who wants to impose tariffs. It has been most amusing watching staunch conservative commentators and Trump supporters in the US tying themselves in knots over this contradiction.

But nor do I think Trump will play the game to the bitter end. It would be incredibly costly to try to rebalance the global economy through the hammer of trade tariffs alone. What I think he may end up doing instead is follow the thinking of the two smartest people in his economic team — the ones he ignored on tariffs. They are Scott Bessent, the treasury secretary, and Stephen Miran, chairman of his Council of Economic Advisers. While both men strongly support rebalancing, they don’t have Trump’s one-track mind when it comes to tariffs. They do know, however, that he is the one politician likely to complete the feat.

The most concise rendition of Trump’s approach came from Caroline Leavitt, his press secretary, last week: “Our country has been one of the most open economies in the world… But too many foreign countries have their markets closed to our exports. This is fundamentally unfair. The lack of reciprocity contributes to our large and persistent annual trade deficit that’s gutted our industries and hollowed out key workforces. But those days of America… being ripped off are over.”

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Miran’s version is more nuanced. Last November, he wrote a much-quoted paper, in which he pleaded for a far more cautious approach, one in which the administration would announce the tariffs but implement them only gradually. For Miran, the tariffs are a gun on the negotiating table — ideally not to be used. For him, the ultimate goal is the devaluation of the dollar. “There is a path,” he writes, “by which these policies can be implemented without material adverse consequences, but it is narrow and will require currency offset for tariffs and either gradualism or coordination with allies or the Federal Reserve on the dollar. Potential for unwelcome economic and market volatility is substantial.”

From where we’re standing, it might look like Tariff Man won over the “rebalancers”. But I think Miran’s version will ultimately prevail. For one thing, the problem of global imbalances is not primarily about unfair trading practices. It is about macroeconomic policies. China and Germany have systematically suppressed consumption and investment; their policies have been designed to support exports and reduce imports. Germany mostly imports what it needs for its own industries — raw materials like oil and gas — as well as intermediate goods. If it is hit by a tariff, it will maintain the trade imbalance by importing even less. But if Germany were hit by a falling dollar, this game would no longer work: the imports would get cheaper, and the exports more expensive. Miran’s idea is that you hit them with a combination of both.

The broader community of international economists, however, does not think this way. Their world is one in which everybody specializes in what they are good at, in which trade imbalances arise naturally, and in which people migrate across borders. This is hyper-globalization — an era which ended a few years ago.

The system was under attack even before Trump set fire to it. The return of geopolitics is not conducive to a world in which all the cars are made in Germany, and all the smartphones in China. Trump is not the only leader who wants to reshore industries. Joe Biden started this with his Inflation Reduction Act. Emmanuel Macron has similar plans.

To rebuild this new system, I expect Trump will stick with his trade policies for now, but though will bevel some of its edges. He could strike a free trade deal with some friendly countries such as the US, Australia, New Zealand, and Vietnam — though will not include the EU and China.

He may also go a little easier on Canada and Mexico to minimize the disruption of trade flows in the North American free-trade region. He can still impose tariffs on a few industries, like steel or even cars. But having a functional free-trade zone around you would make it easier to impose tariffs on the rest of the world.

The key to Trump’s success will be the dollar. He’s been lucky so far, since the dollar has devalued since he took office. Against the euro, the dollar fell by 8%, which was not supposed to happen. Economic theory suggests that if you impose tariffs, the dollar would go up, and partially cancel their effects. But economic theory was proved wrong. If Trump manages to defy the economists and get the dollar devalued by, say, 20% against the major trading partners, he can lean back, declare victory and gradually reduce the tariffs.

This would be a shift of truly historical proportions. Our current system of dollar hegemony is over 80 years old, instigated by the Bretton Woods system which tied the value of the US dollar to gold. When, in 1971, Richard Nixon ended this, the advanced economies then transitioned to a new system of free-floating exchange rates where the value of currencies were determined in the financial markets. But the world was still dollar-centric

In 1985, when high US interest rates led to a massive rise in the dollar’s exchange rate against the European currencies and the Japanese yen, the finance ministers of the world’s most industrial nations descended on New York, and reached the famous Plaza Accord, in which they agreed to bring down the value of the dollar to re-balance the global economy. This was a different world: a place of gentle financial diplomacy where people would meet and coordinate.

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But after the collapse of Communism, around 1990, such coordination became rarer. The world suffered increasing financial instability — the bond market crash in 1994, the Asian financial crisis in 1997, the Russian financial crisis a year later, the Global Financial Crisis in 2008, the eurozone’s sovereign debt crisis from 2010 to 2015, and the inflation shock that started in 2021, which still hasn’t been fully reversed. And now, this fundamentally unstable system is heading for its day of reckoning.

It is easier, though, to diagnose a system’s faults than to come up with something new. At the moment, there is no alternative. The euro cannot take over: it is a currency without a government or the infrastructure to act as a global reserve currency. China cannot fill the gap either, because its capital markets are not open, and because you cannot simultaneously pretend to support the global economy and refuse to import from it.

Miran was right in his warning that the road to a global deal is treacherous. We saw this last week. The smart thing for Trump to do now, then, would be to put the tariff gun on the negotiating table. Europe, Japan, South Korea and other industrialized economies would agree to increase their exchange rate against the dollar. The US would reduce the tariffs and keep only those justified on grounds of national supply security. It’s a far more sensible approach than bilateral trade deals and tariff wars.

Economic history is littered with examples when establishment opinion and market consensus were simply wrong. I trust the wisdom of the crowd when it comes to horse racing, but not on economics and finance. The chances that Trump may end up being right — or that at least he gets what he wants — are greater than the herd might think.

Labour’s primary economic goal has been reduced to avoiding US tariffs and scoring a half-cocked half-trade deal with Trump. In a bid to appease the President, the government will likely jettison the Digital Services Tax, levied on 2% of US Big Tech revenues here and bringing in $700 million a year — an all-but direct transfer from the UK’s poorest to Mark Zuckerberg’s pockets. Moreover, Starmer has funneled money away from welfare and towards a supposedly Trump-pleasing increase in defense spending. That’s while the Government’s own figures show that 250,000 more people, including 50,000 children, are expected to be pushed into poverty by the end of the decade. When Starmer says “everything has changed”, like Prince Tancredi in The Leopard, he is making sure everything stays the same.

Perhaps he thinks this will help Britain avoid “jumping into a trade war” — as if he had much say in the matter. If you don’t want to fight a war and someone else very much does, you will, by default, lose.

And his government has won strikingly little. Britain gained no special treatment, compared to any other large economy with a US trade deficit. Brazil and Australia, for example, both had the same 10% tariff applied. The crude, mechanical formula the Trump administration used to calculate tariffs was levied on the UK the same as almost everywhere else. Canada and Mexico, two countries whose leaderships have been notably more forthright, won a relative reprieve for negotiations.

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Contrast this unhappy island with the peculiar joy that has been overflowing the banks of the Spree. Following Chancellor-in-waiting Friedrich Merz’s announcement of a dramatic, debt-funded expansion of government spending, there has been a sudden, electric transformation of Germany’s possible economic fortunes. The cracking of the postwar European security system, somewhere between JD Vance’s speech in Munich and Volodymyr Zelensky’s dressing down in Washington, has provoked a deep recalibration of priorities across the continent. Germany must become, in Merz’s words, “independent of the USA”.

A consensus has incinerated Germany’s dogged commitment to the debt brake that had been promoted to a hallowed status. In a deal with the Christian Democrats and the Social Democrats, the one-time radical peaceniks in the Green Party are now happy to nod through an immense expansion of the Federal military budget with the questionable promise of a few more EV charging points. A split in the Left Party dotted the umlauts. Undesirables to the Left and Right shoved to the margins.

For 15 years, austerity has seen Germany banging its head against a fiscal wall — and it feels great to stop. After the government pledged for “whatever it takes” on defense spending, the Frankfurt Stock Exchange soared, led by arms manufacturer Rheinmetall whose share prices were up 140%. A further half a trillion euros has been set aside for domestic investment and some social spending, in the hopes of repairing the country’s crumbling infrastructure. Germany’s once-famed railways have got so bad that the US Department of Defense issued a complaint about delays in moving materiel to the Ukrainian frontline. Altogether, Germany is pledging more borrowing and spending than Reunification, and the Marshall Plan, the two foundational moments in the construction of its modern economy. This is a serious, genuine, 180-degree shift in orientation. Trump’s tariffs have only underlined the need for a recalibration.

While Trump’s re-election has transmogrified Germany’s fiscally constipated Christian Democrats into partisans for debt-fueled military Keynesianism, the opposite has happened in Britain. It has warped the Labour Party into steely-eyed austerians more than prepared to trim the supposed fat of the British state for the benefit of British Aerospace’s profits. Starmer is targeting an “overcautious, flabby” government for cuts beyond the brutal slicing of welfare. Labour ministers will point to Reeves’ tax-and-spend first Budget, in October last year, and claim that this new enthusiasm for the fiscal knife isn’t austerity. But last year’s sudden £70 billion flurry of generosity will not make any noticeable difference to the 800,000 Personal Independence Payment claimants, who are now losing on average £4,500. This is austerity, with a vengeance. But it is Labour austerity: cynically trying to buy off a few potentially noisy complainants in the public sector unions while shoving those without an institutional voice under a Motability car, all justified in the name of “security, dignity and agency”.

Starmer may not care too much. The Prime Minister’s various international appearances since January have been greeted with a chorus of happy barks from Britain’s commentariat. His first six months after his election victory saw him thank the country by spending an extraordinary amount of time out of it: and he clearly would rather strut around the international stage than grub around in the murk of Workplace Capability Assessments. It is not clear what his plan to win the next election might be.

The generous interpretation is that Starmer is playing to his strengths, and that his diplomatic efforts since last summer are now producing dividends in his close relationship with Trump. But handshakes in Washington do little for local elections, such as in Runcorn where the party expects a Reform victory in a once-safe seat. Defense spending, which is increasingly tech- and equipment-focused, has (as government assessments show) limited impact on jobs. The content and purpose of the planned increase in defense spending remains unclear. Pointing at Russia and making scary noises do not actually constitute a strategic plan. Britain’s military, and its notoriously wasteful contractors, have been gifted a blank check.

Labour has decided to remove one of Britain’s actual advantages in the world by chopping its significant foreign aid spending. Humanitarian costs aside, the hard-nosed calculation ought to have been that soft power can be leveraged in a world in the near-future where the Global South will matter more, and the old West far less. Britain’s “coalition of the willing” is anything but: those European countries pledged to Ukraine’s defense are locked in mutual disagreement over how, and even whether, to provide military support for any peace deal.

And, as everyone who has ever dealt with Trump discovers, a personal pledge at lunchtime can become a vitriolic tweet by midnight. Choosing to align so closely with a regime that views uncertainty as a weapon and treats all relationships as purely transactional is an invitation to failure. There are, it is true, hard economic reasons that encourage Starmer’s attitude: outside the EU, with few friends in the world, lumbering around with failing institutions, a stagnant economy, and some extraordinary external liabilities, the country’s elite may see few options beyond supplication. The Government’s notional opposition agrees: both the Tories and, even more so, Reform, offer no alternatives beyond national forelock-tugging with more or less enthusiasm.

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But that doesn’t mean other options don’t exist. One Euro-optimistic vision, towards which the world’s stock markets have been pointing, is a prolonged period of turbulence and lower growth in the US. As the Trump administration tears out the wiring of the global economic order, big money flees frightened by rumors of capital controls and the reality of on again, off again tariffs. Already The Telegraph reports America’s ultrarich are rushing to open Swiss bank accounts. As Trump’s America slides, Europe, led by a freely-spending Germany, attracts the investment; relations with China are normalized, trade accelerates; the war in Ukraine at least paused. Where once US growth meant European prosperity, that link has now shattered: in Trump’s first decade as a national political figure, a soaring US, floated aloft on cheap gas and demand for dollars, was mirrored by a stagnant Europe. If recent stock prices are any guide, we have been heading for a reversal: US flatlining, European growth.

It is certainly too soon after the tariff shock to make robust predictions, and too soon to declare that Europe is heading for a rebound. Already the fiscal strains of the attempted rearmament drive are beginning to show, and the EU’s infrastructure pledges do not meet even the requirements detailed in Mario Draghi’s blockbuster report last year. A 20% US tariff will be hard going, even if the EU has a meaningful capacity to retaliate, and to negotiate. But it is plausible to think that the era of “American exceptionalism”, of its uniquely rapid growth in a stagnant developed world, may well be over. And Britain, on current showing, is going to find itself on the wrong side of that Atlantic divide.

Britain’s economic fundamentals are substantially worse than other, similar economies. Our weakness when it comes to productivity growth, the size of government debt, and our import dependencies for essentials such as food and energy means that we have fewer options. Or rather few options that would not now involve seriously challenging power and wealth in this country. Calls for a wealth tax are growing. The absurd, £130 billion hand-out to the Bank of England “losses” is finally attracting political attention — although among national parties only Reform has been brave enough so far to call for its removal. The Treasury itself could finally learn to invest outside London and the southeast. If everything has changed, everything must change.

His solution is equally blunt. He and his advisers insist that aggressive, universal tariffs, combined with deregulation and corporate tax cuts, will render cross-border supply chains less lucrative and domestic investment attractive for business.

The problem is that virtually every other Trump action since Inauguration Day has undercut the state capacity needed to rehabilitate core industries and shepherd capital and labor towards new ones. Instead of leveraging state power on behalf of massive public-private projects, research and development, and workforce training, Team Trump has subjected government agencies to DOGE’s ruthless budget cuts, and frozen funds from or threatened to terminate President Joe Biden’s flagship industrial policies.

The Trumpians are plotting to privatize a host of government services, and have sent a chill through research institutes vital to breakthroughs in advanced medicine, technology, and manufacturing. Meanwhile, the administration has largely crippled antitrust enforcement, thereby favoring powerful monopolies that can withstand or circumvent trade barriers over mechanisms to coax healthy domestic competition and investment.

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None of these actions furthers the purported aims of tariffs and targeted export controls: to create good jobs for the forgotten working class and turn depressed regions into desirable places in which to work and live. On the contrary, slashing and burning state capacity will hinder these goals. Most damningly, the Hamiltonian tradition the Trumpians claim to champion is a powerful witness against the belief that a crippled state can boost manufacturing.

These shortcomings haven’t stopped some of Trump’s most vehement critics on the labor Left, not least United Auto Workers President Shawn Fain, from conceding that he is partly right on trade. The bipartisan Washington establishment of the late 20^th century made a colossal mistake in offshoring millions of jobs on the naive assumption that high-tech innovation and services would replace manufacturing, the historic engine of American upward mobility and growth.

But despite being motivated by fear over China’s phenomenal rise, Trump’s strategy has proved mostly incoherent, not to say contradictory, sowing serious doubts over whether America, after decades of outsourcing and regulatory capture by major multinationals, has the institutional know-how to meet the new president’s promise of industrial renewal.

Trump’s approach isn’t merely myopic, though — it betrays the legacy of the GOP statesmen whom champions of his tariffs regularly invoke to defend the current administration.

The populist Right’s evangelism for Trump’s protectionist impulses has long rested on the notion that he is boldly reviving the “American System” school of economics. This tradition stretches from Alexander Hamilton in the founding era and Henry Clay in the early republic to the heterodox economist Henry Charles Carey, the influential lawmaker Justin S. Morrill (architect of Civil War-era tariffs), and Presidents William McKinley and Theodore Roosevelt. These Republican statesmen and thinkers espoused a doctrine of development premised on diversified manufacturing, vast energy sources, scientific progress, and spreading education in the “industrial arts”.

Scholars describe this doctrine as unabashedly mercantilist. Yet 19^th-century Republicans maintained that it furthered the country’s founding ideals of self-government and associationalism: the notion that an industrious, republican citizenry will form voluntary organizations conducive to promoting shared interests that transcend divisions by region, sector, or class.

Neither laissez-faire nor statist, the old GOP that supposedly inspires Trump fused support for large developmental goals from disparate parts of society — inventors, aspiring industrial magnates, prospectors, advocates of “scientific agriculture”, financiers, and tradesmen. The intent was to spread commercial hubs built on regional interdependence, raising manufacturing and agricultural output while also curbing demand for goods from competitors like Victorian Britain.

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By John Rapley

Tariffs underpinned this system by pushing farmers, merchants, and consumers to purchase US-made goods and support local industries. Post-Civil War, tariffs underwrote pensions for Union Army veterans and their families (then a huge constituency of the GOP). Tariffs were also meant to lessen the competitiveness of imports made by foreign “pauper” labor, attracting the support of skilled workers who had few other avenues to stable wages.

Like Trump, the Republican leaders of a distant epoch believed high tariffs were a means to building national wealth and power. And their aversion to foreign competition ran deep. Cheap foreign goods were, in modern parlance, the real source of “market distortions”, because, unchecked, they made profitable manufacturing less viable and threatened the livelihoods of skilled workers.

Even Republican reformers who, like Theodore Roosevelt, were more attuned to the daily needs of thrifty households and worried that tariffs had given rise to unaccountable monopolies tended to believe that free trade was decadent. On the verge of America becoming a world power, Roosevelt remarked that “pernicious indulgence in the doctrine of free trade seems inevitably to produce fatty degeneration of the moral fiber”. Trump’s Treasury secretary, Scott Bessent, was channeling the same sentiment when he asserted in a recent speech that “access to cheap goods is not the essence of the American Dream”.

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But this is where the similarities end. In fact, depicting Trump as a descendant of the old protectionist pedigree misses an important dimension of past Republican thought. From the Lincoln era to Eisenhower’s, Republicans deployed a range of policies besides tariffs to stoke development and progress. The party’s Trumpian incarnation entirely ignores these other strategies, when it doesn’t undermine them.

Take the legacy of Morrill, the lawmaker who, in addition to protective tariffs, authored the legislation that created America’s exemplary land-grant colleges. Morrill well understood the relationship between education in fields like agronomy and engineering and productive innovation. The Homestead Act from the same period, which distributed public lands to frontier homesteaders for a nominal fee, likewise reflected the GOP’s belief in the importance of “decentralized” economic growth for a democratic society.

By contrast, Trump’s sweeping cuts to university grants, including for regional public universities that serve his rural base, disregard the country’s pressing skills shortage. Meanwhile, his lofty campaign pledge to build 10 “freedom cities“, still embryonic, evokes not so much the producer populism of westward expansion, but the dystopian “startup societies” dreamt up by Silicon Valley — or a Middle Eastern petrostate.

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The administration’s axiomatic contempt for regulation is also not in keeping with the GOP’s historical view. Reductive histories portray the GOP as always preaching “small government”. But the party once had vigorous debates about the purpose and scope of regulation.

Despite occasionally assailing corporate malfeasance and grilling feckless CEOs in congressional hearings, today’s Right-wing populists have yet to match the Republican “insurgents” from the party’s Roosevelt wing, including the likes of Sens. Hiram Johnson and George Norris, who pushed for corporate regulation, public works, public utilities, and direct democracy, and took a stand against corruption. Though they were rarely “redistributive” in the social-democratic sense, such positions aimed to prevent abuses by the politically connected and to give working people a material stake in democracy.

Earlier Republicans were also quite experimental in their time. President Herbert Hoover, forever marked by his loss to Franklin Delano Roosevelt for failing to alleviate the Great Depression, was, during his earlier tenure as Commerce secretary, a consummate technocrat who sought to deepen cooperation between various government bureaus and business associations to make policymaking more scientific.

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In stark contrast to DOGE’s modus operandi, Hoover’s efforts to reorganize government were founded on a belief in expertise and the legitimacy of using regulation to make markets more rational; the development of America’s burgeoning aviation sector, improvements in radio technology, and national business standards for product sizes were among his achievements.

Hoover was hardly a central planner. Judged by the current GOP’s ethos, though, his record of bureaucratic oversight epitomized the growth of the modern administrative state.

Of course, the New Deal realignment, which hobbled the GOP’s support for a generation, cemented the popular view that Republicans regularly opposed active government. But until the Reagan era, most mainstream Republicans accepted the New Deal order, occasionally endorsed breaking up monopolies, and eagerly supported generous federal funding for science and technology, even as they ritually affirmed the principle of “free enterprise”.

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Most famously, the Eisenhower administration’s vast Interstate Highway System updated Republicans’ past support for “internal improvements” for the Cold War era, further propelling the rise in suburban homeownership that characterized the postwar boom. And progressives’ arch-bogeyman Richard Nixon, now frequently regarded as the last “New Deal president”, signed NEPA and OSHA, the country’s landmark laws, respectively, for environmental protection and workplace-safety standards.

In short, major players in the Republican Party adopted a more flexible and interventionist view of political economy than is commonly recognized. Most MAGA influencers today would no doubt dismiss such evidence as not reflecting “true” Republicanism. Partisan progressives would similarly concur, at most allowing that “progressive Republicans” are extinct because the Democratic Party became their natural home.

This is to be expected. A few conservative think tanks and public intellectuals have sought to create a genuinely “pro-development” and “pro-worker” agenda for Republicans. But the anti-government tirades of Newt Gingrich, anti-tax activist Grover Norquist, and their successors in the Tea Party movement did much to fix the partisan battle lines of the last few decades, few of which the MAGA movement has redrawn besides disavowing George W. Bush’s embrace of globalized trade.

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Trump’s GOP is thus fixated on slashing and burning its way through the state, rather than restoring faith in positive government. For a little while, even skeptics allowed that a new working-class base, plus rising tensions with Beijing, might push Republicans to embrace an industrial strategy that recovered some of their party’s authentic traditions of domestic progress.

That possibility has come to naught. While Trump proclaims “liberation” is imminent, the rapid loss of state capacity under his watch promises anything but. Tariffs excepted, there is little concrete government action to compel market forces to meet national economic objectives, and the GOP has bent over backwards to accommodate banking lobbies vociferously opposed to even minor restraints on financial predation.

One hardly needs to be a radical populist to see this doesn’t bode well for American society. As the most perceptive believers in the “American System” understood, an economy that fails to maximize its productive forces and promote workers’ well-being is destined to wither. If America is to avert permanent decline, it needs leaders determined to prevent the spread of servitude masked as “liberty”.

The country is plagued by an affordability crisis, a housing shortage, crumbling infrastructure, and a general sense of diminishing expectations. For abundance liberals, it’s no accident that these crises are most acute in the states and cities where Democrats hold most of the political power.

The journalists Ezra Klein and Derek Thompson have emerged as the most prominent faces of this movement. In their buzzy new book, Abundance, they argue that scarcity is a choice, and that “to have the future we want, we need to build and invent more of what we need”. Progressives, in this telling, must be on the side of dynamism and productive capacity, even if this means bucking the Left’s orthodoxies.

The abundance movement gives hope for a progressive revival amid Trumpian gloom — even if proponents fail to fully reckon with the material incentives that keep many of their constituents on the side of the un-abundant status quo.

Supply-side liberals want to roll back regulations that make it harder to innovate and build. Yet it would be a mistake to cast them as neoliberals in the Clinton-Obama mold, as many on the Left are now doing. They emphasize the role of a strong, active government in shaping policy and directing markets. And while some abundance liberals describe themselves as moderates, many more are explicit about their passion for progressive ideals. The concern that unifies them is the tendency of progressive governance to hinder its own ostensible goals.

Stringent zoning laws block the construction of new housing, while burdensome rules around the use of public money make affordable public housing too expensive to build. Endless environmental reviews delay public transportation and green infrastructure projects. As Klein and Thompson put it: “Liberals speak as if they believe in government and then pass policy after policy hamstringing what it can actually do.”

Ordinary people suffer as a result. A majority of California tenants are now “rent-burdened”, meaning they spend more than a third of their income on housing. The same is true in New York City. Nearly a quarter of Seattle residents spend more than half of their income on rent. Even middle-class workers are being priced out of the most desirable cities and job markets.

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Nonetheless, deep-blue cities permit far fewer new homes than those with more conservative governance. Despite having 8 million more residents than Texas, the Golden State issued only half as many residential building permits in 2023. Meanwhile, in Austin, the median rent has fallen a staggering 22 percent over the last two years, even amid a tech boom, thanks to a concerted push to build new rental housing.

Difficulty building isn’t confined to the housing sector. Large infrastructure projects in blue areas regularly run behind schedule and over-budget due to onerous regulations and activist litigation. In 2008, California approved funding for an ambitious high-speed-rail project stretching across much of the state. The project is now $100 billion over-budget and a decade behind schedule. Meanwhile, the Lone Star State, with its loose regulatory climate, beats environmentally friendly California in solar and wind power capacity.

These failures partly explain why blue areas drifted most dramatically to the Right in the 2024 election, with core urban voters in liberal bastions like Los Angeles, Chicago, and New York City shifting 8 percentage points toward Trump. This should terrify Democrats, but they appear incapable of correcting course.

To be sure, the toxic and inane cultural politics progressives championed over the last decade did Democrats no favors at the ballot box. But rebranding the party as more socially moderate — with performative gestures towards masculinity, sports, patriotic kitsch, and Joe Rogan fans — won’t solve the deeper problems of progressive governance.

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For some supply-side progressives, the warning signs were flashing red long before the election. Thompson began to reconsider the cause of supply shortages during the Covid pandemic, when the country was short on protective equipment, drug supplies, and hospital beds. He saw these shortages as more than mere supply-chain failures. The authorities were failing to fast-track an appropriate pandemic response in the same way they failed at housing, energy, infrastructure, and skilled labor. In a January 2022 Atlantic essay Thompson called for a broad “abundance agenda” that would harness the power of both government and markets to supply more of what people need.

Supply-side has long been a Right-coded phrase. The term refers to the economic theory that low taxes and small government boost economic output and living standards for all. Progressives have instead generally focused, to borrow Klein’s words, on “the demand side of the ledger”: subsidizing the cost of housing, food, health care, education, and other essentials.

But price controls and food stamps don’t put more eggs and other goods on supermarket shelves. Simply handing out money for people to buy a limited supply of goods drives up prices, as the inflation of recent years has made clear. Had Kamala Harris been able to follow through on her campaign promise to give $25,000 grants to first-time homebuyers, the likely result would have been a rise in the cost of housing.

When demand outstrips supply, especially for inelastic goods, redistribution is an insufficient response. Hence why supply-side progressives are calling for a political shift away from redistribution toward the production and supply of more goods and services. They want a liberalism that builds and innovates and therefore lowers prices, not just redistributes.

This is a radical departure from the last 50-plus years of progressive orthodoxy, which has focused mostly on inequality and, more recently, climate change. The climate dimension is especially prone to a combination of radicalism and pessimism that alienates ordinary people. The “degrowth” movement — which calls for managed decline and even winding down industrial society in the face of ecological collapse — has gained purchase in many corners of the Left. Even many mainstream liberals espouse tacitly antigrowth sentiments.

Such policies sabotage progressive governance. Then, too, the legislative model was forged in a different era with different problems. The environmental regulations of the postwar era sought to ameliorate the harms associated with rapid economic growth and technological progress. The postwar American economy was vibrant. Suburbs and highways and factories were going up all across the country. But the air and water were polluted, manufacturing was degrading natural environments, and crime, smog, noise, and crowding had the affluent fleeing cities.

But these environmental regulations, zoning laws, historic preservation statutes, and “grassroots” public-interest policies, implemented to protect the public in a time of rapid change, have since been captured by special interests. Activist citizen and business groups weaponize these same laws to stymie construction and growth for their own personal ends.

A willingness to grapple with the failures of progressive governance — and the ideological choices underpinning those failures — sets supply-side progressives apart from many of the other rival factions seeking to remake or just rebrand the Democratic Party. But for now, the abundance faction consists mostly of policy wonks confined to media, think tanks, and academia. A few prominent politicians have expressed support for their ideas, at least as they appear on paper, and others hit on similar themes. California Gov. Gavin Newsom recently issued a State Economic Blueprint teasing new infrastructure, innovation, government investment, and dynamism. (The cover features hard hats, construction cranes, and a commercial farm that is notably not bucolic.)

However, the “pathologies of the broad Left”, as Klein and Thompson put it, didn’t arise by happenstance, and they won’t be easily cured. Though regulatory hurdles were raised as well-intentioned solutions to the problems of another age, the entrenched interests keeping them in place are very much contemporary. In the cities home to much of the Democratic base, NIMBYism remains a potent force. Affluent homeowners have moved back into the cities, but they still fear the traffic, crime, noise, and blocked views that come with high-density affordable housing and infrastructure projects. They are unlikely to be happy about slumping home prices as new housing stock becomes available.

Klein and Thompson are too quick to excuse or brush aside the vested interest affluent liberals have in the status quo. Klein has asked for grace and understanding for the contradictory but human impulses of those practicing what he calls “lawn-sign liberalism”. Elsewhere, Thompson floated promoting the abundance agenda as pushback against greedy elites but stopped short of openly blaming homeowners.

Yoni Appelbaum, another supply-side progressive with a new book out, Stuck: How the Privileged and the Propertied Broke the Engine of American Opportunity, is more comfortable naming villains. Appelbaum points the finger at Jane Jacobs, the community activist famous for keeping planning virtuoso Robert Moses from running highways through Manhattan. Jacobs’s writing and activism against large “top-down” urban development in favor of community-based planning laid the blueprint for activist groups that would squash urban development for decades to come.

In Why Nothing Works: Who Killed Progress and How to Bring It Back, yet another text simpatico to the abundance movement, Marc Dunkelman argues that such activists, and progressives in general, have leaned too far into a “Jeffersonian” impulse as opposed to the Hamiltonian tradition’s emphasis on developmentalism and large-scale solutions to mass problems.

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Though such honesty is refreshing, Thompson is probably right that a politics vilifying homeowners would struggle to find a constituency among affluent liberals with property in major cities. No one likes to be told that they are the problem. Even if the movement can find support among young progressives struggling to break into the housing market, the youth vote isn’t easy for progressives to mobilize (just ask Bernie Sanders); many young people are now pivoting to the Right anyway.

Immigration is another sticking point. Supply-side progressivism shares traditional progressivism’s support for expanding migration. Matthew Yglesias, a longtime associate of Klein’s, made this argument explicitly in his book One Billion Americans, published in 2020 (the title gives away the gist). However, while supply-side progressives are mostly in agreement, few seem so eager to foreground the point — understandably, given the ferocious public backlash against an unrestricted border under former President Joe Biden.

Klein and Thompson make only passing mention of the need for more skilled immigrant labor to build new infrastructure and technologies, but they spend little time defending or even making the case. Obvious questions go unacknowledged. Why can’t American citizens do these jobs? Won’t more people create even more issues with supply? The reason is surely strategic: the public has soured on mass immigration, which has been electorally damaging for progressive parties across Western democracies.

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Then there are unions. The abundance movement’s critics on the Left charge that making building easier would disrupt unions and be “politically ruinous”. It’s true that Klein & Co. identify labor laws as one of the factors holding back development. Yet Klein has also underscored his support for the labor movement, noting that countries with stronger unions build transit infrastructure faster and for less than the United States, with its much weaker labor movement. Klein is correct to warn, however, that nothing threatens the labor movement more than a public that blames it for the failures of progressive governance.

Still, criticizing labor law risks making enemies for abundance within organized labor. Likewise, few “affluent metropolitan liberals” will take kindly to the movement’s criticisms of environmental regulations, DEI initiatives, and other progressive pieties.

That’s why some abundance liberals have sought to forge partnerships across the aisle. Colin Mortimer of the Center for New Liberalism, a think tank that serves as a home for this rising strain of progressive thought, pointed to the Abundance Institute as a “Right-wing institution” promoting an abundance agenda centered around science and technology. Then there is the economist Tyler Cowen and his “state-capacity libertarianism”, which can be thought of as an inverse movement tackling the pathologies of the Right: above all, a perverse adherence to laissez-faire principles and refusal to harness the unique powers of government.

Likewise, figures in the so-called Tech Right — such as the venture capitalists Marc Andreessen and Peter Thiel, who have both lamented the country’s inability to build — get lumped into the abundance mix. “The degree that we can make this a cross-partisan, bipartisan issue, we think that’s fantastic, and it’s going to be all the more reason why this movement can be effective”, Mortimer told me.

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Yet the danger is that Right and Left abundance proponents will each double down on their own side’s respective preferences without taking up the productive ideas of the other: that is, Republicans will deregulate without building up state capacity, while Democrats will splurge without deregulating.

The first months of the new Trump administration are instructive. The Department of Government Efficiency, headed by Elon Musk, himself pro-building and pro-dynamism in the Andreessen-Thiel sense, doesn’t appear to share any interest in making government perform better — or at all. The new Trump administration, largely abandoning the pro-worker populist posturing of the campaign trail, now seems intent on realizing Grover Norquist’s quip about shrinking the government until it can be drowned in a bathtub.

For their part, Thompson and Klein frame their agenda as an opportunity to step into the vacancy Republicans create by peddling what they call a “scarcity mindset”, in which, as JD Vance infamously claimed, illegal immigrants are taking up all of the homes that could go to native citizens. Their great hope is that Democrats might help forge a new political order that displaces the faltering neoliberal consensus.

Until recently, this did not seem so out of the realm of possibility: some Republicans had shown more openness to state interventions and industrial policy, and the Biden administration, which chose to leave many of Trump’s strategic tariffs in place, was able to garner enough bipartisan support to enact no fewer than three large spending bills centered around infrastructure and industrial policy.

Lately, however, supposedly populist Republicans have come more and more to resemble their tax-cutting, government-attacking, laissez-faire predecessors, while many Democrats are falling back into tired #Resistance tropes. Can abundance liberals (and thoughtful counterparts on the Right) cut through these familiar battle lines to forge creative new solutions to the nation’s supply problems? At stake is the future not just of the Left, but American prosperity in the 21^st century.

That sounds like a script for a trade war, but it may not play out this way.

Chinese tech stocks have rallied sharply in recent days, and Beijing shows little inclination to escalate relentlessly in response. This is because both Washington and Beijing know well that the old bilateral China-US trade relationship is untenable. Under that arrangement, US consumers underwrote China’s industrial might at the expense of America’s domestic manufacturing sector. It was the product of a neoliberal consensus that has proved deeply unpopular with the working-class and lower-middle-class Americans who form the Trumpian GOP’s base.

In short, the old free-trade regime isn’t coming back, and both sides are making plans accordingly. Trump may reduce tariffs on Chinese goods in exchange for stronger action to curb illegal immigration and opioids, or other concessions. Commerce Secretary Howard Lutnick said on 5 March, “I think [Trump’s] going to figure out, ‘you do more, and I’ll meet you in the middle some way’. And we’re probably going to be announcing that tomorrow”. Hong Kong’s tech stock index, which traded flat until just before Tuesday’s close, jumped 10% in the three sessions after Lutnick’s remarks came across the wire.

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“There’ll be a little disturbance. But we’re okay with that. It won’t be much”, Trump said of the impact of tariffs in his address to a joint session of Congress. Contrary to the remonstrations of Lawrence Summers and other neoliberal economists, he well may be right.

Here’s a back-of-the-envelope calculation of the impact of tariffs: in December 2024, the American economy imported $250 billion worth of goods, while retailers sold $650 billion in goods. Imports are about 40% of retail sales. If the average tariff is 10%, and half of that 10% is absorbed by exporters to the United States, the resulting impact on the price level for imports goods would be 5%. In turn, 5% of the 40% import share in retail sales is 2%. Goods comprise roughly half of the Consumer Price Index, so the impact on overall inflation would be around 1%. (Of course, a great deal of imports are production inputs, rather than finished goods, but let’s assume that the cost is simply passed on to final consumers.)

That would be the “little disturbance” the President has mentioned. An average 10% tariff on $3 trillion a year of imports would yield about $300 billion in revenues, enough to put a meaningful dent into America’s $1.8 trillion budget deficit. This is the benign scenario.

There may be some collateral damage, in particular to business investment. The United States now imports more capital goods than it produces at home, and investment in equipment fell sharply at the end of 2024. Higher prices for capital goods due to tariffs might suppress investment and, perversely, make the US more dependent on imported goods. The administration will do its best to strike a balance between structural change and short-term economic sensitivities.

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Because so much of US manufacturing depends on foreign inputs, it will be hard for domestic manufacturers to replace imports with local production. If Trump ramps up the tariff to 25%, it would produce more than a little disturbance — perhaps a 5% increase in the average price of goods sold in the US — but a 10% rate is manageable. And there’s another factor working in Trump’s favor: foreign businesses may invest in the United States to avoid tariffs. Trump claimed in his speech to Congress that $1.7 trillion in foreign investment was already in the pipeline. That may be an optimistic estimate, but more foreign investment is a net positive for the US.

Still, there is reason to be anxious, and the White House will watch the impact of tariffs on the economy closely. Treasury Secretary Scott Bessent, a key member of the President’s inner circle, warned 25 February that the US had entered a “private-sector recession”. He added: “The previous administration’s over-reliance on excessive government spending and overbearing regulation left us with an economy that may have exhibited some reasonable metrics but ultimately was brittle underneath”.

Private investment began contracting in the last quarter of 2024. There are warning signs of economic weakness: the highest unemployment claims in two years and low employment growth in a private ADP survey; sagging consumer confidence according to University of Michigan and Conference Board surveys; and a sharp 0.9% fall in January retail sales.

Which brings us to China’s perspective. Chinese policy makers were initially hoping for a return to the 2020 “Phase One” deal, in which the Middle Kingdom agreed to buy an additional $200 billion worth of US products (though it fell short of that commitment during the Covid recession). Peking University’s Professor Yao Yang, a prominent Chinese commentator, told the Chinese news outlet Guancha: “We can also consider buying American oil and gas, especially natural gas. Our energy procurement also needs to be diversified, and we can import more agricultural products.”

But turning the clock back to 2020 now seems improbable. Beijing reads the same numbers as Trump and his team, and Chinese officials know that Washington can’t continue to run a $1.2 trillion trade deficit forever. As of 2024, the United States had a net international investment position of negative $24 trillion. That’s the amount of assets the United States had to sell to finance the last 30 years of trade deficits. What can’t go on forever, won’t. Aware of US vulnerability on this count, Chinese officialdom has now set aside its “Phase One” hopes.

And China is prepared. The first Trump administration was a wake-up call for Beijing, and it spent the past eight years reimagining its place in the global economy. As a result, the world trade landscape has shifted dramatically: it isn’t so much that the United States has decoupled from China, as much as China that has decoupled from the United States. China’s exports to the America have shrunk, while its exports to the Global South have doubled; it now sells more to the Global South than to all developed markets combined. And it sourced 53% of last year’s soybean imports from Brazil, compared to 38% from the United States.

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To be sure, China’s economic exposure to the US market — and America’s dependence on China for a wide range of products — is bigger than the bilateral trade data show. It’s true that US imports from China have fallen to less than $40 million a month, down from a 2022 peak of more than $50 million a month. However, US imports from the rest of the Global South have risen sharply. Crucially, much of US imports from Latin America and Asia are assembled in third countries using Chinese components, or come out of Chinese-owned factories.

For example, Vietnam — which is not subject to tariffs under the Trump regime — exports a quarter of its GDP to the United States, and imports the capital goods and production inputs to do this. There has been talk about imposing tariffs on Chinese content in imports from third countries, but that is impractical.

Bottom line: it simply isn’t in China’s interest to rock the boat. Beijing’s retaliatory tariffs on US agricultural products will shift China’s imports away from the United States and towards Brazil, which already provides China with more than half of its soybean imports. It will continue to shift manufacturing capacity to countries not subject to US tariffs, and its indirect exports to the US will compensate to some extent for the continuing decline of its direct exports.

While Uncle Sam and the Dragon look poised for a trade fight, their earlier decoupling, combined with the shifts in the global trade landscape, will likely avert the worst.

Economic hegemony consists of your ability to use your economic power, your currency and your financial system to impose your will on others. Essentially coercion. Any bank that still does business with Russia, for example, risks being cut off from the US dollar markets. Given the importance of the dollar in the global financial system, countries are given no choice but to comply with US policies. Many economists are therefore sanguine about the future of US global economic hegemony. I however disagree. I think Trump’s economic policy will lead to a dwindling of America’s exorbitant privilege.

Ben Bernanke, the former governor of the Federal Reserve, once listed four services the dollar provides to the global economy: stability of value, liquidity, safety, and the role of the US as lender of last resort. Bernanke himself was instrumental in backstopping the world economy during the global financial crisis, thereby shoring up its exorbitant privilege. “The Fed served as a backstop provider of dollars during the financial crisis by instituting currency swaps with fourteen central banks, including four in emerging markets,” Bernanke recalled almost a decade after the crisis.

The US dollar didn’t assume its role as the leading global currency until after the Second World War, as the anchor of Bretton-Woods, the financial system created in 1944. The deal was that the rest of the world would run fixed exchange rates against the dollar, which itself was pegged to gold. The system started to disintegrate in the Sixties, and its death came in stages. In 1971, Richard Nixon ended the convertibility of the dollars into gold. In 1973, the fixed exchange rates were dropped. Bretton Woods formally ended in 1976.

At that point, the world moved over to flexible exchange rates. This, it turned out, only strengthened US economic hegemony. It was based on a Faustian pact between countries that relied on exports, such as China and Germany, and a US that was willing to absorb the deficit. So if, for example, China sells more video consoles to the US, and Germany sells more cars, they both end up earning dollars that they then invest in the US. America’s legendary trade deficits — those that Trump hates so much — are directly related to these flows of dollars in the financial system.

These trade and savings imbalances were the engines of turbo-globalization. Macroeconomists, and trade economists especially, love this stuff because it gels with an underlying ideology that says free global trade is beneficial to everybody, always and everywhere. But the big flaw is that it benefits some people more than others. In the end, the voters decided. They voted for Trump and for his trade policies. They didn’t listen to the economists. Politics intruded.

Geopolitics intruded, too. During the era of rampant globalization, Germany made itself dependent on cheap gas from Russia, on exports to China, and on defense from the US. This fragmentation essentially destroyed the German economic model, traditionally based on industry, leaving it dangerously imbalanced and vulnerable.

Even vaster changes could soon arrive. Trump’s first presidency gave us a hint that the era of one-world globalization was nearing its end. But back then, he was not as focused as he appears to be now. If he succeeds in eradicating America’s big bilateral trade deficits — against Mexico, Canada, China and the EU — the dynamics of global trade and finance could change fundamentally. As the countries that relied so much on their ability to export to the US have to trade more with each other, there will be less need to use the dollar for international transactions. Inevitably, the exorbitant privilege will decline.

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Privilege also declines the more you wield that power. After Russia invaded Ukraine, the US and EU governments froze Russia’s reserve assets invested there. Foreign investors are now starting to question whether their US-invested money in Ukraine is still safe. Bernanke’s claim that the dollars offered the service of “safety” and “liquidity” certainly does not conform with Russia’s experience — and it will not keep its money in America and Europe when the war ends. Meanwhile, those countries which have not taken sides are watching Western sanctions with concern. The Chinese, for example, have started to reduce their exposure to US markets.

The turbulence is all complicated by the internal inconsistency to Trump’s economic policies: he wants to close the trade deficit, but he also wants the US dollar to remain the most important currency. Scott Bessent, Trump’s treasury secretary, is the man in charge of managing those conflicting objectives — probably the hardest job in the Trump administration right now. Bessent used to be a brilliant investor — one of the brains behind George Soros’ spectacular bet against the Bank of England in 1992, that ended with the pound’s exit from Europe’s exchange rate mechanism. But even he would struggle to meet the logically conflicting goals Trump has set for his economic policy: if the administration succeeds in cutting down the US trade deficit, as well as the budget deficit, and returns the economy to a more balanced position, it will not immediately end the role of the dollar as the leading global currency. These shifts take time. But it will set the ball rolling.

There is another problem. Technology is changing finance. The most likely future competitor to the dollar as a global transaction currency may not be the euro, the renminbi, or another fiat currency. It could be Bitcoin. Trump’s administration is also busy deregulating the crypto industry because the President has proclaimed that he wanted all bitcoins to be in the US. I almost fell off my chair when he said this. Bitcoin is not like a stock or a bond that you own. To Americanize it would be as futile as the attempt to bring the entire internet into your village.

The inconsistency in Trump’s economic policy goals isn’t going unnoticed. Some smart investors I know are currently pouring a lot of their wealth into gold and bitcoin. And like me, they are skeptical about whether the West will get on top of inflation. I am also not sure that Trump really cares as much about inflation as he pretended during the campaign. But I do believe he is serious about the tariffs. A sharp-minded investor would, therefore, realize that this is a strategy that would be very positive for alternative investments such as Bitcoin and gold, and very bad for investments that thrive in environments of stable and low inflation, such as government bonds.

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How will this play out? I believe Trump’s tariffs will come. The US trade deficit will decline. An increasing volume of global trade will take place outside the US and the EU will cautiously reconnect with China. The dollar will remain the leading global currency for a while — certainly for the duration of Trump’s presidency. But it will start to lose its dominance, at which point more people will turn to Bitcoin. It will be to the dollar what social media are to the traditional media. First it was ridiculed. Then, suddenly, it became an existential threat. And then, the traditional media becomes the legacy media.

Trump’s policies will lead to a long-term erosion of not America’s global power, but of its ability to use economic coercion to make the rest of the world comply with its priorities. America’s exorbitant privilege came with a price. The rest of the world accepted US global leadership not out of deference but because it was a good deal for almost everybody. With Trump, that won’t be the case any longer. Americans will find that they can still live comfortable lives without the exorbitant privilege, but foreign policy will get a lot harder.

Welcome to America’s parallel economy, which is hell-bent on forcing profit out of MAGA ideology. The term refers to the strictly capitalist side of what promises to be a wild political ride over the next four years — the idea that one must buy, sell, and invest in nothing but the sort of things Donald Trump might buy, sell, and invest in, from proverbial fruit to nuts. Last week, the news that none other than Donald Trump Jr was joining PublicSquare’s board of directors saw the company’s market value soar by 270% within a day.

Two weeks earlier, Omeed Malik, founder and president of venture capital firm 1789 Capital, had appeared on MSN’s Squawk Box. Malik — a former corporate lawyer and Merrill Lynch employee who has also appeared on Showtime’s TV series Billions — declared that his company was dedicated to investing in something called the “EIG” economy, an acronym for “Entrepreneurship, Innovation, and Growth”. This, he insisted, “stands totally contrary to ESG”, which is shorthand for Left-wing investment principles that prioritise Environmental, Social, and responsible corporate Governance. In other words, it was time for MAGA diehards to put their money where their mouth is.

In a similar fashion, the American Conservative Values ETF — which is trading as ACVF, with around $100 million in assets under management — has vowed to “stand against woke liberal investments” and implores investors to “take action with your wallet”. Thus Strive Asset Management’s Exxon and Chevron-laden DRLL ETF, now trading on the Bloomberg US Energy Select Index. Thus the burgeoning Azoria Meritocracy ETF, set to begin trading in 2025, a self-proclaimed “S&P 500 fund without the woke shit”.

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“It’s time to invest in companies that don’t hate you,” is how Donald Trump Jr summed up PublicSquare’s attitude in a social media post last year. It’s an interesting concept — this nexus of emotion, politics, and money. In his 1,000-page tome Capital and Ideology, the French economist Thomas Piketty argued that history is full of Trumpian “ruptures” that can reshape ideology, and as a result transform patterns of economic activity. During the Biden years, the consumer imperative to buy brands that reflect one’s politics resulted in a tsunami of “woke-washing” that spanned everything from Goldfish snacks to Pedigree dog food and “Woke Coke”. Now, the same is happening on the Right.

It’s certainly not a new idea for Trump, who for the past half-century has sought a global monopoly of eponymous casinos, hotels, office towers, golf clubs, and most recently, a line of cologne that even Jill Biden can’t resist. His trademarked cocktail, the Trumptini (Bacardi, Cointreau, sour mix, and cranberry juice served in a salt-rimmed martini glass, garnished with red Atlantic salmon caviar) is the signature drink of the Trump International Resort in Miami, and the beverage of choice for the would-be parallel economist.

An even greater irony is that creating a parallel economy qualified as one of the most grievous sins of the Libs. For the past decade or so, the Right has hurled insults at ESG, repeatedly scorning “the woke virus” (thank you, Elon Musk) that constitutes a “cultural cancer” (thank you, Vivek Ramaswamy) in its titanic efforts to deploy Lefty financial power for the sake of politically progressive agendas. Morningstar recently crunched the numbers for assets held by 7,600 global ESG investment funds, and came up with the extraordinary sum of $3.3 trillion. Perhaps this indicated an over-extension. Perhaps the investments simply weren’t delivering returns. In any case, a backlash was to be expected, and with the advent of Trump II hundreds of these funds are now being wound down, taking their carbon credits with them.

Yet ESG is not the liberal Left’s most despised acronym: that privilege lies with DEI, or Diversity, Equity, and Inclusion, which the Right see as strangling American ingenuity. Trump’s pick for Secretary of Defense, Fox News pundit Pete Hegseth, may be an alleged sexual abuser, an inveterate womaniser, and, apparently, a drunk who dances on stage alongside strippers, but he may still get the nod from Congress to join the cabinet, his nomination bolstered by his accusation that the Pentagon has sabotaged military readiness and recruitment by its commitment to DEI.

When it comes to education, Trump has vowed to rid the field of “Left-wing indoctrination”, which, according to the beancounters, would have tremendous economic implications for institutes of higher learning that are lavishing millions each year on DEI programmes. The University of Michigan, for one, has already blown a wallet-busting $85 million on a five-year DEI plan. Nor has the private sector been exempt from extravagance in this regard, as a median company DEI budget comes in at around $1.2 million. No doubt, the secretaries and under-secretaries and assorted assistant secretaries of the monstrous United States Department of Health and Human Services are well aware that the salad days of hundreds of millions spent on DEI-related staff and programmes are almost over.

Good riddance, cries MAGA. And the subtext is clear: it’s time for some pork of our own. Trump’s triumph has been followed by some massive Right-wing monetary manoeuvres, as Omeed Malik, Ben Carson, and Donald Trump Jr are not alone in their hatred of ESG and DEI. Troves of major financial services firms have withdrawn from Climate Action 100+, a coalition of investors pushing companies to cut carbon emissions. “Investors are being held hostage,” declared Rep. Bill Huizenga, whose Congressional sub-committee held hearings targeting ESG investing. “Democrats, progressive activist investors, and proxy advisory firms have conspired to push woke ideology on millions of unsuspecting and unwilling American investors,” he added.

But as the Republicans take control of the presidency, Congress, and the Supreme Court, “Politically Responsible Investing” has taken on a new meaning — same as the old. A pioneer in this regard has been Hal Lambert, an ex-banker and frequent Fox Business News guest who served as Finance Chair of the Texas GOP and on Donald Trump’s 2017 Inaugural Committee. Lambert launched his Point Bridge Capital after Target Corporation committed the unpardonable sin of allowing transgender customers and employees to use restrooms that corresponded with their gender affiliation. Point Bridge is known for its “MAGA ETF”, a fund that allows high-net-worth individuals to invest in companies supportive of Right-wing ideology, such as Tyson Foods (which released 371 million pounds of pollution into US waterways), Phillips 66 (“drill baby drill”), and gun-peddling Walmart.

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For those saving up in hope of future “high-net worth”, there’s Old Glory Bank, founded by the retired neurosurgeon and former Trump cabinet member Ben Carson, talk show pundit Larry Elder, and country music star John Rich, who once went viral for declaring that “wokeness killed country music”. Old Glory promises “freedom from cancel-culture and snooping eyes” to all its patriotic, flag-adoring customers.

The parallel economy promises there will be no MAGA left behind, even those living pay-check to pay-check. After years of simmering resentment, the most paltry consumer of media knows YouTube is out, Rumble in; Starbucks out, Black Rifle coffee in; instead of Charmin, Hillary Clinton toilet paper; instead of AT&T, Patriot Mobile — the Christian conservative wireless network. Instead of Huggies, Everylife diapers. And when it comes to buying a house, convicted felon General Mike Flynn has helped to found MAGA Realty, where every client is promised a free 25-foot flagpole and an AR-15. But perhaps nothing illustrates America’s divisions better than PublicSquare’s Trump MAGA All-Purpose Seasoning, a mixture of garlic, onion, maltodextrin, silicon dioxide, “and other secret spices”. No doubt, America will win the war against wokeness by means of proper seasoning.

DEI, ESG, EIG, or MAGA maltodextrin — at the end of the day, capitalism and politics are different things, and those who try to make the two into one are doomed to fail. The Right-wing social media app Rumble missed Wall Street expectations. Old Glory Bank, now four years old, still awaits the rush of new accounts. In the first nine months of this year, PublicSquare lost $37 million. As the holiday season approaches, it seems it’s not the thought that counts. It’s the money. So raise a glass for Christmas, everyone, be it a woke Coke or Trumptini.

But despite these promises, Americans are likely in for a period of consumer austerity no matter who wins the election. The only question is what form this austerity will take.

In somewhat simplified terms, the fundamental policy choice is between conventional or “neoliberal” austerity, progressive-environmental austerity, and what might be called “catch-up reindustrialisation” — a policy shift in favour of investment over consumption to rebuild the US industrial base and shore up America’s long-term security and economic prospects, particularly vis-à-vis China. In my view, the third option is both the necessary and most desirable choice, yet all three present their own difficulties and complications. The fact that all these choices involve some level of austerity doubtless contributes to the increasing bitterness of American politics.

Let’s start by considering neoliberal austerity. Conventional budgetary concerns have resurfaced with the inflation spikes of recent years and interest rates still near their highest levels since 2008. In the past, deficits significantly above 3% of GDP were only experienced during major economic downturns or in wartime. In 2023, however, the United States ran a roughly 6% deficit with a relatively low unemployment rate of around 4%. While paranoia about the US national debt has always proved baseless in the modern era, the limits of the present trajectory are becoming more visible, as interest payments take up greater and greater percentages of government spending.

The question for deficit hawks — today and in the past — is whether they are in fact primarily concerned with reducing the deficit. In America, this pose is often, if not typically, disingenuous — rhetorical cover for an ideological project of shrinking the state rather than responsibly balancing revenues with expenditures. Hence the most strident deficit hawks are almost invariably the most eager tax cutters. Or, perhaps more accurately, the most aggressive tax cutters often masquerade as deficit hawks but have little real interest in responsible fiscal policy.

Today, with federal tax rates at low levels, any serious deficit reduction programme would have to consider tax increases. The rates themselves may not even be the key issue: taxing corporate profits in the country where they are earned, or closing various personal loopholes, may have a greater impact at this point. But these items are largely excluded from the “deficit” agenda, especially among Republicans, who continue to indulge in fantasies that tax cuts will “pay for themselves”, despite the manifest failure of the Bush and Trump tax cuts to generate meaningful growth.

Instead, the conservative focus remains entirely on cutting spending. The problem here is that, within the realm of political plausibility, there is not all that much to cut. According to the most recent numbers from the Congressional Budget Office, “mandatory spending” (mostly Medicare, Medicaid, and Social Security) accounted for $3.8 trillion of the $6.1 trillion 2023 federal budget. Defence spending added another $800 billion, constituting almost half of “discretionary spending”. Interest costs were an additional $700 billion, contributing to a total deficit of $1.7 trillion. The bottom line is that, even if all $900 billion of non-defence discretionary spending were miraculously cut — zeroing out transportation, education, veterans’ benefits, the justice system, and scientific research — that would only reduce the deficit by about half. Significant deficit reduction must therefore involve cuts to the most politically sensitive areas: defence and entitlements.

Given China’s emergence as a peer competitor — and one with a massive industrial-base advantage — cutting defence appears to be off the table. On the contrary, the ranking Republican on the Senate Armed Services Committee, Roger Wicker, has proposed increasing defence spending to 5% of GDP, up from the current level of 3%. The reasons are clear: China built 21 submarines last year, while the United States struggled to build one; it will take up to seven years to replenish certain munitions stocks used in Ukraine, and analysts estimate that the United States would be out of some critical weapons within a week in any active conflict over Taiwan. One reason the US Navy has not been able to better protect Middle Eastern shipping lanes from recent Houthi attacks is a concern that the increased use of certain munitions there would compromise readiness for other potential conflicts.

Simply throwing more money at the Pentagon and incumbent defence contractors will not solve these problems: serious procurement reforms and broader industrial policy measures are necessary. And yet there is little doubt that America’s security situation is more perilous than it has been for generations. Legacy ideological commitments further complicate these issues. The most aggressive “deficit hawks” — such as Nikki Haley in the Republican Party or various centrist Democrats — also tend to be the most fervent supporters of interventions in Ukraine and elsewhere to uphold a “US-led liberal international order”. Although Haley and others typically prefer to imagine that foreign policy and economic policy are distinct domains, their interventionist commitments nevertheless preclude any significant cuts to defence spending.

That leaves Social Security and Medicare. Cutting Social Security is so politically toxic that Trump has completely distanced himself from the proposals of George W. Bush and Paul Ryan, once hallmarks of conservative economic policy. Republican congressional leadership also notably refused to endorse entitlement cuts in the last midterm elections. Even if Social Security cuts were politically viable, however, there has been little serious effort to think through the effects.

Significant cuts would mean workers would have to defer their own consumption, either to save more for their own retirement or to keep their elderly parents out of poverty, creating a drag on growth and complicating deficit reduction efforts. Although Social Security is structured as social insurance rather than welfare, the benefit formulas are somewhat redistributive, so major cuts would probably result in a further shift of wealth from lower-income people, with a high propensity to spend, to affluent savers, with a lower propensity to spend.

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In the past, advocates of “privatising” Social Security sometimes argued that allowing individuals to manage their own retirement savings would enable higher returns and boost growth. But the Social Security programme functions less as a professionally managed pool of capital, like the public pension funds common in many other countries or in US states, and more like debt-funded consumption stimulus. Eliminating Social Security, therefore, is not simply a matter of distributing a pool of assets to individual accounts. Furthermore, if the goal were simply to maximise returns, the Social Security “trust funds” could be authorised to make public and private investments beyond US Treasury securities. But the same small-government ideology that calls for cutting Social Security also resists giving the government the authority to make such investments, which could distort “market signals”. Devolving all responsibility to individuals, on the other hand, would magnify the impact of market volatility for each household and likely require further increasing savings. At the same time, the government would probably still be called upon to bail out retirees — whether they saved prudently or not — during major stock market crashes.

A more practical approach might aim to maximise the value derived from the existing programme rather than cutting it. Senator Vance was roundly criticised for saying that more should be done to enlist grandparents to assist with childcare. Yet there are a number of serious proposals to use Social Security to incentivise childcare or otherwise better support the sharing of resources within extended families.

The other major area perpetually on the chopping block is health care. This would appear to be more fertile ground: the United States spends 17–18% of GDP on health care, by far the most in the world, to achieve overall public health outcomes that are decidedly mediocre. Spending on health care programmes composes about a quarter of the federal budget. Surely, the system could be more efficient?

The problem, once again, is that ideological motivations are at odds with practical solutions. Those most eager to cut health care spending tend to be those most committed to “market fundamentalist” ideology, who tend to ignore the possibility that increasing state intervention might be necessary to control costs. But marketisation, in practice, has generally failed to control costs and, in theory, there is little reason to expect that it should. As the economist Kenneth Arrow demonstrated back in 1963, normal market dynamics do not apply to critical aspects of health care. Ordinary competitive and pricing dynamics are often absent, and the sector is characterised by deep information asymmetries and network effects.

The irony is that even practical incremental steps to reduce health care costs, such as government negotiating prices with pharmaceutical companies or hospital monopolies, or better regulating parasitic middlemen such as “pharmacy benefit managers” (PBMs), are generally resisted by the same people who claim to be most concerned about reining in spending. As a result, “marketisation” in the US context has simply meant a refusal to employ the state to control costs, contributing to a cycle of expanding subsidisation.

In sum, the concerns of deficit hawks are real enough when it comes to health care, Social Security and defence, but the politics around these concerns remain insincere and ineffective.

A similar pattern prevails in progressive environmentalism, another sphere in which legitimate concerns have been pressed into the service of a counterproductive politics. In the United States, unlike in Europe, true “de-growth” austerity has become so discredited that most politicians have run away from it, though the impulse still exists among many NGOs and activists. Yet even if American progressives, for the most part, are not looking to shut down modern agriculture, discourage having children, or revert to hand-washing their laundry to stop climate change, they are eager to restrict consumer choices and divert public resources to promote renewable energy and electric vehicles. The Inflation Reduction Act, which includes most of the climate-related subsidies passed during the Biden administration, is estimated to cost somewhere between $800 billion to $1.2 trillion over 10 years. The actual cost is unknown, because some of the IRA’s tax credits are uncapped and theoretically unlimited — but the “energy transition” is certainly expensive.

The necessity of such costly carbon reduction efforts is often presented as beyond ordinary politics — only pathologically greedy science-deniers would oppose taking action to avert a global climate emergency! Yet while environmental concerns are seemingly universal, the environmental movement remains deeply partisan. There is no getting around the fact that climate activists frequently demand sacrifices from ordinary people while ignoring the behaviours of ultra-wealthy donors and displaying clear sectoral biases. The farmer, the coal miner, the exurbanite, and so on are all called upon to make difficult adjustments to meet various arbitrary emissions targets. But the billionaires who shuttle between multiple estates on private jets are never expected to change their lifestyles to save the planet, except perhaps to donate to the climate NGO complex. Wind and solar fields are supposedly essential — but not within sight of Nantucket. Fossil fuel companies are demonised, but tech giants whose server farms consume more and more energy are largely exempt from such criticism, as long as they make the right noises on ESG. Likewise, the environmental movement has fought to impose more and more regulatory burdens on manufacturing and heavy industry, all while turning a blind eye toward pollution offshoring to China and elsewhere.

In fact, the history of the American environmental movement and its political alliances is rather sordid. In its earliest days, environmentalism was associated with population control and even eugenics. After rebranding as an emissions control movement in the second half of the 20th century, environmental groups first teamed up with coal and utility deregulators against nuclear power. Then they took money from natural gas and Enron for campaigns against coal. Recent years have seen a turn against all fossil fuels, though nuclear has once again been grudgingly readmitted to the decarbonisation push. Ironically, the most significant opponents to new renewable energy construction are often legacy environmental groups, who helped construct a legal regime in which it is relatively easy for third parties to challenge any new energy installations on environmental grounds. This is one reason why far more solar fields have been built in red states like Texas compared to ultra-progressive states like California.

Beneath all the moral preening, then, the green movement is fundamentally just another interest group pursuing a relatively narrow, partisan agenda. It is, and always has been, primarily composed of affluent and professional-class individuals in “asset-light” corporate sectors, as well as opportunistic energy players. In many ways, it is the ultimate neoliberal coalition: a global, post-political orientation, overseen by technocrats operating through nondemocratic transnational organisations and financial markets.

To be sure, the fact that the environmental movement is a self-interested lobby does not necessarily mean that its core claims are false, even if some activists have engaged in alarmism and exaggeration in the past. Indeed, the absence of effective environmental policy is already imposing its own form of austerity, as seen in rising home insurance prices across the United States, to which climate change is almost certainly a contributor. Yet being right about some things does not make the environmental movement any less of a lobby.

Oddly, the green movement would probably have more success in the United States if it simply accepted its corporate-lobby character. Certainly, a movement that focused less on moral preening and NGO fundraising probably would not have made the mistake of trying to pursue decarbonisation while demonising nuclear energy for decades. It also might be more practical about encouraging the transition to clean energy and electric vehicles.

The current push into EVs, based on a combination of tax subsidies and state-level mandates, is already sputtering. Sales growth has slowed dramatically, and auto companies have shelved plans for new models. A more serious approach would recognise that the United States — unlike, say, Norway — is a large country with a weak rail network; people regularly drive long distances; and combustion vehicles’ rapid refuelling remains a significant advantage. At the same time, the United States — unlike, say, China — has little capacity to enforce top-down changes in consumer preferences and infrastructure construction. Two years after Congress appropriated billions for charging stations, not a single one has been built. A more practical agenda would have emphasised vehicles such as plug-in hybrids, which could have a major impact on emissions and would create incentives for the private sector to add more charging stations, while also appealing to consumers who desire flexibility. Such thinking, however, would require the green movement to abandon the pretence of moral purity and accept the compromises and coalitional balancing of any industry lobby.

The more likely outcome is the continuation of the status quo, in which lavishly funded NGOs persist in their attempts to push badly designed policy on a reluctant populace. Whereas neoliberal austerity is essentially an ideological movement trying to appropriate the rhetoric of economic interest, progressive environmentalism is a class- and sector-based lobby seeking to brand itself as a moral-ideological cause. Both will remain ineffective as long as they continue to labour under these self-delusions.

The third option is, for lack of a better name, catch-up reindustrialisation. As with environmental “austerity”, this does not involve conventional budgetary austerity — it may in fact require more public spending — but it does entail a shift away from maximising consumption and towards increasing investment in productive capacity. Trade measures such as tariffs intentionally raise prices, at least in the immediate term, while funding for industrial policies may come at the expense of other budget priorities.

The need for a serious industrial policy programme has become more pressing for various reasons. The first is national security. As discussed above, America’s defence industrial base has eroded considerably. By contrast, China’s manufacturing advantage is overwhelming, which has created supply-chain dependencies in a number of critical commercial areas as well. Surrendering sectors to foreign competitors often entails losing more than “commodity manufacturing”; it also means losing technological prowess and workforce skills. The United States need not look to dominate every manufacturing sector, but it will be impossible to fix the defence industrial base without improving the broader industrial base.

In addition, it is slowly dawning on American politicians that it is impossible to avoid having an industrial policy; the only question is whether to pursue one’s own, or to accept the imposition of someone else’s. China, in particular, by massively subsidising capital investment and export industries, has disadvantaged and discouraged investment in manufacturing and capital-intensive sectors in the United States. And by refusing to intervene, the United States has simply allowed Beijing to pick winners and losers.

Moreover, the fact is that, even without a self-conscious industrial policy, the US government has had to subsidise fallen national champions such as Boeing in recent decades. What has been missing is a serious plan to maximise the effectiveness of these investments, in large part because the post–Cold War neoliberal consensus precluded any open consideration of industrial policy.

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According to this conventional economic theory, industrial policy will always be inefficient, value-destructive, and a drag on growth because it interferes with market-driven capital allocation. If private-sector actors require government support or prodding to make an investment, the theory goes, then it must be a poor investment, even if necessary for non-economic reasons such as defence. These models assume, however, a form of economic rationality in which firms operate to maximise profits. In reality, firms operate to maximise shareholder value. The two may occasionally overlap, but they are not the same. As a result, firms often maintain hurdle rates well in excess of their cost of capital, and pursue financial engineering strategies instead of investment. This behaviour may be irrational in the sense of forgoing profits, but it is often eminently rational in the sense of maximising equity valuation. The net result, from a national perspective, is chronic underinvestment, particularly in capital-intensive sectors where foreign industrial policies drive down returns. This is one reason why the relationship between financial returns and productivity breakthroughs has always been more tenuous than standard models would predict, and why industrial policy can spur economic development by dislodging financial rentierism.

Government investment promotion, therefore, is not necessarily value-destructive. It may in fact enable investments whose returns, while below private sector hurdle rates, are still positive. These investments, in turn, can form the basis of new companies, technologies, and industries, as the many historical examples of successful industrial policies attest, from Korean autos to Taiwanese semiconductors to early Silicon Valley.

From this perspective, successful industrial policy is perhaps best thought of not simply as consumer austerity but rather as “deferred gratification”, or investment in the future. Notably, the Chinese government has actively suppressed domestic consumption in favour of industrial investment throughout the last several decades, and yet, contra Western economic orthodoxy, has presided over a miraculous rise in living standards, in addition to its growing geo-economic power.

That is not to say, however, that the path forward for the United States will be easy. On the contrary, American industrial policy faces a number of obstacles and complications. First, US government agencies have relatively little expertise in designing and executing industrial strategy, certainly when compared to their Asian counterparts. The US government itself is poorly structured for this end, with limited institutional capacity to integrate foreign policy and economic policy.

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Second, advocates of US industrial policy often have diverging goals in mind. Some focus on the defence industrial base, others on the “energy transition”, others on “creating jobs”. In a Venn diagram, these circles would intersect, but they are not identical. Such diffuse ambitions may impede both the passage and implementation of successful industrial strategy, as previous criticisms of “everything bagel” industrial policy have shown.

Third, the largest corporate and financial actors in the US are at best ambivalent about industrial strategy. They are deeply dependent on China, and are also prime beneficiaries of the “fissured economy” model in which intellectual property rents are separated from capital investment and labour. Furthermore, policies like the Chips Act passed in large part due to the support of incumbent industry lobbies, though policy design suffered in various ways as a result. It remains to be seen whether the United States can pursue industrial policy in critical areas that, unlike semiconductors, do not have powerful incumbent lobbies.

Finally, and perhaps most importantly, a critical ingredient present in the canonical East Asian industrial policy success stories is absent in the United States. Namely, the “Asian Tigers” each used global export markets, particularly the US market, as a competition check: companies that increased export share received more industrial policy support; those that did not were cut off. Without the export-market check, there is an increased temptation to subsidise “zombies”, rather than orient industrial policy investments toward improving productivity and competitiveness. US industrial strategy, therefore, may need to place greater emphasis on stimulating domestic competition. Another option involves using government procurement and investment to create milestone-based contests. In Operation Warp Speed, for example, the government offered contracts only to vaccine developers who met certain thresholds, such as Moderna and Pfizer. Unfortunately, such contracting models remain more the exception than the rule in US policy.

Thirty years after the end of the Cold War, it is clear that the United States squandered its unipolar moment, not only via quixotic foreign policy interventions but also through imprudent economic policy. Deluded by abstract and idealistic theories, American leaders offshored the country’s industrial base to what is now its greatest rival, in order to support debt-funded consumption and financial asset bubbles. The result is a new era of great power competition, massive public and private debt loads, and an economy dominated by software monopolies that have done little to improve productivity. In the next few decades, America will have to commit more resources to addressing these problems. If it fails to do so, an even more drastic austerity will eventually be imposed upon it, as an already strained empire collapses completely.

Exacerbating this stalemate are debates over what type of reform is necessary: whether investments like reindustrialisation or more welfare programmes are most urgent; whether an active state can solve the crisis of development; and whether a global wealth tax is preferable to protectionist experiments in “deglobalisation”. Bidenomics seems to have had little ripple effect across the West, while Kamala Harris and Donald Trump make only vague promises about economic growth.

Our challenges are, however, only the latest iteration of an age-old problem. As captured in David Lay Williams’ new book, The Greatest of All Plagues, the social, political, and economic costs of gaping inequality have preoccupied an eclectic range of philosophers over millennia — from Plato to Marx via Jesus, Hobbes, Rousseau, Adam Smith and J.S. Mill. Broadly agreeing that it is both a material and spiritual problem, Williams’ thinkers confront us with powerful arguments against inequality: it degrades civilisation because it rewards greed at the expense of the community, ultimately destroying any basis for social cooperation and respect for the rule of law. Yet for nearly all of these philosophers, maintaining civic virtue and the public good must be central to any project that might fundamentally reduce inequality. This distinguishes them from many modern progressives, whose preoccupation with group identities and historical injustices ultimately precludes a coherent vision of what might reverse inequality’s baleful effects. If today’s reformers are to truly mobilise the public, they must identify, as these philosophers did, what it is about society that they aim to conserve.

Fear of disunity that spills into violent civil strife is a frequent theme throughout the book. When citizens no longer view the law as just and impartial, these philosophers warn, factionalism increases. Summarising Hobbes, who is not exactly known for trumpeting the holistic benefits of civic welfare, Williams writes that “a commonwealth tolerating needless hunger flirts with its own demise”. The deleterious effects of greed, or pleonexia, however, extend beyond the collapse of law and order. Rousseau observes that it destroys compassion, leaving the destitute yet more helpless and loathed. As he writes of the poor man: “all free assistance flees him when he needs it, precisely because he lacks the means to pay for it.” The poor, in turn, succumb to the same miserly outlook of those who rule unjustly.

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Here is one of the most important insights in Williams’ book: widespread resignation to these conditions amongst the working classes ultimately enervates the human desire for liberty. Some readers may point to modern-day philanthropy to suggest that all-consuming greed is not an inexorable force which destroys virtue among the elite. Yet according to Rousseau and Mill, the spiritual violence of extreme inequality isn’t mitigated by a spurt of good deeds. On the contrary, Rousseau writes that the poor lose their freedom when they become dependent on the rich. Similarly, Mill stresses that poverty breeds dependency, obstructing the talents which propel human development. This is a situation that cannot be easily remedied through compensatory measures.

Attempts to soften inequality through philanthropy must therefore be scrutinised: do they raise the general welfare whilst empowering the individual to make their own way, or do they place those desperate for work and bread at the utter mercy of elites? From Mill’s perspective, there were mental and moral benefits of individual achievement. Therefore, if he was immensely sceptical of private charity, regarding the Victorian economy as one based on “conquest and violence”, it is doubtful he would have endorsed state socialism of the kind experienced in Eastern Europe.

Instead, Mill advocated a mix of pragmatic and radical reforms, including estate taxes, widespread but decentralised education, worker cooperatives, property redistribution, and some form of guaranteed subsistence. His primary objective — to eradicate poverty and foster individual opportunity — reflected his utilitarian sentiments. This was a philosophy of broad enablement in a time of still rigid hierarchy. Unlike Smith, who believed the fruits of economic growth and doux commerce between nations would be enough to alleviate poverty, Mill thought active state policy was necessary. In these respects, Mill anticipated some of the guiding principles of New Deal liberalism and social democracy.

The appeal of such reformism has waxed and waned in our own era of slack growth. Many young people despair that the government appears unwilling or unable to reinvest in what the post-war generation took for granted. Drawing inspiration from Marx, some believe that only the threat of revolution can compel the government to once again subordinate vested interests to the public interest. But the modern Left’s ability to rouse the public has been largely ephemeral. A grassroots focus on inequality and austerity largely peaked in the middle of last decade, giving way to demands to centre identitarian issues that seemingly mattered most to a diversifying electorate. Needless to say, this course has not realigned Western politics in favour of a new, more egalitarian social contract.

Part of the Left’s ineffectiveness reflects the pessimism of our times. But it also stems from a deep reluctance, in the 21st century, to affirm the universality of the principles which Williams’ thinkers used to make sense of their world. In particular, the idea of the whole is as open-ended and contested as ever. As a kind-of revisionist, anti-Western outlook pervades the Left, it would appear many activists do not want to conserve much of anything. This contrasts with an older social-democratic tradition more in tune with Enlightenment thought. Consequently, few on the Left appear to agree on what a radically egalitarian economy would look like. Would it resemble, for instance, the autarkic community envisioned by Rousseau, or would such “withdrawal” from the world stage be inegalitarian in an already globalised and interconnected world? Would a “post-capitalist” economy affirm the republican freedom envisioned by Marx, or would it impose austere measures to limit climate change? And if the latter, would such a surveillance state in the name of global justice derail innovation while stifling development in poorer countries?

These are not merely academic debates. For example, industrial policy — the main way in which the Democratic Party has tried to address America’s socioeconomic divide, and which other centre-left parties such as Keir Starmer’s Labour have entertained — has antagonised parts of the Left due to its intrinsic economic patriotism. Some believe that China is now best poised to catalyse the global clean tech revolution, while others advocate a process of radical “degrowth” for the West that would make most households poorer. And yet, amid worrying signs of stagnation and low social trust, it would seem incumbent on policymakers to kickstart a new era of development.

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Of course, a national wealth tax as proposed by Senator Elizabeth Warren, or a global one, as envisioned by Thomas Piketty, would certainly go some way toward compressing wealth inequality. But there are legitimate questions over how such taxes would be best used to address the widespread decline in upward mobility and life chances. If they went toward a basic income, would that actually solve the social problems that are symptomatic of extreme inequality? Would that, in turn, lead to a new kind of political complacency over concentrated wealth and power? Charity, as Williams’ book underscores, does not address the root causes of indigence. There are sound reasons from a Left-wing perspective to be wary of solutions that do not facilitate the mix of freedom and development that both Mill and Marx advocated.

These are just some of the issues that loom for those who are inclined toward radicalism but still believe in democracy. As The Greatest of All Plagues suggests, tackling inequality is never so direct as levelling the power of the ultra-wealthy, even if a government were elected with this express purpose. It requires navigating the contradictions which have bred social conflict throughout history. Security, freedom, progress, and fairness: these are among the most essential values which continually animate politics, but they are hard to hold in equilibrium. This is especially true of modern liberal democracies, which, for all their flaws, have accommodated an unparalleled degree of change and pluralism.

Some observers may darkly wager that this pluralism is on the wane and that an age of oligarchy is already upon us. If the most extreme antagonisms theorised by Marx are to be avoided, then society must at the very least strive to balance liberality with common purpose. Still, the central lesson is as clear as day. Rebuilding that social trust unequivocally depends on a restoration of the public good, and thus putting an end to the extreme inequality which imperils all. A democratic Left that has any hope of realising a better world must not lose sight of this historical mission.

Today we have a surplus of crises but a deficit of ideas lying around. There has been no significant wage growth in the UK for more than a decade. Productivity has flatlined. The political convulsions of Scottish separatism, Corbynism and Brexit have rocked established politics. The economy has been battered by the quick succession of a global pandemic and proliferating geopolitical tremors. Trust in the political class has never been lower, as Westminster’s elites flounder around looking for the levers that say “activate new growth model”.

Against all this, Rachel Reeves’s Budget will offer up the kind of Fabian reforms one might expect from a former Bank of England bureaucrat: public accounting tweaks that alter the measures of public assets versus liabilities on the balance sheet, which should free up significantly more capital for an investment-starved public realm. After a long period in which the UK has seriously neglected its fixed assets and capital stock, an overdue focus on restorative projects with broad multipliers, in energy, transport and housing, could help nudge growth upwards.

The question is whether Labour’s incrementalism and promises of delayed gratification will satisfy a restless public. “Fixing the foundations” is hardly an alluring slogan when those economic foundations are functionally imperceptible to most people. The tangibility and immediacy of an increase in the bus fare cap will surely have more cut-through than broad-brush promises of “a decade of renewal”, especially when the British public has stopped listening to much of what politicians have to say anyway. Reeves seems intent on burning through piles of goodwill and political capital to pursue negligible cost savings.

Perhaps Labour’s biggest problem is the lack of a coherent narrative thread that binds its policy choices together. It won the election by successfully appearing as the inoffensive, default option against incumbents who were visibly wearied by 14 years in power. But there was no ideological bedrock underlying their campaign. There have been only vague nods towards a post-neoliberal “securonomics”, edging towards a more interventionist, activist state encapsulated by GB Energy, the National Wealth Fund, and the New Deal for Workers.

This series of scattered and languid proposals do not make up the kind of paradigm shift that would be required to trigger a genuine reindustrialisation of left-behind Britain, or a spurt of rapid, sustained growth via the energy transition — the preferred route of the so-called “modern-supply-side” advocates in Labour-aligned think tanks. It all looks rather like a reheated Johnsonism, condemned by the Right at the time as “neo-Brownite social-democracy” and “green paternalism”.

It’s doubtful whether such a vision, structured to align with “Bidenomics” in the US and designed to expand domestic green industrial capacities, could be achieved by a low-productivity service economy heavily reliant on imported manufactures and cheap labour. Even for Joe Biden, the pouring of hundreds of billions of government money into green investments and social programmes did little to improve his personal popularity ratings. America’s now cross-party consensus on decoupling and trade protectionism is unlikely to translate here: ambitious stimulus programmes are more difficult to finance when you don’t enjoy the exorbitant privilege afforded by the US dollar system. And for all the talk of creating new domestic supply chains, the turbines, solar panels and cables that will power the switch to renewables will likely continue to be made in faraway lands with more successful adherence to developmentalist industrial policy.

If not British Bidenomics, then what? It seems that the well of ideas has run dry. Yet our country wasn’t always so intellectually slothful. Half a century ago, at the last nadir of what the Soviet economist Nikolai Kondratiev would have described as a “long wave” of growth and slump, an epochal battle of ideas played out. On one side, there was a resurgent neoliberal Right with the ailing social-democratic consensus in their sights, and on the other a socialist Left advocating for an alternative economic strategy: public ownership, withdrawal from the European Economic Community, and a revitalised production walled behind tariffs, state planning agreements and price controls. This was the kind of autarkic, Left-wing economic nationalism purveyed by a young Jeremy Corbyn and his mentor Tony Benn.

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In the end, the Right emerged as champions. The success of Thatcherism in presenting itself as the authentic voice of Middle England — and even attracting the support of many working-class voters in alliance with a reinvigorated City of London — means that the vision of the neoliberal Right has defined the political economy of the past 40 years.

For better or for worse, a new model emerged from the last crisis. But there has been no such luck in Britain today, on the Left or Right. Thatcherism’s defeat of the Left and its institutions was so total, and the embrace of market managerialism so widespread, that any grasping towards an alternative has been treated as utopian. We now lack the hegemonic infrastructure, the will, the capacities, and the political imagination to define a project that would contradict the whims of a faceless disciplining agent we call the bond markets.

Recent rejuvenation attempts have largely failed. Brexit, which promised a contradictory amalgamation of a free-trading Global Britain, a low-tax Singapore-on-Thames, alongside a more robust statism that insulated workers from steady influxes of migrant labour. The tension in that project is yet to be resolved. Corbynism, meanwhile, offered salvation to urban progressives, a “socialism with an iPad” that toyed with ideas such as a universal basic income, a four-day week, and supposedly new, co-operative forms of public ownership for a 21st-century economy. Its millennial socialist tendency sat alongside more traditional, social-democratic and Left-populist calls for green Keynesianism, workers on company boards, higher minimum wages, more police officers and a rejection of austerity. But despite the popularity of its individual policies, the Labour Left was widely seen as representing an effete, metropolitan activist class, obsessed with issues that were alien to most of the electorate. This was a party that could spend entire summers arguing about antisemitism, Corbyn’s former associations with militant Islamists and provisional Republicans, and ubiquitous equivocations over what constitutes a woman.

The failure of contemporary Labour Leftism, then, is rooted in the fact that the potential for social democracy is being constantly foiled by an extreme adherence to cultural ultra-liberalism on the one hand — with gender self-ID, police and prison abolition, open borders or support for reparations taken as unassailable axioms — and militant, vocal sympathy with ultra-conservative terrorist groups on the other. It’s a contradictory package almost lab-designed to repel a public that is broadly sympathetic with more anodyne promises of wealth redistribution, a more muscular statism, or investment-led growth and reindustrialisation.

If the Left is failing to conjure a workable political vision, then the Right is faring little better. The noises from the Conservative leadership contest signal little more than a desire to relitigate culture wars and restate commitments to a deregulatory agenda and small-state, low-tax principles. But elements of free-marketeer policy prescriptions have crept into Labour discourse, too, via the intoxicating panacea offered by Yimbyism. Six weeks ago, political Twitter was abuzz with talk of an essay about planning reform called “Foundations: Why Britain has Stagnated”. In 16,000 words, it offered up an answer to Britain’s perpetual stagnation: building regulations set by Clement Attlee. These ideas have become part of Westminster common sense, and Labour seems keen to pursue them. Push through planning reform, the SW1 wonks say, and we can get Britain building again, unlocking entrepreneurial animal spirits and creating a great sea of new-builds, with Barratt Britain as Keir Starmer’s Krushchevka.

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Though these ideas have infiltrated the Westminster zeitgeist, nobody in the real world is listening. On the street, you’d struggle to find anyone with an opinion on planning reform. For the micro-class of policymakers and their adjuncts in the media, political advocacy and corporate consultancy, talk our byzantine planning system is ubiquitous. The Labour front bench will be praying their fixes to the issue deliver a Big Bang moment, bringing much-needed extra revenues to the Treasury.

But planning reform does not constitute a new growth model. Nor will it deliver the enormous amounts of extra money that will be required to restore services and state capacity. For the analysis in “Foundations” does not account for the real moment of divergence for Britain’s post-war growth trajectory — 2008. Since the government pumped billions into the financial system following the collapse of trans-Atlantic banking, both political parties have struggled to find a replacement for a zombie form of highly financialised capitalism. It limps on life support, delivered in the form of quantitative easing, a decade of negative real interest rates, bailouts, and now a trend for what business groups describe as “de-risking” and “crowding in”, the new “productivist” cover for corporate subsidy.

Our era of stagnation has produced extreme political ramifications as the old party system hangs on by a thread, despondency and cynicism reign supreme, and the legitimacy of the entire political class has been thrown into question by the endless failure to deliver. The Italian Marxist Antonio Gramsci would have defined it as an interregnum, a transitory period of chaotic impulses when “the old is dying, but the new cannot be born”. Previous eras of stagnation or decline have produced broad-based movements and ideas that have done away with the old and welcomed in the new. Yet today’s Budget will certainly not end our long interregnum.

Such a systematic avoidance of the press requires an explanation, and the most obvious is that she is afraid of having to answer all of the questions she has dodged by receiving the nomination without going through any primaries at all. Some of those questions would have addressed her moral character, including her affair with Willie Brown, the exceptionally powerful Mayor of San Francisco; others would have addressed her unremarkable performance as Biden’s Vice President and “Border Tsar”.

Yet much bigger unanswered questions are raised by the only policy proposals that Harris issued after Biden’s renunciation — just two of them, both deeply flawed. The first proposes government price controls on food sold by retailers of all kinds, but most often by local supermarkets, which Harris blamed for “price gouging”. That is truly strange: as a lawyer, Harris should know that such activity is already illegal during emergencies and very rarely enforced. And second, as an educated person, she must know that when governments spend much more than they collect in taxes, as the Biden Administration did on a huge scale, the dollar loses value and prices must rise. If price controls are nonetheless imposed on, say, carrots, their price will not go down, instead shopkeepers will just stop selling carrots. Nobody will work to lose money by selling carrots at a loss — and the same goes for everything else. 

The second Harris proposal also ignored economic realities: to help first-time home-buyers afflicted by high house prices, she proposed to give them money grants. Had she asked any economist, either Democrat or Republican, she would have learned that injecting government money into the housing market will not produce more houses but only higher house prices. Moreover, it’s striking that Harris did not propose the one thing that could reduce house prices: the abolition of the many regulations that impose high costs, including the especially costly new “green” regulations.

Crucially, these indefensible policy proposals are not just narrow measures, but rather expressions of something 10 times bigger: the application of Californian “Big Government” principles throughout the United States. Since 2017, more than a million Californians have left to emigrate elsewhere, from Montana to Texas, because of the extreme nature of the state’s new laws and taxes. Extreme environmental regulations, which increase housing costs and are driving people into homelessness, have been one result. A law that calls for slavery reparations, even though slavery was never allowed in California, is one more, while another, the new S-1955, prohibits school employees from telling parents that their child is wearing the clothes of the opposite sex — while protecting them from any punishment for “guiding” children in choosing their gender. (Elon Musk reacted to S-1955 by moving to Texas.)

That is the sort of California madness that Kamala Harris considers the new normal. And this is the sort of programme she is proposing. Over the next 73 days, non-Californians will have an opportunity to find out what Californian measures Harris intends to apply throughout the US, and then vote accordingly. If the vote were held today, immediately after her Chicago triumph, Harris would probably win. But with each passing day, as more people consider the few political ideas she is offering, victory becomes less likely.

A more apposite comparison, I think, is the period of state failure that marked the tumultuous period in British life between the imposition of direct rule in Northern Ireland in 1972 and the miners’ strike of 1984. This was a time when the state appeared to lose its authority to govern, and its willingness to do so, as war in the Middle East led to recession, political strife, international retreat and finally industrial confrontation. The trade unions entered into a war to the death first with James Callaghan and then Margaret Thatcher.

Too often Thatcher’s premiership is understood as a battle to curtail the state, rather than what it really was: the battle to reassert the state’s supremacy. In the years before her victory in 1979, the British state had repeatedly failed to impose its will, from the strikes which brought down Ted Heath in 1973-74 to the IMF bailout in 1976 and the Winter of Discontent in 1978-79. For all the u-turns and incoherence of Thatcher’s actual record as prime minister, the source of her political success was that she was willing to pay a higher price than anyone previously thought possible to reimpose the authority of the British state at home and abroad. 

This is the political reality Starmer now faces. In such moments, the job of the prime minister is to play leviathan; to impose order so that civility can return. The state must reassert its authority and, crucially, its primacy. Little platoons are all well and good, but not when they have tooled up.

During the recession of the early Eighties, Thatcher doubled down on her programme of austerity, even as it drove unemployment to levels previously seen as morally unacceptable. In 1982, she went to war for a set of “small islands inhabited by three sheep”, as François Mitterand described the Falklands, not because they offered any real advantage to Britain but because of the principle that they were British. And then, in 1984, she used every means at her disposal — formal and otherwise — to break the miners’ power and take the war to the IRA after they tried to assassinate her and her entire cabinet; the most serious attack on the British state since 1945.

As David Edgerton notes in his sweeping account of post-war Britain, The Rise and Fall of the British Nation, “the key difference in the politics of the Eighties from what went before was the preparedness of government to fight dissenters very hard and to exert the rights of elected authority very strongly”. What marked Thatcher out as something different, Edgerton argues, was her willingness to press on “in the face of odium” and in so doing transform the self-confidence of the British elites. “In the Seventies there emerged the idea that the United Kingdom was becoming ungovernable,” Edgerton writes. “The answer was, of course, ‘rolling back the state’, rhetorically speaking, but it also involved making the state more autonomous, more powerful.”

Today, there is a similar sense of British state failure; not quite that the United Kingdom is ungovernable but that it is slipping that way, with the state unable to impose its will or that of the people it serves. This is not just a question of this week’s explosion of racist thuggery and violent counter-rioting — important though this is — but the seeming inability to perform even the basic functions of a state: providing prison places, timely court hearings, adequate sentencing and enough police to patrol the streets. Even simply ensuring there is a functioning health service, uncorrupted police force, humane asylum regime and working borders seems out of reach today.

Too many areas of Britain today simply do not work. These mobs did not form in Tunbridge Wells and Cambridge, but the cities that have been failed for decades. Just as my colleague Aris Roussinos has argued we use euphemisms to hide the reality of what we can all see in front of our eyes, we also ignore our basic failures of government. No one can say that Birmingham, Belfast, Liverpool, Rotherham or Sunderland — the centres of violence in recent days — are beacons of good governance and prosperity. Few can say that of Britain more generally.

This is not a crisis that Starmer is responsible for. What we are witnessing is a breakdown of order which has exposed the anarchic ethnic strife hiding in plain sight. The past week stands as another appalling indictment of British state failure. How has it come to this? How have we allowed gangs of balaclava-clad (and Nazi tattooed) men to form pseudo-paramilitary mobs in our cities?

One of the most worrying aspects has not just been the breakdown of order, but the fact that the breakdown is seemingly between groups, neither of whom any longer trust, respect nor fear the police nor the law it seems — a scene more reminiscent of Northern Ireland than recent history of mainland Britain. An irony of Thatcher’s premiership, in fact, is that the one place where she was never able to fully reimpose the authority of the state was in Northern Ireland, whose uneasy communal truce was only reached after her departure.

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As prime minister, Margaret Thatcher championed monetarism only to quietly abandon it, decried European integration while signing the Single European Act and portrayed herself as the Iron Lady while reducing defence spending from 4% of GDP to 3%.

What she offered, though, was a display of willpower to reimpose the authority of the British state. Any prime minister who has since offered the merest hint of losing this authority has suffered. The only time during Tony Blair’s first term as prime minister when his personal poll ratings dropped into negative territory came during the fuel protests of 2000. Blair’s own authority never recovered from the anarchic disorder which resulted from the Iraq invasion in 2003. In contrast, David Cameron’s ratings soared in the wake of the riots of 2011 when — supported by Keir Starmer, then director of public prosecutions — he responded with a display of indignant strength, condemning “criminality, pure and simple”, which he said would be “confronted and defeated” with the full force of the law. “If you are old enough to commit these crimes, you are old enough to face the punishment.”

In his message to the public, Starmer offered a similar line, condemning the “far-Right thuggery” while warning anyone who had participated in the violence: “I guarantee you will regret taking part in this disorder.” Yet, it was slow to come and stilted and unconvincing when it did, read from a piece of paper rather than flowing from a place of anger. He needs to be quicker, fluent, less rehearsed, and more emotional. He must also find a way to deal with the rise of the “Muslim Defence League” and the constant baiting from Elon Musk. Both demand displays of strength, conviction and authority. People will remember how he deals with these challenges.  

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Too often the role of prime minister is misunderstood — even by prime ministers themselves. Theresa May, who, like Starmer, was a hard-working, serious, respectable politician, suffered as she struggled to meet the performative demands of the office. When a suicide bomber murdered 22 parents and children attending an Ariana Grande concert in Manchester in 2017, she chose to dispatch her Home Secretary to attend a commemorative service so that she could bunker down in No. 10 to manage the crisis. This decision was taken for perfectly noble reasons, but it was wrong. It was her job as leader to mourn and explain, not simply to manage. May offered herself as the embodiment of strength and stability but was unable to match the rhetoric and paid for it. In the wake of the Grenfell Tower tragedy, she became a shell barely able to function in the role.

Starmer, scarcely one-month into the role, must understand the task at hand, the connecting thread tying together each of his “missions” for government — authority. If he is to succeed with any of his pledges, the Prime Minister must use this crisis as an opportunity to define his purpose and to play the role demanded of him: from discord to harmony, as someone once said.

Out in the real world, the way to combat the paralysing effects of normalcy bias is through training and preparation. If people do their fire drills before a fire breaks out, they are much more likely to be able to spring into action; the brain can simply act on what it already knows. Similarly, learning from history is a sure-fire way to prevent normalcy bias. The only problem is that few recognise this: most people believe history has nothing to teach us about the modern day.

Still, with America’s great divisions only getting greater, let’s assume it does for a second. If we tried to compare the position of the United States today with that of France on the eve of the great revolution of 1789, how would the former hold up? Is it in a more stable position than the France that collapsed into revolution, or is it actually worse?

Let’s start with the domestic and political situation. France in the late-18th century was bitterly inegalitarian. Economic inequality coexisted with social inequality — the old feudal caste system was starting to chafe against the realities of the early modern economy — and the political system itself had basically stopped functioning. Everyone knew reform was badly needed, but passing actual legislation was impossible. Special interests had the ability to veto every change, no matter how necessary, and as 1789 approached, total political gridlock became the order of the day. The French Revolution happened not because it was inevitable, but because the political system proved completely incapable of curing its deficiencies.

Does this seem a bit familiar? It should, because that is precisely the situation in the United States right now. An unequal political system has essentially seized up and stopped functioning, and is now stumbling towards election between the most unpopular president in modern history and the next-most unpopular president in modern history. One of those men is clearly fading rapidly, prone to slurring his speech or forgetting where he is; the other just became the first president to be convicted of a felony. Just as in France in the 1780s, violence, protests and disenchantment seem the likeliest conclusion.

But how is the economy doing? France in 1789 was famously bankrupt; in fact, the bankruptcy of the French Crown was the proximate cause of the entire revolution. It borrowed heavily to fund foreign wars and domestic spending, and before long, it had to keep borrowing even more money to pay off the interest on its old debt, only to borrow even more to pay for those loans, and so on. Finally, France could borrow no more, and the crisis began in earnest.

And yet, when it comes to fiscal impropriety, 18th-century France simply can’t compete with modern America. The US is by far the most indebted nation in the world today in absolute terms, gorging as it does on some $1 trillion in additional debt every three months. And unlike in revolutionary France, when public pensions and social welfare simply didn’t exist, America has a supplementary “shadow debt” of around $175 trillion, representing its commitments for future welfare.

On top of this already miserable situation, the US has to contend with another problem not faced by early modern France: deindustrialisation. On the eve of revolution, France was remarkably self-sufficient, which is why it could so easily go from a political and economic basket-case in 1789 to dominating most of Europe in 1812. By contrast, America in 2024 is not self-sufficient; the old industries that allowed it to dominate following the Second World War have now been sold off for scrap, and the US today is dependent on exporting dollars and importing physical goods in return. If demand for dollars drops, those physical goods cannot be quickly replaced. A much more painful period of economic readjustment will have to be undertaken in the US, while France in 1789 essentially only had to rationalise the resources it already possessed to become powerful again.

So, the social and political situation in contemporary America is at least comparable to that in France in 1789, while the economic situation is actually a fair bit worse. What about the military situation?

Well, in 1789, things didn’t look particularly good. France faced at least two big problems: first, its military was suffering from low morale and high levels of dissatisfaction. This partly had to do with the intractable divide between commoners and nobles, and partly with a series of disciplinarian reforms that were very unpopular. The second had to do with foreign policy. In 1787, Prussia invaded the Netherlands, which was supposed to be part of France’s rightful sphere of influence. Many French people wanted their leaders to defend the country’s honour against the Prussians, but Louis XVI declined — for the simple reason that France was too broke to afford a war. This failure to act like a great power didn’t just have domestic consequences; it convinced other great powers that France was becoming the sick man of Europe.

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While these weaknesses shouldn’t be underestimated, they are in an order of magnitude less serious than those faced by the current United States. If you wanted to draw a comparison, the French Army’s disciplinarian reforms probably caused about as much discontent as the US military’s Covid-vaccine policy; not exactly a good spot to be in, but not life-threatening either. The US military, however, has significantly more pressing problems: the recruitment crisis is now so bad that it is undermining the combat readiness of entire formations. “Ghost units” — that is, units that should technically exist but practically don’t because they have no men — are now slowly proliferating across the US Army. Meanwhile, the Navy has a massive problem with chronic sleep deprivation, because there simply aren’t enough sailors to crew the ships to their full compliments. On top of these problems, the US military is increasingly unable to source ammunition for its weapons, and the Navy cannot build enough ships to keep itself from shrinking, nor can it now really perform scheduled repairs on the ships it has.

In other words, the French military had a crisis of internal culture, while the American military has a crisis of internal culture and a massive recruitment crisis and a massive logistics and sustainment crisis. On top of this, the US military is tasked with several orders of magnitude more work than the French: it has almost 1,000 bases across the world. The French failed to show up in the Netherlands in 1787 because they didn’t have enough money to pay for it; America, by contrast, has tried and failed to wage proxy war against Russia over Ukraine, and tried and failed to stop the Houthis from blockading the Suez Canal. In April, the US Army built an aid pier in Gaza as a sort of show of force, an illustration that the US military — whatever else one might say about the rest of America — was still up to the task. On Tuesday, the pier fell apart and was washed away.

Taken together, then, it seems that the position of the US in 2024 is much worse than that of France in 1789. Does this mean a revolution will happen?

It’s always easy to come up with a reason for why things will continue like they always have. That is simply how our brains work: if you’ve done your fire exercises over and over again and you suddenly smell smoke, your brain’s first reaction is likely to be “A-ha! Fire! Time to head for the fire exit!”. If you don’t know where that exit is, if you’ve never really thought about the possibility of a fire, your brain is very likely to respond to the sight and smell of smoke with an “ah, well, it can’t be that bad, right?”.

And perhaps, you might say, that is indeed the correct attitude to have today. Perhaps things really aren’t “that bad”. To which I would respond: but things are worse than were in France in 1789. All that remains to be seen is whether that simple, incontrovertible fact about our current moment leads to something or not.

And yet, gold’s enduring appeal may be less practical than mystical, something economists struggle to explain. Although in fairness to Keynes he was referring to the gold standard and not gold itself, there’s no shortage of sceptics who are bemused by gold’s popularity, since the metal is worthless as an asset. It produces nothing and unlike other precious metals, such as silver, it has virtually no industrial applications. Instead, its value derives from a tautology: we want gold because we want it, which is to say that because everyone wants it, we know it has value and therefore we want it.

Warren Buffett concluded that a Martian would be left scratching his head: humans will pay an army of people to dig up gold from beneath the earth and, after they resurface with the shiny ore, pay another army to dig a hole in the ground to bury it, whereupon we pay yet another army to stand guard over it and protect it. It’s as if, in a “disenchanted” world meant to have replaced mystery with reason, we still cling to irrational or romantic notions of beauty and value.

Certainly, our love of it has deep roots. Ancient civilisations from Asia to the Americas all held it in awe, a fascination that carried into the early modern age, the search for gold being a motivating factor in the age of exploration that opened the world to Europe’s empires. Equally, the flood of precious metals from the empires helped bring about the end of European feudalism and the rise of capitalism, since the resulting inflation both diminished land values — the basis of the nobility’s power — and drove up demand for industrial manufactures.

So it made sense that when modern monetary regimes emerged alongside the rise in global trade, the states of Europe would often underpin their currencies with precious metals. By holding them in their treasuries, central banks could then issue promissory notes that could be redeemed for the specified weight of gold or silver — the name “pound sterling” betraying its origins as a currency that was originally backed by silver (to be later replaced by gold). The comparative ease of moving paper as opposed to gold or silver facilitated trade on a vast scale and gave governments flexibility in issuing currency, since redemptions in exchange for the metal were relatively rare.

In fact, the more modern the world became, the more gold’s importance grew. It provided the undergirding of the world economy in the post-Second World War period, when the gold-backed dollar system created what amounted to a virtual global currency. In June 1944, as the war entered its final stages and delegates from the allied powers assembled in a small New Hampshire town to map out the post-war system, front of their minds was the way the collapse of international trade in the Thirties had deepened the Great Depression, enabling the rise of Nazism. Determined that it should never happen again, they set out to create a system in which trade would always flow freely. A key element of this would be a universally accepted currency.

After some bickering, they agreed that the US dollar would play that linchpin role in the Bretton Woods system, backed as it was by the vast store of gold the US had accumulated. In theory, any government holding a surplus of dollars from its international trade could, if it wished, exchange its dollars for gold held in the vaults of the Federal Reserve, cashing in at the fixed rate of $35 to the ounce. In practice, given that it was much easier for governments conducting business with one another to transfer dollar payments across the bank accounts they held in New York, hardly anyone ever bothered.

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As a result, not only trade with the United States but virtually all international exchange was conducted in dollars. Since the greenback was universally accepted — even communist countries liked to hold dollars for their trade outside the Soviet bloc — everyone was willing to use it. As they piled them up for future use, the dollar at its peak accounted for nearly nine-tenths of all the foreign reserves held by the world’s central banks. Hardly any of them bothered holding much gold anymore.

But there was an obvious problem with this arrangement. It meant that the US could pay for all its imports simply by printing more dollars, which it did. Initially, this situation suited everyone since those dollars were buying their goods, keeping their economies growing. But by the late Sixties, when the volume of dollars in global circulation exceeded the gold available for redemption, the “dollar overhang” was becoming increasingly hard to ignore. To get ahead of the looming crisis, President Nixon abandoned the gold standard, and said the US dollar would henceforth trade freely on global currency markets.

This in turn shattered the social compact on which the Bretton Woods system was founded. And implicitly asked people to henceforth trust humans rather than nature to preserve the value of their money by containing its supply. In the short term, they didn’t. Currency volatility returned, and people turned to gold. The surge of inflation in the Seventies meant the value of currencies was falling. Gold became a popular safe haven not just for central banks but for ordinary folk, who could buy small amounts of it and stuff it in safe-deposit boxes or under their beds. In the course of the decade its price shot up to more than $800, as people sought to preserve what wealth they could amid the plunging power of their money.

In 1979, Paul Volcker took the helm of the US Federal Reserve with a determination to lance inflation and preserve the dollar’s value. He set out to underpin the currency by aligning the growth of money supply more closely with that of the economy, thereby ensuring it would be backed by new output. The strategy succeeded. By raising interest rates sharply he choked off borrowing, thereby reducing the money supply and creating a relative scarcity of money. As dollar stability returned, inflation came down. Other central banks followed suit and tightened their monetary policies. The next three decades would then become the era of “monetary dominance”, as central banks asserted their independence and used it to discipline governments that were too loose with their fiscal policies. Low inflation meant that money held its value, and gold diminished in popularity, its price steadily falling. In 2000, it finally bottomed out below $300.

But just as the US government had once abused the confidence the world placed in the dollar to print too many of them, central banks now did likewise. In particular, the “Fed put” provided an implicit guarantee to markets that should asset prices fall, they’d always print more money to juice them back up. With the assurance that asset prices would only ever rise, investors were thus free to inflate bubble after bubble, safe in the knowledge that when each one burst, the central bank would come to the rescue.

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As the money supply mushroomed, the allure of gold returned once more. At first driven by sceptics who doubted this state of affairs could last, the barbarous relic entered its latest golden age. Since the turn of the millennium its value has marched steadily upwards, recently reaching new highs above $2,000 an ounce.

This state of affairs doesn’t look like it will end anytime soon. With the world entering an era of what the political economist Adam Tooze has called the “polycrisis”, geopolitical rivalry is fragmenting global supply chains and throwing up new barriers to trade. As the spectre of war looms once again over Europe and East Asia, China and Russia are drawing closer together and the US is withdrawing from the wider world into a circle of its closest allies. As it does so, it’s also using the ubiquity of the dollar to go after its foes, seizing their accounts and sanctioning their use of the currency. Meanwhile, despite inflation’s return, central banks are suggesting they’ll soon ease money again. The dollar no longer looks quite the safe haven it once did.

Amid all this uncertainty, central banks are joining their citizenries in accumulating larger stockpiles of gold. As trust among countries once more weakens, and as faith in our governments and central banks to preserve the value of our money diminishes, the timeless appeal of a shiny rock seems unlikely to dim. Unlike the “digital gold” some proponents of cryptocurrency claimed could rival it as an inflation hedge, supply of the real thing can’t be manipulated by humans: Bitcoin, with its fixed supply, was meant to prevent that, but the subsequent invention of all manner of other cryptocurrencies inflated the supply immensely. Besides, for those looking for solidity amid volatility, crypto’s ethereality doesn’t offer the same reassurance as a piece of metal from the earth. In uncertain times, it would appear, we will always cling to the same certainties our ancestors did long ago.

Musk built his empire on vibes, and used Twitter to circulate hype and tempt investors with risk. In May 2021, his tweets about holding Dogecoin turned what was essentially an internet joke into a legitimate stock. After buying Twitter, he briefly switched the Twitter bird to the Doge logo in April 2023, adding as much as $4 billion to its market value. He had a knack for harnessing vibes for profit.

Now, however, clean-living Tesla drivers are beginning to doubt his vibe. According to a report in Reuters, Tesla’s consideration score — a measure of a consumer’s confidence in the brand and how likely they are to purchase a car from the company in the future — has fallen by more than 50% since November 2021. In addition, Tesla’s Q1 sales this year were 14% below forecasts and the slump was attributed to Musk’s personality.

The problem is not carbon emissions, in other words, nor Houthi attacks in the Red Sea nor a fire in Tesla’s German factory. It is Musk’s bad vibes. Tesla’s downfall began around the same time that Musk acquired Twitter and rebranded it as X. Since then, many argue that X has become a site for misinformation and trolling rather than informed debate. Musk himself is the archetype, airing extreme Right-wing views on issues such as immigration, trans rights, Disney’s inclusion (DEI) policies, the Ukraine war and all-round “wokeness”. Only last week, Brazil’s attorney-general called to regulate social media after a clash with Musk over free speech. The billionaire is known for his ability to move markets with a single tweet, but this is probably not what anyone in Tesla had in mind. So why did his vibes sour so quickly?

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In his 1936 book The General Theory of Employment, Interest, and Money, John Maynard Keynes wrote of the “animal spirits” that mould the market: his term for the lurking vibes and contagions that shape consumer confidence. Markets are not just rational systems, Keynes wrote. They are shaped by irrational forces; the animal nature lurking in the brain of homo economicus. Before the idea was applied to markets, animal spirits were already spoken of as a sub-human consciousness — something unknowable, unquantifiable. Something like violence or risk or chaos. Something like a vibe, maybe.

The whole point of a vibe is that it isn’t rational; it’s hard to quantify. As philosopher Robin James explains, a vibe is an ambience, but also an intuition that lacks empirical explanations. Peter Thiel once described Musk as speaking with a “super-heroic, almost Homeric kind of vibe” that was out of sync with Silicon Valley.

Nowhere oozes vibes more than social media, which privileges images, audio and video over text. The internet is no longer a place for those looking for truth or narrative, so much as somewhere we go for “moments of audio-visual eloquence” — for a vague undefined feeling of rightness, or even profound wrongness. There’s a definite vibe to an image of Donald Trump’s latest electoral campaign or a trad-wife making sandwiches draped in Cottagecore — even if it is a #cursed vibe for cursed times. Right now, our visual culture, and as a result our politics and markets, are all dictated by vibes.

Take GameStop as an example. In 2021, coordinated decisions by a group of retail investors to buy call options for an apparently worthless game company cost hedge funds who were shorting the stock a lot of money. The value of GameStop emerged, not from any strong correlation between share price and the underlying asset, but from the vibe. The SEC report on GameStop in October 2021 concluded that “it was positive sentiment, not the buying-to-cover, that sustained the weeks-long price appreciation of GameStop stock”. The space between illegitimate gambling and legitimate investment narrowed. So did the space between taking an economic stake and posting an unasked-for opinion on the internet. Finance apps emerged as a new kind of social media.

Or consider the collapse of Silicon Valley Bank in 2023. One explanation for the failure of SVB is the Federal Reserve raising interest rates. As tech stocks were devalued by rising interest rates and venture capital funding began to dry up, many investors withdrew money from SVB to meet their liquidity needs. But another explanation for the collapse was a bank run caused by bad vibes. A user goes to the bathroom, checks their phone, sees or more accurately feels something they don’t like and decides to move their money all in the time it takes unzip their trousers. A student with a loan and a Robinhood account watches a video or sees a meme telling him he likes the stock. Don’t Doubt ur Vibe. The fall of SVB was the result of a vast throughput of rumours and transfer requests that traditional risk assessments were not equipped to measure and financial institutions were not built to withstand. Vibes shifted the index.

And if, in this world, Musk is the ultimate market maker, then Donald Trump is the populist president of vibes. News of a dip in Musk’s reputational capital coincides with the public launch of his Truth Social on the stock exchange. Like Musk, Trump is all vibes and no substance. And this is what makes him so successful as a politician: he can be whatever you want him to be. For a nostalgic Boomer generation, he promises a pathway back to the American dream. For downwardly mobile Americans who never believed in that dream in the first place, Trump’s idiocy confirms their nihilism. So what else than for the meme president to shill his own meme stock? Despite a loss of $60 million in 2023, and reports from the company that revealed “greater profitability challenges” (or “jargon for ‘we don’t make sh*t’”, as one Reddit user put it), Truth Social is still incredibly overvalued. It is also incredibly erratic because its value is entirely divorced from underlying fundamentals. Vibes not verifiable reality.

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Yet perhaps this moment is coming to an end. Tesla’s downfall may be a sign not just that Musk is losing his grip on what’s hot, but that the economy is unhitching itself from the universe of vapourware vibes. Companies such as SVB and Tesla are creatures of the Zero Interest-Rate Policies (ZIRP) that shaped the high-tech venture capital economy from 2008–2023. The policy was an economic move designed to stimulate investment in the years following the financial crash — and it encouraged risky investment based on vibes. But today, the tide has turned. The real economy is back, and it may not be kind to the titans of tech.

Will Musk and Tesla survive the new regime? Many of the business practices that we associate with Big Tech today are, arguably, features of the ZIRP era: companies that operate without making a profit, or that may make a profit in some inscrutable way from consumer data at some point in the future; the practice of poaching engineering talent from one tech enclave to another for eye-watering salaries, and that of “blitzscaling” (expanding production so quickly that competitors go bust competing). Combined, this allowed the Bankman Frieds and Musks of the world to rise to improbable levels of wealth, without actually producing any real wealth at all. Musk’s hyperbole vibed with a high-risk, low-interest-rate economy. But how long can one of the richest men in the world be the CEO of a car company that makes a net loss every year? Maybe this #cursed vibe has finally run its course.

The Biden campaign constantly reminds Americans that the economy is on a tear, with inflation falling, unemployment near record lows and GDP expanding faster than any other advanced economy. But when economists and politicians cite such figures or talk up soaring stock indices as indicators of economic health, it hardly registers with the average person. Only about a tenth of Americans read a daily newspaper, and nearly half never read one at all. Fewer than a quarter watch television news.

As a result, most citizens judge the state of the nation and the economy from what they observe in their own daily lives: how much they pay to refuel their car; what their grocery bill comes to; whether their credit balances rise or fall at the end of each month; how often they can afford to dine out or go to concerts. They also take into account the number of boarded-up shops or alternatively, new restaurants in their community — and consider how far they need to drive to reach the nearest bank or post office.

Herein lies Biden’s problem. The average American feels worse off today than they did on the eve of the 2020 election, with polls showing that nearly twice as many people think Donald Trump did a good job on the economy than Biden. They’re not imagining it, either. Gas prices, which never broke above $3 per gallon during the Trump years, are now approaching $4 per gallon. Average take-home pay rose nearly twice as fast as the cost of food away from home under Trump, enabling Americans to dine out more often. But since Biden took office, Americans have had to tighten their belts, with their wages failing to match the sharply rising cost of eating out. In fact, for most of Donald Trump’s presidency, inflation was dormant and real wages were rising. Had it not been for the pandemic, which tanked the economy and unleashed some of Trump’s worst buffoonery, Trump might have won the 2020 election.

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While the headlines speak of an American economic renaissance, the stories that people tell one another have a very different tone. Yes, the economy is outperforming all its peers, a revolution is underway in high tech, and a huge rollout of renewable energy is creating loads of jobs. But, in the bitterest of ironies, the boom skews towards Republican states, which already dislike Biden, and favours big cities over smaller towns. If your bank branch has closed or your favourite diner has gone out of business, hearing things are roaring in Austin won’t matter much to you. To use the starkest current example, when the Fed and White House talk of inflation falling back down, they simply mean prices are rising at a more measured pace. But for most people, falling inflation means falling prices — sales and discounts. And prices aren’t falling. So what is there to celebrate?

That said, real wages are rising, which will enable workers to gradually claw back their lost buying power. But that won’t happen soon. Using the Fed’s current measure of inflation, a dollar today buys 20% less than it did in 2020, so it would take years of real wage gains of 2%, which is about where they are now, to make back that lost ground. In any event, the Fed has changed the way it measures inflation. Had it still been using the method it used in the early Eighties, during the last big surge in prices, inflation today would be nearly triple what is currently being reported.

Despite all their talk about the booming economy, America’s leaders can’t deny that their compatriots feel noticeably poorer today than they did four years ago. If the November election comes down to a referendum on the economy, Biden looks sunk. His only hope is to tell a story persuading people that while the present is difficult, the future under him will get brighter: not an impossible task, but a tough one.

But perhaps the economy has lost its political significance. There is, in fact, growing evidence that the rules of American politics are changing, and that if economics was ever the dominant mover of voting behaviour, it may not be now. Instead, cultural and existential matters have risen to the fore. The straight economic division that once seemed to prevail in America — that owners vote Republican and workers vote Democrat — has waned.

In its place, new alignments are emerging. As a starting point, one can use the rough rule of thumb that the cities lean Democrat, towns and rural areas vote Republican, and the suburbs remain up for grabs. But within that framework, old loyalties are shifting. African Americans once voted overwhelmingly for Democrats, providing a third of the party’s total support. Hispanic Americans, if less monolithically, did likewise. But in both groups Republicans have been making inroads, particularly among men.

Women, on the other hand, who were once a strong conservative force, have grown more liberal. But perhaps the biggest flipped script of all is the working class. Once a reliable pool of votes for the Democrats, the white working class in particular has broken increasingly Republican — not because Republicans speak to their economic concerns, but because socially conservative workers find the Democratic party increasingly too “woke”.

More than 40 years ago, Ronald Inglehart argued that Western societies were becoming so prosperous that bread-and-butter issues would dominate politics less, as people began orienting their politics around what he called post-materialist values. Perhaps he was right, as Americans turn their attention from pocketbook issues to forms of self-actualisation, focusing on what kind of country they want to live in. In this universe, what Trump and Biden represent could end up mattering more than their economic policies.

However, something a little darker may be going on. It may be that Americans see their country’s current moment in the sun as fleeting, dependent on a mortgaged future — and so have concluded that what is at stake is the remains of a declining empire. In that case, the fight may be over what is left after the tide goes out. Politics, formerly a positive-sum game in which everybody got a bit of something, has now turned into a zero-sum game, in which every group believes its gains must come at the expense of another. Thus, with battle lines drawn, the middle ground withers into a no-man’s land.

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In this battlefield, Biden has planted his flag as a friend of the working man against corporate power. For years, Democrats have attracted growing scorn over their elitism and dismissive attitudes to common folk. However, Biden has made it his mission to restore the party’s working-class traditions. The unions seem willing to campaign for him with a vigour they perhaps haven’t shown in a good while. If Biden can stem even some of the party’s working-class erosion, he could make an important dent in the Republican constituency: in 2020, he lost the working-class vote to Trump by a margin of 8%, and the white working class by 32%. Assuming he can hold his core constituency among university-educated Americans, and especially among educated women fired up by Republican campaigns against abortion rights, Biden would only need to claw back a small share of this bloc to retain the White House.

Trump, by contrast, isn’t trying to win over fresh pastures. As the November doomsday approaches, he is increasingly making the election not about his followers or the economy — but about himself. Railing against his enemies, vowing revenge, he speaks less about how he will rebuild their communities and restore their pride than he does about his victimhood. No matter how much his followers might sympathise with him, they may not see how any of this will affect their own lives. Perhaps for that reason, if reports from his rallies are to be believed, the enthusiasm he evoked eight years ago appears to be waning.

It’s early days, but a harbinger of what is to come may lie in the polls and betting markets. Before the campaign became a two-man race last month, both showed Biden’s outlook to be grim. But since the two men locked down their nominations, they have begun narrowing sharply. Trump is still in the lead — but it’s just possible that Biden turns out to be a better finisher. To do that, however, he will need to scrap grand rhetoric to tap into the bread-and-butter concerns of ordinary Americans worried about the cost of living, the security of their jobs, and their opportunities for advancement. He must show how he can improve their lives at the most visceral level. As an indifferent communicator, that won’t be easy for him, though what he may have over Trump is an ability to convey empathy. Compassion may turn out to be his strongest asset.