11/08/2023 The Dutch Government has
collapsed
. There was no clear
winner in Spain’s General Election, with
neither
the left-wing
nor right-wing blocs managing to take a majority of seats. In Germany, the first ever three
party coalition has fallen from taking 52% of the popular vote when elected to just 39% on
current polls
.
President Macron can’t pass reforms in France without
riots
. The
biggest
political
force in Belgium, the far-right Vlaams Belang, wants to break away from the country
altogether.
Why the political chaos?
It’s not unusual for huge
political change to follow significant economic change. We saw this after the financial
crisis when anti-establishment candidates like Donald Trump, Alexis Tsipras and Nigel Farage
saw their careers rocket. People felt that the system didn’t work for them and decided to go
for leaders who promised them a new world order. People felt The Establishment needed a kick
up the proverbial. But then along came the pandemic and then a war. During a national
emergency, only The State is in a position to respond. National vaccination programmes and
weapons shipments require the establishment to step in. This created a split in the
electorate. The libertarians felt the state had gone too far and now want it cut back, such
as lowering taxes; while those who prefer an authoritarian stance want more intervention for
their preferred issues, such as subsidies for green energy. Voters are pulled in several
different directions with no one group forming a majority. For politicians trying to get
elected, this is a headache. It’s not a simple question of winning a majority with a slogan,
such as Take Back Control. Such a phrase could now mean taking back control for the
individual or for the nation’s parliament. The former would please the libertarians while
the latter appeals to authoritarians. This splinters the coalition of voters and it is why
Boris Johnson, despite winning the largest majority since Margaret Thatcher, managed to end
up unceremoniously deposed by his own party less than three years later.
How to Govern?
It’s not just about getting elected. Once in
power, a government must continue to hold popular support or the court of public opinion
will see them forced to abandon policies and change direction. But when the public is so
split in so many different directions, this becomes even more difficult. Even governments
with large majorities find their own party splits on what it thinks the best course of
action would be. Hence government becomes Un-government as politicians have to spend all
their time arguing with one another rather than actually getting anything done.
Impact on Policy
Whilst the politicians argue, the real
problems stack up. The war in Ukraine lingers on with few nations able to agree on how to
secure energy supplies for decades ahead. China continues to develop powerful allies across
the emerging world. Nobody seems quite sure what to do about AI. And a generation left
behind by Covid needs more help than ever. Instead politicians are consumed in Twitter spats
and cancel culture. The focus on the short term will have long term ramifications. Nations
that are consumed by domestic policy will be taken advantage of by those with a keen eye on
foreign policy – namely China. Anyone either blessed with natural resources or who invests
at scale in key infrastructure like microchips will reap the reward in the years to come.
Tech will remain a key battleground and so tech-heavy equity indexes like the Nasdaq are
likely to outperform the broad index over the long term. As Bill Gates once said, we
overestimate what will happen in two years but underestimate what will happen in twenty.
Monetary v Fiscal
But the most pernicious impact of
“Un-government” right here and right now is that the market continues to believe the
policymakers will always step in if anything goes wrong. The pandemic era coordinated policy
response of reducing interest rates to zero and sending stimulus money to the public is no
longer possible. Central banks are wrestling with sticky inflation which is itself largely
driven by the inefficiencies of adjusting to a new world order – such as the re-organisation
of supply chains and the impaired migration of people. Cutting interest rates to zero and
activating QE is almost impossible with inflation at multi-decade highs. On the fiscal side,
governments already have to deal with the huge debt pile built up thanks to their Covid
response. They can’t simply keep borrowing more, not least thanks to the huge interest
payments they have to make. With interest rates sitting at higher levels than we have seen
for fifteen years, some of those interest payments are rising too. But governments also
can’t just hit the stimulus switch because doing so requires a political choice that many
are unable or unwilling to make. Who do you send the money to? Which sector of society?
Which business? For how long? To govern is to choose. And making a choice, risks alienating
yet another chunk of the electorate at precisely the moment you want to unite as many of
them as possible. So we are left with inaction. The public become restive, the politicians
fear losing power, and nothing gets done. Which makes the electorate even more annoyed,
creating a vicious cycle. 
Helen Thomas
CEO of BlondeMoney
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