Abandon Hope!

In the past year, two specific political interviews have struck me as being particularly interesting. Recently, Emmanuel Macron gave an interview to a group of autistic journalists where they posed questions that might not normally be aired in everyday press briefings. Macron to his great credit, was open and frank, in a way not normally so in everyday briefings (he tends to speak for too long and always gives the ‘bonne réponse’).

The other interview that caught my attention was Micheál Martin, until recently Ireland’s Prime Minister (Taoiseach) under the Fianna Fail/Fine Gael led coalition. When he became Taoiseach, it is fair to say that Martin did not have a strong public persona in Ireland and to many, his interventions appeared too mild and often controlled.

However, in February of last year he gave a long interview to the Two Norries podcast. This is one of my favourite podcasts because of its complete honesty, the colour it gives on the complexity of social problems and mental health, and of course the strong flavour of Cork city.

In brief, Martin’s interview in an untypical setting, gave a highly personal view of his family life, background and political convictions, in contrast to his far more stilted public briefings. My feeling on listening to the podcast was that the initial part of Martin’s premiership would have gone more smoothly if he had done such an interview earlier and given the public an opportunity to ‘know him better’.

The Macron and Martin interviews are instructive about the way politicians live, behave and are treated by both the media and the public. They speak to a political class that, for various reasons, regards the media as both a foe and as part of the arsenal of political tradecraft, and also of the growing mental health strain on politicians.

This point was made volubly with the resignations of Jacinda Ardern and Nicola Sturgeon as prime/first ministers of New Zealand and Scotland respectively. Both are accomplished leaders, and as women have had to endure troubling levels of sexism, and abusive commentary about their personal lives in a political climate that has at the same time long seemed immune to the appalling personal behaviour of the likes of Boris Johnson and Donald Trump.

That both Sturgeon and Ardern pioneered the ‘Wellbeing Economy Governments’ that seeks to measure a country’s progress through a broader range of measures than GDP, suggests that they had a more balanced vision of society, economies and politics – which they perhaps struggled to implement. Unfortunately, the halt to their political careers suggests the opposite – that politics is becoming a blood sport where only the very tough and singular can participate (especially in parliamentary systems). The media treatment of Kate Forbes candidacy for the leadership of the SNP is potentially a test of this. She is an untypical candidate, educated in India, and then through Gaelic in Scotland, and unconventionally openly religious.

More broadly, the political climate is now not unlike professional sports, where politicians need to practice their art to the exclusion of all else. I had flagged this in The Levelling

the personal characteristics of politicians have become less traditional, less family-centric…which suggests that the intensity (and perhaps cruelty) of the political game makes it increasingly difficult to enjoy both a family life and a political career’.

It would be naïve to suggest that life was rosier for politicians in earlier times, but the intensity that television and now social media have brought to politics is becoming debilitating, not just for the time it takes but the bad behaviour it engenders. This development risks creating an environment where bad actors can thrive – and to a degree the rise of ‘strongmen’ politicians has been enabled by social media and by an environment that is intensely contested (note the current debate on the American right regarding a ‘national divorce’).  

This trend tallies with last week’s note on the need to emphatically bring an end to the democratic recession. There is an opportunity for (effectively centrist) politicians to reduce the impact of social media in politics, deploy deliberative democracy better and to devolve power to more local levels. Switzerland is a good example here – though admittedly hard to replicate. Doing so will create platforms that are not as demanding in terms of time and emotion for people to become involved in politics.

If public service has to come with the caveat of ‘all hope abandon ye who enter here’ to quote Dante, then the public will bear the consequences. Brexit is an example. Another contemporary one is Peter Obi’s entry into the Nigerian Presidential elections (the first round is taking place as I send this). He is, compared to Bolu Tinubu, Atiku Abubakar and Muhammadu Buhari, and untypical candidate in a hugely consequential election for Nigeria and Africa in general. Let’s see how he fares.

Have a great week ahead,


Democracy’s Keynesian Moment

With the one year anniversary of the war in Ukraine passing, the media will doubtlessly be filled with analysis of the military and geopolitical lessons (so far) from the invasion. One aspect that is perhaps underestimated but nonetheless vitally important in the context of growing strategic competition between the West and East is the bottoming out of the democratic recession.

This phrase was coined by Prof Larry Diamond to describe the end of the wave of democracy that begun with the fall of communism and likely peaked before the global financial crisis, and that has now left the world at a multi decade low in terms of the number of ‘full’ democracies and the greatly diminished quality of democracy. Starkly, the last EIU Democracy Index Report notes that only 8% of the world’s population lives in a ‘full democracy’ and 37% live in autocratic regimes.

The quality of democracy is intrinsically linked to the debate over the end of globalization, and the three factors that have marked its demise – high inflation, rising rates and war in Europe – will further stress test democracies and their leaders. Notably, they might also catalyse responses from governments that could help repair democracies, whilst also making for further misery for autocrats.

This possibility, taken together with the fact that the ‘centre’ is generally speaking holding across European governments (note the relative calm of Italian politics), and growing marginalization of the clowns and the corrupt of the populist right (Trump, Bolsonaro and Boris) suggests that democracy is steadying whilst autocracy is crumbling.

In economic recessions, when negative growth looks like it is bottoming out, there would usually be a call for a stimulus. Democracy, at this critical point, should be no exception, and the time has come for a dose of ‘democratic Keynesianism’, where states will invest in the quality of their democracies, public goods like education and act to limit ‘subprime’ elements like rogue funding of political candidates, corruption and the use of social media and cyber to meddle in elections.

This can take several forms. For instance, the EU has launched a Democracy Action Plan but this will have little credibility if its Parliament is structurally prone to corruption, nor if individual states do not implement telling policies on campaign finance, freedom of the press and better civic education.

On a more positive note, there is a renaissance in the use of deliberative democracy – at a local level in many countries, and significantly at a national, constitutional level in the case of Ireland’s Citizen’s Assembly whose work has led to a number of changes to its constitution. The challenge of deliberative democracy for many incumbent governments is to cede power to the people, and to trust their judgment. This has proven problematic in France, where there is a gulf in trust between the state and its citizens.

Then, there are areas for policy coordination between the US and the EU, notably in marshalling the role of global social media companies in politics, in using multi-lateral institutions (i.e. World Bank) to support democracy, and in working aggressively to limit outright attacks on democratic systems (e.g. cyber security and money flows).

At a country level there are several questions to be answered before a democratic recovery is truly underway. One relates to the political identity of the Republican Party and whether it as an entity is ready to come in from the hard right and actively support the rule of law, or whether it may split. The isolation of Liz Cheney in this respect is not encouraging here.

The other is the UK, where there has been a measurable decline in the rule of law, respect for institutions and a rise in corruption since the early 2010’s. The worry is that this has not triggered a broad realization of the damage that these trends are doing to the UK’s democracy, economy and place in the world, nor has it led to the arrival of a ‘democratic white knight’ figure in British politics (though Sir John Major’s speech ‘In Democracy We Trust? is well worth a look).

Then finally, the interesting long-term question is how governments and electorates in large populous emerging nations will regard democracy. Any causal link from autocracy to higher growth  – visible for some time in China and Turkey – is broken, whilst the trend relationship between economic stability, the rule of law and human development and investment remains in place. While Iran is an extreme example of a population ambitious for a more open society, there are other countries where the pressure on leaders to provide greater prosperity and representation will grow and optimistically, may spur a new wave of democracy.


A rule of thumb of mine (the O’Sullivan Zombie Rule of Economic Modelling) states that once a model has been written off as dead by the economics profession, it makes a comeback. The ‘death of budget deficits (under Clinton)’, the ‘death of value investing’ and a ‘this time is different approach’ to debt are some examples.

The latest one I have in mind is the Phillips Curve – an economic relationship researched by the New Zealand economist Bill Phillips that maps an inverse relationship between unemployment and inflation, and subsequently developed by prominent economists like Milton Friedman and Robert Lucas.

Over the past decade, a period characterised by low inflation, low interest rates and low unemployment, a number of economists have sketched the obituary of the Phillips Curve. James Bullard, a prominent Federal Reserve official, has stated ‘If you put it in a murder mystery framework – “Who Killed The Phillips Curve?”– it was the Fed that killed the Phillips curve’. Peter Hooper and Frederic Mishkin have pondered ‘The Phillips Curve – dead or Alive’, while a 2022 discussion paper from the Fed wondered ‘Who Killed the Phillips Curve? A Murder Mystery’.

There are some good reasons as to why the death of the Phillips Curve has been declared – falling rates of unionisation in the US have diminished the bargaining power of workers. In the UK in the 2010’s the sharp increase in the gig economy – where many workers effectively privatised themselves – also meant that a large number of workers had little wage bargaining power. An environment of generally falling productivity also laid bare the weaker claim that workers had to higher wages.

Though empirical evidence suggested that in many countries the Phillips Curve is dead, it still remains an important and well-worn policy setting for the major central banks, and many of them devote considerable resources to researching them as this paper from the ECB shows.

For instance, in recent years, in the US Janet Yellen as Fed Chair repeatedly spoke of driving down long-term unemployment to help spur a little inflation. Central bankers are typically very conservative, slow moving creatures – hence the logic of my ‘Zombie Rule’ is that by the time they reject a model, it is time to bring it back.

The reason I think this to be the case now, is that many developed economies are perched between multi-decade highs in inflation, and multi-decade lows in unemployment. The prevailing view is that inflation is now decelerating, and strong employment means that we will experience a ‘soft landing’. This appears to be the view that financial markets are extrapolating from recent comments by the Federal Reserve Chair Jerome Powell.

In this context, the risk is that the Phillips Curve makes a Lazarus-like comeback in policy circles, and in practical terms that tight labour markets lead to very sticky, high inflation. One mystery in this respect is the ways in which the labour market is changing because of demographics, the post COVID economy and the attendant changes in the geographic location of labour, as well as the impact of ‘strategic competition’ on supply chains and thus labour markets.

Most of these factors however should lead to upward pressure on wages and it is striking that economies that have seen high inflation, are those where labour market participation has changed. To that end we will very likely hear more about the ‘revival’ of the Phillips Curve as we enter into a highly noisy macro environment characterised by highly pessimistic readings from lead indicators and very competitive labour markets.

A clue to how this plays out may come from my favourite piece of work from Bill Phillips.

Well before he was celebrated for the ‘Curve’, Phillips built an extraordinary machine that pumped colored water through glass vessels in order to demonstrate how money flows around an economic system. The machine named MONIAC (monetary national income analogue computer) included parts salvaged from a Lancaster bomber. Levers in the machine permitted users to simulate the effect on the system of fiscal (budget) policy changes for example, and such was the intuitive appeal of the machine that major universities like Harvard and Oxford ordered their own versions.

In today’s algorithmic driven economies and markets, such a simple contraption might seem well out of place, but the time might be ripe for the major central banks to install MONIAC’s.

At very least their use might help induce further humility to a central banking community that has gotten the inflation call badly wrong in the past two years, and that is now presiding over a premature easing in financial conditions and ‘animal spirits’ in the context of still high inflation, and very low unemployment.

Have a great week ahead,


Strength and Honour

Over the last year a number of you have pointed out the odd typo or two in my Sunday note. For example, one eagle eyed reader in Brazil registered that I had written ‘South China Sean’ rather than ‘South China Sea’, which is a Freudian slip of sorts.

The real reason the quality of the note may have slipped is that this time last year my ‘editor’ Nicholas Benachi, passed away. In addition to being a good friend, he made sure that the logic and quality of the note were up to scratch. One of his favourite greetings and ‘sign-offs’ was ‘Strength and Honour’, which may have been inspired by his love of bushido and his family’s ties to Greece, not to mention a sweeping appreciation of history.

It is a phrase that comes to mind more and more often in a world where the moral pendulum is swinging wildly, and I often find myself using it as a maxim to scrutinise people, places and projects. Here are a few examples.

With respect to people, especially public figures, ‘strength and honour’ can mean that they are trusted and admired by peers, as opposed to feared or derided. The war in Ukraine has, as wars do, exposed a gulf between those who might fall into the ‘strength and honour’ bracket (prime ministers of Estonia, Finland, president of Ukraine) and those who manifestly don’t (Presidents of Russia and Hungary for instance). What is less satisfying is that in many countries being trusted and admired is not sufficient to get and hold power.

Nation states are easier to gauge in terms of their ‘strength’. In the past I have developed a country strength indicator (David Skilling has developed a similar approach to ‘economic strength’). The idea is to identify the factors a country should focus on in order for it to be strong in the sense of not habitually falling victim to the ebb and flow of the world economy and the pressures of socioeconomic imbalances. Strength in this regard is not necessarily made up of military might or large GDP but rather the capacity to stimulate human development, to withstand economic shocks, and to have a stable society, among other values.  

The idea of country strength is also more than a set of policies; rather, it is a mentality or policy culture that is evident in countries like Singapore and Switzerland that are acutely aware of the potential impact that outside forces (i.e., immigration, currency fluctuations, and world trade) can have on their societies.

One finding that shines through in some of the research projects I have been involved in is that the countries that score well on country strength are also the most globalized. Interestingly, they also score well on many other criteria such as “most innovative nation” or most “prosperous nation.” Most of the countries topping these rankings are small

dynamic economies (Singapore, New Zealand, Sweden, Switzerland, Finland, and Norway, to name a few), plus larger developed ones such as the Netherlands, and sometimes the United States.

What they have in common are drivers like education, the rule of law, and the deployment of education—their intangible infrastructure. In many respects intangible infrastructure is more important for a country’s future than its physical counterpart. These factors can be political, legal, or socioeconomic. Political factors include the degree of political stability or the strength of the institutional framework. Legal factors include the rule of law, tax policies, and intellectual and physical property rights protection. Examples of socioeconomic factors include research-and-development capabilities, business processes, or employee training and education. There are arguably five specific pillars of intangible infrastructure: education, health care, finance, business services, and technology.

In my view, this framework is the key to surviving a turbulent world, where productivity and social stability will be the two most important policy goals. The tantalising aspect for politicians is that building intangible infrastructure takes a long time (they cannot reap short-term gains), and this places a premium on having high calibre institutions and civil service that can prolong the implementation of national development plans. For this reason, some non or partial democracies are good at developing ‘country strength’ (South Korea in the 1980’s and 1990’s).

There is also a good long-term relationship between growth and the quality of a country’s intangible infrastructure, and sharp changes in ‘country strength’ provoke changes in economic performance – Turkey is the obvious example of a country where structural improvements in institutions have been squandered as deep corruption has taken hold and many of the people who had populated its institutions (professors, teachers, judges, army officers) cleared out of its system.

Another country to watch is the UK, which is becoming a serial institutional and economic underperformer on many fronts. The latest data point to note is Transparency International’s Corruption Perceptions Index released last week, where the UK’s rating has dropped sharply, to its lowest level since 2012 (when the study commenced). The denuding of institutions, undermining of civil servants (the inquiry into bullying by Dominic Raab is an example) and a sizeable drop in spending on social infrastructure are part of a worrying trend.

Other countries to watch here are Israel where the country’s legal infrastructure and political system are being undermined by its new government, and then from a more positive point of view – Ukraine’s attempt’s to curb corruption (the debilitating effect that this has had on the Russian army should be a cautionary lesson), and the opportunity that the geopolitical situation the war has created for Poland to reverse the damage done to its institutional infrastructure (notably legal and human rights).

Strength and Honour!