When George W Bush became president of the United States in 2000, following the relative calm and prosperity of the Clinton years, he was surrounded by a group of advisers called the ‘neo-cons’, who significance grew in the aftermath of the September 11 attack on America.

The term ‘neo-con’ stemmed from Irving Kristol, one of the intellectual forces behind the right in American politics, who famously defined neo-conservatives as ‘liberals mugged by reality’.

In particular, the neo-cons’ policy approach was associated with an aggressively militaristic foreign policy, as exemplified in the invasion of Iraq. Though the neo-cons pre-figured Donald Trump, they now likely feel a diminished ideological attachment to him.

Now, as last week’s EU Summit in Copenhagen heralds the need for shift towards a tougher European policy stance on Russia, the time has come for Europe to have its neo-con moment, as centrist governments wake up to a geopolitical mugging by Russia, China and increasingly, the USA.

The extent of the Chinese pilferage of British state secrets is becoming clearer, the German intelligence services warn of subversion, manipulation and infiltration of German institutions by Russia and the fact that the Dutch intelligence agency has announced that it will curb intelligence sharing with Washington, lest its secrets are passed to the Kremlin, are all alarming. As evidence of these and other incursions grow, multiple European countries – Denmark and Sweden for example – have placed themselves on a war footing.

At one level, the response of European countries (UK included) has been impressive. Germany has swept aside its debt brake and will spend up to Eur 1 trillion on defence in coming years, the UK has been an unwavering backer of Ukraine in its defence against Russian aggression, and there is now a defence start-up mania across Europe.

However, there are plenty of signs to suggest that Europe’s centrists have not come to terms with the vandalization of its democracies and institutions by outside actors. For example, tens of thousands of Chinese students populate UK universities, the south of France, Vienna and parts of Italy are host to wealthy Russians, and the EC is far too forgiving of the obstructionism of Viktor Orban. At the country level, there are notable laggards, Spain and Ireland stand out as nations that are ripe for a ‘mugging’.

Following Captain Bligh’s dictum that ‘the beatings will continue until morale improves’, Europe will have to become more absolutist in its dealings with the world beyond, and in terms of the measures it will need to protect its democracy.

The question then, is whether Europe is on the verge of a neo-con moment and what that might look like.

One response might be to list a series of necessary actions – a mechanism that might allow the EU to exclude recalcitrant members like Hungary, a more unforgiving policy on immigration, or a more full ‘shadow’ war against Russia, or even an aggressive acceleration of the savings and investment union (unlikely I fear).

A better signal would be a change in mentality. The EU and the UK currently march to the beat of every incursion and slight from the likes of Russia, or to the tone of every tweet from the US president. Europe will have to play at its own tempo, and more frequently up the ante in areas where it is capable of doing so. It must also change the international narrative around Europe, where it is cast as an ineffectual geopolitical actor and economic weakling.

The great pity, and a sign of a world that is being degraded, is that after a long period of globalisation when international democracy flourished, Europe could well end up as the last pocket of liberal democracy in the world. Whilst this is viewed as a vulnerability from Beijing and Moscow, and with disdain by others, for the vast majority of people around the world – education, healthcare and civil, open societies, all key characteristics of the European model, are what they crave. In years to come, Europe may be the only large region where the rule of law matters, and where institutions are stable.

A Europe that is ‘mugged by reality’ will in time act in a more ruthless and perhaps riskier way towards non-democracies, while concurrently being more confident in its socio-political model.

This EU Summit – which dodged a number of geopolitical issues (such as the use of Russian capital) – was not yet a ‘neo-con’ moment, the issue is how bad the mugging needs to be in order to change minds.

Have a great week ahead,

Mike

Last week saw the annual meetings of the IMF and World Bank take place in Washington, which typically offer a chance for economists and policy types to debate the state of the world. Several friends who attended reported back that the mood was less nervous than similar sessions earlier this summer, if only because the notion that we are in a normal, ordered world has been shattered.

In general, the IMF view is that in the next twelve months, the world economy will experience a low, positive rate of growth, with momentum in Europe picking up, just, and an otherwise troubled US economy flattered by the powerful effects of AI driven investment spending.

In the early years of globalization, the confabs at the IMF/World Bank meetings produced a narrative that became known as the ‘Washington Consensus’ – effectively an approach to world economic development and globalisation, that was denounced by critics on the left as a neo-liberal policy recipe book.

Professor Joe Stiglitz, formerly the chief economist at the IMF, and thus one of its ‘high priests’, became very critical of the running of the IMF as an institution. In 2002 he wrote a book entitled ‘Globalization and its Discontents’ in which he mentioned globalization only 64 times but the IMF some 340 times. Despite that, and two case studies in errant leadership – at least two recent managing directors, Rodrigo de Rato and Dominique Strauss Kahn, were embroiled in scandals, the IMF maintained its place in the global macro discourse.

With the benefit of hindsight today, the Washington Consensus was valuable in the sense that it was a consensus– though perhaps not agreed – it encapsulated an approach that many countries were content to go along with as part of their first foray into real economic development. That consensus is now disturbed.

I have long suspected that Donald Trump would shut down the IMF, but either he seems not to know it exits, or his treasury Secretary is a such a devotee of the IMF meetings and regards it as a useful forum to criticise China (notably, Bessent’s former chief of staff Dan Katz is now the Deputy Managing Director at the IMF). Now, it is not so much that the IMF will change, but the world around it has.

The ‘Fund’ used to be a financial ambulance (social scientist David Graeber had a harsher view calling it the ‘the high-finance equivalent of the guys who come to break your legs’), and in this sense it has rightly faced criticism in recent years – notably for its dealings with Greece (it was too harsh) and Argentina (it was too soft).

Today, it is a beacon of the orthodox, in an economic world where there seems to be a premium to unorthodox policy making. There are plenty of examples.

The IMF has stated that global public debt will hit 100% by 2029 (the highest since 1948) and singled out the US as a reckless player here. However, standard, or ‘orthodox’ remedies such as raising taxes and cutting spending are spurned by the White House in favour of antique policy choices (tariffs) and investment drive by immoral suasion.

Equally, now that Javier Milei’s chainsaw school of economic policy has run out of steam, the now traditional IMF visit to Buenos Aires might be expected, but it instead enjoys a financial support package from the US that will do little to help the underlying issues facing the Argentine economy.

Policy orthodoxy is being jettisoned in other ways. The Nobel (Riksbank) Prize in Economics went to three economists (Philippe Aghion, Joel Mokyr and Peter Howitt) for their work on how economies grow through innovation, as driven by higher education and research – two facets of the American model that are now being undercut.

If the IMF and its meetings are a beacon of the orthodox, governments like the USA are sailing past, on their way to a fiscal adventure, or simply speeding towards the financial rocks. If they hit those rocks, the warnings of the IMF economists that deficits are too high and debt to heavy will ring true, and there will be no money for a rescue.

There is a crisis viewing in the US banking sector as markets question whether lending standards have been compromised. The index of US regional banks has fallen 10% since the start of October and could skid lower. It might give the IMF something to do.

Have a great week ahead, Mike

The Anglophone press has recently become very excited by the contribution of economist Gabriel Zucman to the debate in France on the dire fiscal outlook, and the notion that a tax on the super-rich might solve France’s intimidatingly high deficit and debt load. The idea is superficially attractive in France, where wealth is a dirty word, though there is lots of it (France has 5% of the world’s millionaires, according to recent UBS/CS Wealth Reports).

For his part, Zucman – a clever economist and winner of the Clark Medal – is guilty only of not having spent enough time with billionaires, and learning how mobile, and unpatriotic capital has become. Notably, fiscally weak states risk capital flight. Zucman may also have missed the signal that a stiff wealth tax (as a fiscal response) sends to the broad investment community. The UK is an example, where the recent policies of the Tories and Labour have allegedly scared all the billionaires off to either Milan or Dubai.

In France specifically, the debate on the Zucman tax obscures the reality that, in the effective-post Macron era, there is no appetite across the political spectrum to tackle the large deficit and debt load. However a new left-leaning government in France will put the notion of a wealth tax even more so in the limelight.

More broadly, the focus on wealth raises two important questions as we move into the ‘Age of Debt’, where the consequences of indebtedness pervade and dominate politics, financial markets, geopolitics and society. They are how will the capital of the wealthy behave in a debt laden world and how will governments marshall the wealthy?

At first sight, in a world where the burden of mostly government debt, is weighing on economies, owners of capital face opportunities and constraints, both of which will increasingly be driven by the notion of patriotism.

High levels of government debt mean that governments cannot be as active in building new infrastructure, be it in AI, energy or in defence. That much is very clear in the UK, and despite the easing of the German debt brake, is also true in Europe. In the US, much of the new AI infrastructure will be funded by the cash rich technology giants and the private credit sector.

To that end private asset investors, and seasoned family businesses in the US as well as Europe, may have a larger strategic imprint, and the upshot of this is that tax focused economists like Gabriel Zucman should spend more time thinking of how to better incentivize private investment in Europe, which is yet missing in large economies like Germany.

The other, newer aspect of ‘patriotic capital’ relates to bond markets. We may not be far away from a point where institutional investors begin to lose faith in the bond markets of the major economies – China, Japan, UK, France, Italy and the US – near 60% of the world’s economy. In many of these countries bond yields may rise to multi-decade highs. The US, where inflation looks ready to push higher again is a particular concern, and this might well betray President Trump’s desire to take control of the Federal Reserve’s balance sheet.

Given that the White House has little appetite for orthodox fiscal policy it may, in the context of very high bond yields target the very wealthy, not so much as sources of tax revenue, but as patriotic buyers of debt. There are close to 130,000 ultra high net worth individuals in the US (wealth over USD 50mn and beyond) and together they represent a pool of capital of tens of trillions.

As is now the case in Indonesia, in the near future it may be that, consistent with the idea of financial repression, the US government issues sources a ‘patriotic’ loan financed by American family offices, with the rider that those that have the correct asset allocation do not get a visit from the IRS. It might even be that more nuanced assets – defence innovation venture funding, is farmed out to wealthy Americans (it is largely the case already).

The reality of the indebtedness of the large economies means, somewhat contrary to the Zucman framework, that the wealthy and their governments become more symbiotic, and that there is a ‘contract’ between the wealthy and government. None of this solves the fact that some very wealthy pay miniscule taxes, nor that in countries like the USA, where wealth inequality is at historic extremes, and in particular that the super wealthy exert an undue influence on public life.

What is ahead, given weak government finances and record private wealth, is an era where patriotic ‘barons’ invest in government debt for the sake of fiscal peace and stability, and where they play an outsized role in the private economy. In time, this may sow the seeds of even greater upheaval.

Have a great week ahead, Mike 

This week’s note is not about economics nor geopolitics but rather the inspiring Jane Goodall, who very sadly passed away in California this week. I’ve come to know her in the last five years as a trustee of the JG Legacy Foundation, and to add to the great mountain of tributes to her, can attest that she was a remarkable person, which is something we can say of too few figures on the world stage.

Jane was much better known in the Anglophone world than elsewhere, but the contribution of her research is felt internationally. To those who are less familiar with her life, in her early 20’s Jane saved up enough money to travel to Africa to pursue her ambition of studying wildlife (chimpanzees). After a period working with the famous paleoanthropologist  Louis Leakey, she won his support for a solo research trip into the Gombe reserve in Tanzania to study chimps (though her mother came along to keep her company). There is a very good BBC documentary on Jane’s work in Gombe.

This research became her life’s work and changed the way the scientific community regarded animals and the ways in which they were researched. An early National Geographic article by Jane, authored in 1963, is worth a read, not just because it gives a sense of her patience and intrepid curiosity, but for what it teaches us about the relationship between animals and humans, and the revelation (it was at the time) that animals are social, emotional creatures.

The flip side of this thought is that many humans are only a thin veneer away from the behaviour of chimps, and in a world where the law of the jungle is re-asserting itself, there are more and more displays of what we could call primate type behaviour.

Jane Goodall had many qualities – she was, I think very tough, brave and firmly believed in the causes she pioneered and supported. She travelled everywhere – in the past week she went from Bournemouth to New York and then California and was supposed to come to Cork at the end of this month. Though she was welcomed in the very top echelons of world society, she was most certainly not materialistic, save for a weakness for good whiskey.

If I could sum her up, and draw lessons from her life to today’s world, I feel she was otherworldly in respects of her life story, comportment, and influence. Without over-moralising her life, there are at least two observations to make.

The first, given that my inbox is full of tales of the de-humanisation of society – collapsing demographics, job markets deflated by AI, diminished social interaction between young people and other angsts created by social media, is of how Jane is a role model. In this context, Jane Goodall is an example to young and old of a life well lived, and one that has mattered. Two of her qualities that I would stress that can inform people today, are her intellectual curiosity and courage.

The second remark, which is all the more obvious, is that the causes Jane pioneered and the values she personified, are increasingly the exception than the rule. USAID budget cuts will lead to deaths in Africa, conservationism and the cause of the environment are no longer fashionable causes though arguably they are more vital than ever. In politics, there is a narrative that ‘bad things are happening’ without meaningful opposition, serious counterarguments, and meaningful leadership. One of Jane’s noteworthy statements was ‘The biggest danger to our future is apathy’. The analogies to the political and corporate worlds are obvious.

I would like to finish this note by encouraging readers to dip into the story of Jane’s life (again sites like National Geographic are good), and the various projects that she has inspired like Roots and Shoots the movement that helps young people impact their communities, the Jane Goodall Institute and then the Jane Goodall Legacy Foundation, which will soon start to fund the projects that Jane cared about.