The Bear’s Lair: 24 Years of Malpolitics!

Government quality is not randomly distributed, but leptokurtic – good and bad trends tend to perpetuate themselves. In so doing, they resemble stock market and real estate malinvestment, as Austrian economists put it. It can probably be agreed by both political sides that since January 2001, the United States has endured more than two decades of very poor leadership, an ailment that seems unlikely to be alleviated this side of 2025. However, this is by no means the longest run of bad leadership in a country’s history; both democracies and the various forms of autocracy have produced longer periods of unrelieved ineptitude. To cheer ourselves up, it is thus worth looking at how these other examples escaped their malaise – while passing over hurriedly those that did not.

The evidence for malpolitics since January 2001 is strong. The cooperation between Republican Speaker Newt Gingrich and President Bill Clinton between 1994 and 1998 had produced quite good government; welfare was reformed, and the budget brought into surplus for the first time since 1969. That surplus may have been due to an over-exuberant stock market (since the Fed had already been excessively printing money since February 1995) but there was no reason to suppose budget discipline would not be maintained. Then a restoration of pre-1995 Fed discipline would quickly bring the stock market under control and allowed healthy U.S. growth and political dominance of the world to continue. In retrospect the Clinton-Gingrich period appears like Gibbon’s “Age of the Antonines” — a dimly remembered era of peace, tranquility, prosperity and power, afterwards lost forever in a morass of barbarian invasions.

After 2001, malpolitics sprang into action. The Bush administration hopelessly over-interpreted a terrorist attack that got lucky on 9/11, plunging the country into two unnecessary wars in the Middle East and entirely reversing the “humble” foreign policy that many of us had found one of the few attractions of Bush’s election platform. Then, even with a Republican Congress, it blew apart the budget restraint that had been a feature of Clinton’s rule, plunging the country into ever-escalating budget deficits. Then it described North Korea, Iran and Iraq as forming an “Axis of Evil” – a cartoon-like and completely unrealistic image that has made reasonable relations with North Korea impossible ever since. Then in Bush’s Second Inaugural it propounded a vision of foreign policy that echoed the most foolish visions of Woodrow Wilson in 1919 and proved equally damaging to America’s place in the world. Then it proposed a reform of Social Security that might have done some good, given the excessive inflation in asset prices since 2005, but completely failed to back it in Congress. Then it nominated John Roberts and Harriet Miers to the Supreme Court, both of them utter betrayals of its supporters. Then it nominated a committed funny-money inflationist, Ben Bernanke, as Chairman of the Federal Reserve, despite his being clearly the worst of several possible candidates for that position. Finally, (though not entirely its fault) it sparked a financial meltdown in the last months of its term that it proved completely incapable of addressing, its Treasury Secretary (Hank Paulson, ex-Goldman Sachs) having a massive conflict of interest in bailing out his former employer.

One could be quite sure that George W. Bush was the worst President in U.S. history, were it not for the existence of two out of his three successors. The third, Donald Trump, was a massive breath of fresh air in many areas, but alas cursed with a total inability to accept his own defects and a complete failure to comprehend monetary policy. Overall, U.S. citizens will by January 2025 have suffered 24 years of malpolitics, policies so poor that one would have imagined in advance that they could only be produced by sheer malignity.

It is a thoroughly unattractive record, but it is not unique. Britain in 1951-79 suffered a similar period of malpolitics for a similar length of time. The Clement Attlee government of 1945-51 did a lot of economic damage, but it also achieved a great deal in terms of its own objectives of making Britain a more thoroughly socialist state. The country idiotically voted for that in 1945, so that is what it got, delivered competently, relatively honestly and without any trace of the social liberalism that has disfigured Britain since the 1960s.

Then after 1951, with Winston Churchill ignorant of economics and making definitively bad policy choices (notably his rejection in 1952 of the ROBOT floating-pound scheme that would have freed Britain from the idiocies of the Bretton Woods monetary system) serious and unnecessary national decline began. Churchill was succeeded by Anthony Eden who was succeeded by Harold Macmillan, the two ministers who had agreed in blocking ROBOT; the result was continuing national decline and Keynesian waste. There was also a complete failure in the mid-1950s to tackle immigration while it could have been nipped in the bud, a de-colonization under Macmillan that produced economic basket-cases all over Africa for the next 40 years (since the only British value the newly independent countries were reliably left with was socialism) and a fatuous 12-year attempt to join a European Community that did not want Britain and had nothing economically to offer to it. Under the governments of Harold Wilson and Edward Heath, policy grew even worse, and was only marginally improved under James Callaghan. As in the United States since 2000, malpolitics became locked in for several decades.

There are other examples, not all of them in democracies. Arguably, after the assassination of Henry IV in 1610, France suffered 179 years of malpolitics culminating in the French Revolution. Henry IV had been relatively market-oriented and concerned for the welfare of his people; the “chicken in every pot” quotation is originally him, not Herbert Hoover. His successors, notably their ministers Cardinal Richelieu and Jean-Baptiste Colbert followed policies respectively of suppression of the Third Estate and import substitution that caused France’s economy to fall far behind that of its neighbor England. Regent Phillippe d’Orleans falling for the Scottish swindler John Law in 1716-20 made matters worse, and a succession of losing wars and relative economic decline made the country ripe for upheaval.

China also had a tradition of mostly capable Imperial governance, with two of the first three Qing emperors, Kangxi and Qianlong being both especially able and long-lived. Then after Qianlong’s death in 1799 a succession of inept Emperors followed, during which the possibility of a civilized trading relationship with the West was lost and a hostile exploitative relationship took its place. After the concubine Dowager Empress Cixi took over in 1861 matters improved, but the period of 62 years of feeble rule, combined with her need to rule through inept husbands and other relatives, meant that she was unable to avoid the final collapse of the Imperial regime in 1912. The period of malpolitics lasted only 62 years, but that was sufficient to destroy an Empire.

A quasi-democratic example of malpolitics also exists in Argentina, generally well-run under an oligarchic quasi-democracy until 1943, during which period it became one of the world’s richest countries. Since then it has been doomed to 79 years and counting of malpolitics, with inept populist authoritarians being succeeded by inept populist democrats in an ever-descending spiral, and living standards descending through repeated national bankruptcies to a position of Third World poverty. As the examples above have shown however, the Argentine disease can become embedded in any country, albeit not generally for quite so long without remission.

The advent of Margaret Thatcher in Britain showed that malpolitics can be defeated and national self-respect restored. That example should however also show that recovery is by no means inevitable. At the 2024 election, the United States will have a choice to make. It is unlikely that a relatively benign Democrat like Bill Clinton will be available; the problem with malpolitics is that it makes the country’s problems more difficult to solve, so that an ordinarily capable leader can fail to solve them – think for example of Argentina’s Carlos Menem (1989-99) who in a better situation might have done quite well.

Another incapable Democrat elected in 2024 will thus continue to worsen the United States’ problems but will leave the possibility that in 2028 the country’s poor state may lead the electorate to choose a Margaret Thatcher. Election of a capable Republican in 2024 (I name no names!) could allow the trajectory to be altered and the period of malpolitics ended. The worst possible outcome would be the election of another George W. Bush, treacherous to his friends, feeble against his enemies and incompetent in every decision he made. From that outcome, at least, Good Lord, deliver us!

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)