Saving liberal democracy from the extremes
Elites must recognise that mismanaged economies have helped to destabilise politics
Martin Wolf
Protesters in Warsaw in July, angry at what they see as an attack on the judiciary © AFP
Nothing to excess”. This motto, also known as “the golden mean”, was displayed in the ancient shrine of Delphi. Such restraint is particularly crucial for the preservation of liberal democracy, which is a fragile synthesis of personal freedom and civic action. Today, the balance between these two elements has to be regained.
Larry Diamond of Stanford University has argued that liberal democracy has four necessary and sufficient elements: free and fair elections; active participation of people, as citizens; protection of the civil and human rights of all citizens; and a rule of law that binds all citizens equally. The salient feature of the system is the restraints it imposes on the government and so on the majority: any victory is temporary.
It is easy to see why this system is so fragile. Today, that truth is, alas, not theoretical. In its 2018 report, Freedom House, a well-regarded federally funded, non-profit US organisation, stated that: “Democracy is in crisis. The values it embodies — particularly the right to choose leaders in free and fair elections, freedom of the press, and the rule of law — are under assault and in retreat globally.” This “democratic recession”, as Prof Diamond has called it, is not restricted to emerging or former communist countries, such as Hungary or Poland. The commitment to norms of liberal democracy, including the right to vote and equal rights for all citizens, is in retreat even in the established democracies, including the US. Why has this happened?
In a recent book, The People vs. Democracy, and an earlier article, Yascha Mounk of Harvard University argues that both “undemocratic liberalism” and “illiberal democracy” threaten liberal democracy. Under the former, democracy is too weak: social bonds and economic security are sacrificed on the altar of individual freedom. Under the latter, liberalism is too weak: power is captured by demagogues ruling in the name of an angry majority or at least a sizeable minority, who are told they are the “real people”. Undemocratic liberalism ends in elite rule. Illiberal democracy ends in autocratic rule.
Mr Mounk’s argument, moreover, is that undemocratic liberalism, notably economic liberalism, largely explains the rise of illiberal democracy: “vast swaths of policy have been cordoned off from democratic contestation”. He points to the role of independent central banks and to the way in which trade is governed by international agreements created by secretive negotiations carried out inside remote institutions. In the US, he also notes, unelected courts have decided many controversial social issues. In such areas as taxation, elected representatives retain formal autonomy. But the global mobility of capital restricts the freedom of politicians, reducing the effective differences between established parties of the centre-left and centre-right.
How far does such undemocratic liberalism explain illiberal democracy? The answer is: it does, up to a point.
It is surely true that the liberal economy has not delivered what was hoped, the financial crisis being a particularly severe shock. One aspect of such liberalism — migration — has, as the British writer David Goodhart argues in his book, The Road to Somewhere, persuaded many “people from somewhere” — those anchored to a place — that they are losing their countries to unwelcome outsiders. Moreover, institutions that represented the bulk of ordinary people — trade unions and left-of-centre parties — have ceased to exist or ceased to do their job. Finally, politics has been taken over by “people from anywhere” — the mobile and the highly educated.
Thomas Piketty suggests that a “Brahmin left” and a “merchant right” now dominate western politics. These groups may differ sharply from each other, but both are attached to liberalism — social, in the case of the Brahmins and economic, in the case of the merchants. The public has noticed.
A big point is that if undemocratic liberalism has gone too far for the comfort of a large portion of the voting public, that liberalism is not just economic: this is not just about neo-liberalism. Moreover, little of it has to do with overmighty international institutions, with the arguable exception of the EU. Indeed, the prosperity high-income countries desire is heavily bound up with international commerce. That, in turn, necessarily involves more than one jurisdiction. A future that does not include international co-operation on cross-border regulation or taxation will not work. This, too, has to be recognised.
A view that the economic dimension of undemocratic liberalism has driven the people towards illiberal democracy is exaggerated. What is true is that poorly managed economic liberalism helped destabilise politics. That helps explain the nationalist backlash in high-income countries.
Yet the kind of illiberal democracy we see in Hungary or Poland, which is rooted in their specific histories, is not an inevitable outcome in established democracies. It will be hard for Donald Trump to become a US version of Hungary’s Viktor Orban.
Yet we cannot just ignore the pressures. It is impossible for democracies to ignore widespread public anger and anxiety. Elites must promote a little less liberalism, show a little more respect for the ties binding citizens to one another and pay more tax. The alternative of letting a large part of the population feel disinherited is too dangerous. Is such a rebalancing conceivable?
That is the big question.
SAVING LIBERAL DEMOCRACY FROM THE EXTREMES / THE FINANCIAL TIMES OP EDITORIAL
THE S&P 500 WILL PUSH THE FEDERAL RESERVE TOO FAR / SEEKING ALPHA
The S&P 500 Will Push The Federal Reserve Too Far
by: Eric Basmajian
- Monetary policy is biting more than investors are giving credit.
- Further monetary policy tightening will exacerbate the slowing trends and put the economy in a vulnerable place come 2019.
- The S&P 500 is giving investors and the Federal Reserve a false sense of confidence.
Under The Hood Of GDP & Consumer Spending: More Than What Meets The Eye

IRAN´S ENEMIES STRIKE BACK / GEOPOLITICAL FUTURES
Iran’s Enemies Strike Back
The government in Tehran made its move. Now, it’s being boxed in.
By George Friedman
MAKING THE MOST OF EMERGING ECONOMIES / PROJECT SYNDICATE
Making the Most of Emerging Economies
Bertrand Badré
PARIS – Once again, the world’s emerging economies are facing a bout of uncertainty. Argentina, South Africa, and Turkey are among those generating the most concern, owing to a combination of questionable monetary policies and currency depreciation vis-à-vis the US dollar that threatens to undermine these countries’ ability to service their debts. But not all emerging economies are created equal.
To be sure, as in the past, there is a distinct risk of contagion. The emerging economies that are most vulnerable each must address its own challenges to avoid falling victim. And the approaches countries take to the challenges they face will have knock-on effects of their own.
Given this, investors may find it tempting to pursue a broad risk-off approach to the entire emerging world, especially in the context of rising global trade tensions. But it would be a mistake to ignore the very favorable conditions that exist in some emerging economies. For example, many have made significant progress in managing their debt levels, raising productivity, improving infrastructure, and implementing needed reforms.
All of this has contributed to strengthening these economies’ resilience to external shocks. Indeed, despite enduring uncertainties over the degree to which they have absorbed the lessons of the past, not to mention inconsistencies across countries, many emerging economies have developed much sounder fundamentals over an extended period.
The disparity between perceived and actual risk and the tendency to paint all emerging economies with the same brush is a longstanding problem. But investors should eschew a wholesale retreat from emerging economies in response to high-profile problems in a few. Instead, they should adopt a more nuanced approach, one focused on improving the risk-return profile by investing in selected regions and markets, while working with the right institutions.
In particular, now is not the time to ignore Latin America and the Caribbean, which have a wide range of investment needs – touched upon during the recent G20 meetings in Argentina – and also offer a broad range of growth opportunities. Countries in this region have pursued substantial reforms that have boosted economic growth and laid the foundations for strong financial returns in the longer term.
More broadly, stakeholders should strengthen their commitment to using the “billions to trillions” approach to resolving the world’s most vexing problems. That approach uses a combination of measures related to finance, skills, capacity, and risk allocation to leverage relatively scarce public-sector capital to mobilize more robust private-sector resources.
The multilateral development banks have a critical role to play here, and many have made great strides in responding to market needs. Moreover, the world has agreed, under the auspices of the United Nations, on complementary road maps for addressing global challenges: the Paris Climate Agreement and the Sustainable Development Goals. By establishing the right mechanisms to take advantage of related investment opportunities, we can use billions of public dollars to make trillions of dollars’ worth of progress.
Many of us in the investment community are working to boost the effectiveness of our work by ensuring that the right financial and risk-management instruments are in place to connect the public and private sectors. Already, mechanisms are in place to facilitate capital flows into emerging economies, particularly those in Latin America and the Caribbean, where opportunities for attractive risk-adjusted returns are now available.
In this context, even a very modest allocation by large institutional investors will have a major impact on the pursuit of sustainable outcomes, while also providing attractive, competitive financial returns. This dynamic – a fundamental component of the billions-to-trillions approach – can become embedded, creating the basis for a broader system in which there is no trade-off between making money and doing good.
The current turmoil in some emerging economies must not be allowed to derail past progress. On the contrary, it should spur stakeholders to redouble their collective efforts to establish a broadly beneficial system. This means, first and foremost, taking a nuanced approach to risk assessment that recognizes the attractive long-term growth opportunities that many emerging-market economies offer.
Bertrand Badré, a former managing director of the World Bank, is CEO and Founder of Blue like an Orange Sustainable Capital and Co-Chair of the World Economic Forum’s Global Future Council on International Governance, Public-Private Cooperation, and Sustainable Development. He is the author of Can Finance Save the World?
ARE YOU AN INVESTOR BEING SET UP FOR THE SLAUGHTER? / SEEKING ALPHA
Are You An Investor Being Set Up For The Slaughter?
- Many former bears seem to be urging investors to "buy the dip," and this should be viewed as a strong warning.
- My long-term target is now 2100SPX, as I see the upside as being significantly more limited relative to the downside in the SPX.

Amazingly, analysts that I have watched be consistently bearish for at least the last three years are now providing us with reasons as to why we should be buying this dip.
I think it presents the common bullish thinking today quite succinctly:
NFIB reports small business optimism shatters record set 35 years ago. S&P 500 companies are reporting record profit margins and the highest earnings growth in 7 years. The US economy shows no sign of recession and forecast is for continued growth. Forecasting a continued bull market is very reasonable assumption.Now, juxtapose that with the following quote:
...financial markets never collapse when things look bad. In fact, quite the contrary is true. Before contractions begin, macroeconomic flows always look fine. That is why the vast majority of economists always proclaim the economy to be in excellent health just before it swoons. Despite these failures, indeed despite repeating almost precisely those failures, economists have continued to pore over the same macroeconomic fundamentals for clues to the future. If the conventional macroeconomic approach is useless even in retrospect, if it cannot explain or understand an outcome when we know what it is, has it a prayer of doing so when the goal is assessing the future?This quote was taken from a paper written by Professor Hernan Cortes Douglas, former Luksic Scholar at Harvard University, former Deputy Research Administrator at the World Bank, and former Senior Economist at the IMF. The paper discusses those engaged in “fundamental” analysis for predictive purposes at market turns.
Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
Paulo Coelho

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