The strange death of American democracy

A constitutional crisis looms as Trump tightens his grip on the Republicans ahead of 2024

Martin Wolf 

© James Ferguson

“An American ‘Caesarism’ has now become flesh.” 

I wrote this in March 2016, even before Donald Trump had become the Republican nominee for the presidency. 

Today, the transformation of the democratic republic into an autocracy has advanced. 

By 2024, it might be irreversible. 

If this does indeed happen, it will change almost everything in the world.

Nobody has outlined the danger more compellingly than Robert Kagan. 

His argument can be reduced to two main elements. 

First, the Republican party is defined not by ideology, but by its loyalty to Trump. 

Second, the amateurish “stop the steal” movement of the last election has now morphed into a well-advanced project. 

One part of this project is to remove officials who stopped Trump’s effort to reverse the results in 2020. 

But its main aim is to shift responsibility for deciding electoral outcomes to Republican-controlled legislatures.

Thus, health permitting, Trump will be the next Republican candidate. 

He will be backed by a party that is now his tool. 

Most important, in the words of David Frum, erstwhile speechwriter for George W Bush, “what the United States did not have before 2020 was a large national movement willing to justify mob violence to claim political power. 

Now it does.” 

It does so because its members believe their opponents are not “real” Americans. 

A liberal democracy cannot long endure if a major party believes defeat is illegitimate and must be rendered impossible.

Here is a political leader who has ousted anybody who opposes him from positions of influence in his party. 

He believes himself unjustly persecuted, defines reality for his followers and insists that a legitimate election is one he wins. 

A constitutional crisis looms. 

The 2024 election, warns Kagan, could bring “chaos. 

Imagine weeks of competing mass protests across multiple states as lawmakers from both parties claim victory and charge the other with unconstitutional efforts to take power.”

Assume that Trump is re-elected, legitimately or by manipulation. 

One must assume that his naive and incompetent approach to the wielding of power in his first term will not be repeated. 

He must now understand that he will need devoted loyalists, of whom there will be plenty, to run the departments responsible for justice, homeland security, internal revenue, espionage and defence. 

He will surely put officers personally loyal to himself in charge of the armed forces. 

Not least, he will get his loyal Republican party, as it will be, to confirm the people he chooses, if it holds the needed Senate majority, as is highly likely to be the case.

Equally surely, he will use the pressure that he can then exert on the wealthy and influential to bring them into line. 

Crony capitalism is among the probabilities. 

Ask the Hungarians who live in an “illiberal democracy” under a man admired by US rightwing pundits.

“Americans — and all but a handful of politicians — have refused to take this possibility seriously enough to try to prevent it”, notes Kagan. 

“As has so often been the case in other countries where fascist leaders arise, their would-be opponents are paralysed in confusion and amazement at this charismatic authoritarian.”

Just consider what happened during Trump’s intended coup against the 2020 election and how Republican legislators and supporters have since rallied round in order to prevent anybody important, above all Trump himself, from being held accountable. 

The only significant players who have been punished are those who resisted or condemned the coup. 

The Republicans have crossed their Rubicon already.

Why has this happened? 

The answer is a mix of greed, ambition and anger in a country that has grown increasingly diverse and an economy that has failed to give secure prosperity to a large proportion of the population. 

This has created a familiar coalition built on “othering” outsiders, glorifying the nation, protecting the wealthy and worshipping a great leader. 

Fifty seven per cent of Republicans consider a bad reaction to the vaccine riskier than Covid-19 itself. 

This is a measure of tribalism.

Can a collapse of liberal democracy in the US still be prevented? 


But it will not be as easy as many suppose from the failure of Trump’s attempt to overturn the outcome of the 2020 election. 

He is in full control of his party. 

Should the normal cycle of politics give the Republicans control of the House and Senate, he will be both protected and served by Congress from 2022. 

He holds, in principle, a big majority in the Supreme Court. 

Republicans also control all branches of government in 23 states, while the Democrats control only 15. 

Kagan pins his hopes on a decision by a sufficiently large number of Republican senators to pass voting rights legislation and on the refusal of the judiciary to overturn such legislation. 

Yet even those who loathe Trump remain loyal to the party. 

And, as the debt ceiling debate shows, they are determined to make Biden fail.

Suppose Trump comes back to power in 2024, determined to exact vengeance on his foes, backed by Congress and the Supreme Court. 

Yes, even this might be just an interlude. 

Trump is old: his passing might be the end of the authoritarian moment. 

But neither the electoral system nor the Republican party will go back to what it was. 

The latter is now a radical party with a reactionary agenda.

The US is the sole democratic superpower. 

Its ongoing political transformation has deep implications for liberal democracies everywhere, as well as for the world’s ability to co-operate on vital tasks, such as managing climate risks. 

In 2016, one could ignore these dangers. 

Today, one must be blind to do so.

The strange death of American democracy | Financial Times (

Covid-19 has made fighting inequality more critical than ever

The pandemic has widened the gulf between rich and poor, but by co-operating we can rebuild a more sustainable world

Ian Goldin

A nurse in Madagascar waits for healthcare workers to arrive for their first Covid-19 vaccine in May. Only 1.8 per cent of people in poor countries have received a single dose © Rijasolo/AFP/Getty

The climate emergency, Covid-19 crisis and Afghan debacle have in common the dismal failure of leading powers to work together. 

These crises have exacerbated underlying inequalities in health, nutrition, gender, ethnicity and income. 

Many of these are defined geographically. 

Rather than globalisation producing a world that is “flat” or leading to the “death of distance”, place matters more than ever. 

Global-scale crises have particularly devastating consequences for poor people. 

In Africa the crops and livelihoods of those living on the most fragile land are the first to be destroyed by climate change. 

And whereas only 1.8 per cent of people in poor countries have received a single Covid-19 vaccine dose, the vast majority of people in rich countries have. 

The pandemic is also compounding economic inequalities. 

While rich countries have found over $17tn to sustain their businesses, retain jobs and reinforce safety nets, poor countries have little capacity to do likewise. 

As a result, over 100m people have been pushed into extreme poverty and around 118m more people have faced chronic hunger, making the economic consequences of Covid-19 more deadly than the virus itself.

The failure of rich countries to live up to their commitments to assist poor countries has led to the Sustainable Development Goals and Paris commitments to contain global warming to 1.5C being derailed.

The climate, Covid and conflict crises have not only widened the gulf between rich and poor countries; they also are widening inequality within high-income countries. 

In the UK, people in the poorest 10 per cent of areas were almost four times as likely to die from Covid as those living in the wealthiest. 

A million more people are likely to swell the ranks of the unemployed when the UK government’s support for businesses is removed in the coming months.

In the rich countries, government spending might have diminished the economic pain, but after a lull caused by lockdowns, 2023 threatens to be a year of peak carbon emissions as spending on infrastructure results in soaring demand for coal, steel and cement.

Globalisation has been the source of the greatest improvement in livelihoods in the history of humanity. 

But the failure to manage it is leading to spiralling systemic risks, such as cyber attacks and financial crises. 

Rising nationalism undermines co-operation, with slower growth and recurrent crises leading to a widening of inequality. 

This fuels anger against an increasingly unfair system and deepens support for populist politicians who offer the false promise of cocooning citizens from global threats.

It was the anger and inequity of the financial crisis that laid the foundation for Brexit in Britain and Donald Trump’s victory in the US, as well as the rise of extremist politics across Europe. 

Divided societies lead to a more divided world. And a divided world is dangerous.

All may not be lost, with the forthcoming United Nations General Assembly and COP26 climate summit among the opportunities to change course. 

This requires overcoming the retreat to nationalism, starting with an effective commitment to the global distribution of vaccines and to a global green new deal.

We need to learn from the lessons of a century ago, when massive policy errors during the Roaring Twenties led to growing nationalism, widening inequality and global recriminations, culminating in the second world war. 

The determination of Winston Churchill and Franklin Roosevelt to ensure that future catastrophes would be avoided meant that in the midst of that tectonic battle a new world order was created. 

The UN, Bretton Woods institutions and Marshall Plan were designed to provide peace and economic reconstruction abroad, and the welfare state to address inequality at home. 

The result was the “golden age of capitalism”.

What is required now is not a bouncing back from the pandemic to what we had before, or a reset to the pre-Covid operating system. 

That is what led to the climate, conflict and Covid crises we face. 

Unless we reduce the growing inequalities within our countries and between them, we are heading towards a bleak future.

Change can be daunting, but it is far less scary than the alternative. 

Radical changes in government policy, in business behaviour and in our personal choices over the past 18 months demonstrate that previously unthinkable actions can be undertaken. 

This commitment now needs to inform a wider spirit of renewal if we are to overcome inequality and build the foundations of a more inclusive and sustainable world.

The writer is professor of globalisation and development at Oxford university and the author of ‘Rescue: From Global Crisis to a Better World’ 

The Economy Looks Solid. But These Are the Big Risks Ahead.

One concern is that political leaders will mismanage things in the world’s largest and second-largest economies.

By Neil Irwin

A line of container ships waited off the ports of Long Beach and Los Angeles last week. The twin ports are seeing unprecedented congestion. Credit...Mario Tama/Getty Images

The low-hanging fruit of the pandemic economic recovery has been eaten. 

As a result, the expansion is entering a new phase — with new risks.

For months, the world economy has expanded at a torrid pace, as industries that were shut down in the pandemic reopened. While that process is hardly complete — numerous industries are still functioning below their prepandemic levels — further healing appears likely to be more gradual, and in some ways more difficult.

Reopening restaurants and performance arenas is one thing. Fixing extraordinary backups in shipping networks and shortages of semiconductors, among the most vivid examples of supply shortages holding back many parts of the economy, is harder.

And a range of risks, including the hard-to-predict dynamics of Covid variants, could throw this transition to a healthy post-pandemic economy off course.

One looming risk is if political leaders mismanage things in the world’s largest and second-largest economies. 

Namely, in the United States, a standoff over raising the federal debt ceiling could bring the nation to the brink of default. 

And in China, the fallout from the property developer Evergrande’s financial problems is raising questions about the country’s debt-and-real-estate-fueled growth.

The Organization for Economic Cooperation and Development last week projected that the world economy would grow 4.5 percent in 2022, downshifting from an expected 5.7 percent expansion in 2021. 

Its forecast for the United States shows an even steeper slowdown, from 6 percent growth this year to 3.9 percent next.

Of course, a year of 3.9 percent G.D.P. growth would be nothing to scoff at — that would be much faster growth than the United States has experienced for most of the 21st century. 

But it would represent a resetting of the economy.

After the global financial crisis of 2008-9, the great challenge for the recovery was a shortfall of demand. 

Workers and productive capacity were abundant, but there was inadequate spending in the economy to put that capacity to work. 

The post-reopening stage of this recovery is the opposite image.

Now there is plenty of demand — thanks to pent-up savings, trillions of dollars in federal stimulus dollars, and rapidly rising wages — but companies report struggles to find enough workers and raw materials to meet that demand.

Dozens of container ships are backed up at Southern California ports, waiting their turn to unload products meant to fill American store shelves through the holiday season. 

Automakers have had to idle plants for want of semiconductors. 

Builders have had a hard time obtaining windows, appliances and other key products needed to complete new homes. 

And restaurants have cut back hours for lack of kitchen help.

These strains are, in effect, acting as a brake that slows the expansion. 

The question is how much, and for how long, that brake will be applied.

“The kinds of growth rates we are seeing were a bounce-back from a really severe recession, so it’s no surprise that won’t continue,” said Jennifer McKeown, head of the global economics service at Capital Economics. 

“The risk is that this becomes less about a natural cooling and more about the supply shortages that we’re seeing really starting to bite. 

That may mean that economic activity doesn’t continue to grow as we’re expecting it to, as instead there is a stalling of activity and price pressures starting to rise.”

The problem is that the supply shortages have many causes, and it is not obvious when they will all diminish. 

Spending worldwide, and especially in the United States, shifted toward physical goods over services during the pandemic, more quickly than productive capacity could adjust. 

The Delta variant and continued spread of Covid has caused restrictions on production in some countries. 

And the lagged effects of production shutdowns in 2020 are still being felt.

Then there are the risks that lurk in the background — the kinds of things that aren’t widely forecast to be a source of economic distress, but could unspool in unpredictable ways.

Debt ceiling brinkmanship in Washington is a prime example. 

Senate Republicans insist that they will not vote to increase the federal debt limit, and that Democrats will have to do so themselves — while also planning to filibuster Democratic attempts to do so.

Failure to reach some sort of agreement would risk a default on federal obligations, and could cause a financial crisis. 

For that reason, a deal in these cases has always ultimately been done — even if, as in 2011, it created a lot of uncertainty along the way.

The risk here is that both sides could be so determined to stick to their stances that a miscalculation happens, like two drivers in a game of chicken who both refuse to swerve. 

And to those who are closest to American fiscal policymaking, that looks like a meaningful risk.

“Chances of a default are still remote, and Congress will likely increase the debt ceiling. but the path to a deal is more murky than usual,” said Brian Gardner, chief Washington policy strategist at Stifel, in a research note. 

He added that the political game of chicken could spook markets in coming weeks.

And on the other side of the Pacific Ocean, the Chinese government has its own challenge, as Evergrande struggles to make payments on $300 billion worth of debt.

Real estate has played an outsize role in China’s economy for years. 

But few analysts expect the problems to spread far beyond Chinese borders. 

The Chinese banking and financial system is largely self-contained, in contrast to the deep global linkages that allowed the failure of Lehman Brothers in 2008 to trigger a global financial crisis.

“Everyone’s learned a trick or two since 2008,” said Alan Ruskin, a macro strategist at Deutsche Bank Securities. 

“What you have here is the world’s second-largest economy, and one that has lifted all boats, could be slowing more materially than people anticipated.

I think that’s the primary risk, rather than that financial interlinkages shift out on a global basis.”

All of which could make for a bumpy autumn for the world economy, but which in the most likely scenarios would lead to a solid 2022. 

If, that is, everything goes the way the forecasters expect.

Neil Irwin is a senior economics correspondent for The Upshot. He is the author of “How to Win in a Winner-Take-All-World,” a guide to navigating a career in the modern economy.  

Will Biden Make a Historic Mistake at the Fed?

The past 30 years should have taught Democrats to put their own economic policy priorities before symbolic gestures of "bipartisanship." If US President Joe Biden does not replace Federal Reserve Chair Jerome Powell with Lael Brainard, he will almost certainly regret it.

J. Bradford DeLong

BERKELEY – In 1987, Alan Greenspan was appointed by Republican President Ronald Reagan to chair the US Federal Reserve Board of Governors, succeeding Paul Volcker. 

Eight years later, President Bill Clinton, a Democrat, was impressed by Greenspan’s willingness to use monetary policy to offset his administration’s fiscal retrenchment. 

This kept growth from stalling in the 1990s, and Greenspan did it despite partisan opposition from Republicans who denounced him for too-loose monetary policy. 

In 1996, Clinton reappointed Greenspan to a third term, and then to a fourth in 2000.

But Greenspan’s nurturing of the (highly beneficial) 1990s dot-com boom turned out to be the last time he would act bravely, wisely, and in a nonpartisan fashion. 

In the 2000s, he put partisan loyalty first, endorsing Republican President George W. Bush’s 2001 and 2003 tax cuts even though he evidently considered them to be bad policy.

When Fed Governor Edward Gramlich warned that mortgages, derivatives, and mortgage derivatives demanded much closer scrutiny and regulation, Greenspan rejected this argument, insisting that it wasn’t his place to get in the way of lenders who want to lend to home buyers who want to borrow. 

Never mind that this macroprudential philosophy was in direct contradiction to the one famously articulated by his earlier predecessor, William McChesney Martin, who in 1955 explained that the Fed chair’s job is to remove the punch bowl before the party gets too raucous, even though partygoers are likely to protest.

When Greenspan retired in January 2006, he was succeeded by Ben Bernanke, a Bush appointee who impressed Democratic President Barack Obama with his willingness to work on a bipartisan basis to push the perceived limits of monetary policy in fighting the Great Recession. 

In 2009, Obama duly reappointed Bernanke, who held the line by continuing the Fed’s quantitative-easing (QE) policies despite howls of outrage from Republicans.

By 2010, Republican economists and non-economists had decided that their top priority was to ensure that Obama was a “one-term president.” 

They started demanding rapid normalization of monetary policy – which was certain to produce higher unemployment – and dismissed as a sham whatever prosperity had been created by monetary expansion.

The prosperity wasn’t a sham, but it was meager enough that the argument gained traction. 

In December 2009, the US employment-to-population ratio was 58.3%, still far below its pre-crisis level of 63.4% (in December 2006). 

Three years later, in December 2012, it was only 58.7%; and when Bernanke stepped down, in January 2014, it had not risen any higher.

Not surprisingly, Bernanke was bitterly disappointed by the anemic post-2008 recovery. 

As recently as the late 1990s, he had argued vociferously that the Bank of Japan should do whatever it takes to restore the Japanese economy to full employment. 

But things looked different to him when he left academia to become a central banker. 

Not until after his departure from the Fed did the US employment-to-population ratio start rising at the one-percentage-point annual rate needed to bring the economy within striking distance of full employment. 

It reached that level under single-term Republican President Donald Trump, who replaced Obama’s second Fed chair, Janet Yellen, with Jerome Powell.

Now, it appears that President Joe Biden, a Democrat, is poised to reappoint Powell to another four-year term. 

Why he would do such a thing is beyond me. 

Powell’s views on financial regulation and macroeconomic management are not even remotely aligned with those of the Democratic near-consensus. 

Though he has spent the past four years following interest-rate and QE policies that do accord with the prevailing Democratic view, it is important to consider the two main factors behind this.

The first reason is that the Republican Party has been split down the middle, and thus neutralized, by a bitter conflict between the hard-money kneejerk instincts of GOP worthies and the soft-money kneejerk instincts of Trump the real-estate developer, for whom money can never be too cheap. 

The second reason is that Fed Governor Lael Brainard has been extremely persuasive in arguing that the current neutral rate of interest is still below zero, and that the supply-shock-driven inflation caused by the COVID-19 pandemic should be accommodated.

The first factor is fading away. 

Without Trump in office, and without the fear that tight money will erode vote margins in the short run, Republicans are about to unite overwhelmingly behind the talking point that monetary policy needs to be substantially tightened immediately. 

Powell, being a Republican worthy, will listen and toe this line.

If you think that the standard Republican hard-money perspective is good policy at this stage in the recovery, that is your prerogative. 

But if you do not sympathize with this view, you should be staunchly against Powell’s reappointment. 

The obvious alternative is Brainard, a former academic economist and under secretary of the US Department of the Treasury who has served on the Fed Board since 2014.

To reappoint Powell, Biden and his advisers would have to offer a convincing argument against Brainard. 

Are they going to tell us that she lacks the necessary technical skills, experiences, charisma, or persuasiveness on monetary and regulatory policy? 

I certainly hope not. 

Brainard stayed the course at her post through the dark days of the Trump administration. 

For a Democratic administration that currently enjoys only the barest majority in the Senate, her appointment as Fed chair should be an easy decision.

J. Bradford DeLong is Professor of Economics at the University of California, Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

It is not just CEOs who should benefit from equity ownership

The conditions are ripe for a rethink of pay norms

Andrew Edgecliffe-Johnson

© Matt Kenyon

It was Charlie Munger, Warren Buffett’s partner in quotable business aphorisms, who once quipped: “Show me the incentive and I will show you the outcome.” 

So it is no surprise that, over the decades in which the consensus set in that a chief executive’s main job was to create value for their shareholders, boards began adding ever more stock to CEOs’ compensation packages. 

This, the refrain went, was the way to match up the interests of managers and owners.

Yet a couple of strange things have happened in the two years since the US Business Roundtable made its symbolic break with shareholder primacy.

First, the investors, with whose interests executives were supposedly so well aligned, have begun voting against CEOs’ compensation packages in ever larger numbers. 

Second, heedless of Munger’s mantra, executives’ incentives have remained overwhelmingly focused on shareholder outcomes, even as they have been busy professing what fine stakeholder capitalists they are. 

So the way companies now pay their top officers is failing to satisfy shareholders while undermining executives’ credibility as guardians of other stakeholders’ interests.

This week, a study spanning seven European countries found an 18 per cent increase this year in shareholders dissenting over pay resolution. 

In the US, too, protests over executives’ rewards have hit a record high, with once placid institutions baulking at the $230m GE gave CEO Larry Culp and the $155m Bobby Kotick took home for running Activision Blizzard. 

You don’t have to be Bernie Sanders to wonder how much empathy a CEO earning nine digits has with employees and other stakeholders barely scratching a living. 

Yet it is still startling that three-quarters of investors now think that executive pay is simply too high, as a recent London Business School survey found. 

Only 18 per cent of investors bought the familiar argument that such high pay is needed to “recruit and retain” the best executives. 

But what about the non-shareholders? 

In a controversial analysis of Business Roundtable members’ actions since signing 2019’s stakeholder pledge, two Harvard Law School academics last month found that none had yet tied directors’ compensation to stakeholders’ interests. 

That seems unlikely: other studies suggest that more than one in five US companies now includes some environmental, social or governance metrics in their incentive plans, such as goals for increasing diversity or cutting carbon emissions. 

But those stakeholder metrics which boards have adopted typically focus on annual bonuses and put little of the CEO’s total compensation at risk. 

Investors suspect that boards are simply adding complexity to already conveniently impenetrable packages. 

Meanwhile, as accounting standard setters have yet to agree common definitions for most ESG measures, there is equal concern that boards are picking pet metrics and setting targets that will be hard to miss, inflating packages further.

The conditions are ripe, then, for a rethink of compensation norms, but can incentives be redesigned to produce outcomes that satisfy both shareholders and other stakeholders? 

The answer lies in the economic logic that persuaded so many executives to espouse the stakeholder agenda in the first place: that, at least in the long term, doing the right thing by employees, customers and the environment builds value for shareholders. 

That is making investors increasingly keen to see more CEO packages take the form of simple grants of equity, held for at least five years, says Alex Edmans, one of the authors of the LBS study. 

Most environmental and social goals cannot be achieved in the time between annual bonus awards. 

Better, instead, to incorporate only the most relevant and clearly measured of them into longer-range stock awards, of which a significant portion will be at risk if the goals are missed. 

If more stock sounds a perverse prescription for a stakeholder-driven age, it need not be if boards take two further steps.

First, directors need to ask whether they can justify the potential payouts to all of their stakeholders. 

It is becoming clearer that the worst excesses of C-suite pay are damaging relations with shareholders and trust in capitalism more broadly. 

Reining them in would not only head off clashes with investors or hostile politicians seeking to impose pay caps — it might just rebuild some trust. 

Second, if boards truly believe that equity ownership is vital for focusing executives on shareholder value creation, then they should extend that logic to other employees.

As one Harvard Business School study found, businesses with widespread employee ownership “are more productive, grow faster, and are less likely to go out of business than their counterparts”. 

If anything would align the interests of investors and the staff who the majority of CEOs see as the most important of their stakeholders, it is making more employees shareholders.

Given that most CEOs are already multimillionaires, boards might even reflect on what might happen if they took a chunk of the stock reserved for executives and distributed it around people for whom even a small stock payout would be a transformative incentive.