Posted by 
As Donald Trump prepares for his inauguration, the world is preparing for the beginning of the second Trump Revolution. Trump’s second term will be very different from his first, when his powers were more limited and restrained. In 2016 he did not win a majority of the popular vote.
Now things are different. He received more votes than his opponent. His cabinet supports his radical agenda. He has control of both houses of Congress and of the Supreme Court. Despite what some critics say, the situation is not the same as Germany in 1933. But it is a rightist revolution, nevertheless.
It is unprecedented for the US. Trump’s election threatens to dismantle the country’s liberal democratic institutions and lead to further global political instability. Trump will reverse policies and undo agreements to inhibit climate change.
One way or another, we are all going to be affected. The world we have occupied, and the things that many of us have taken for granted since the Allied victory over fascism in 1945, could be profoundly challenged.
The Insights section is committed to high-quality longform journalism. Our editors work with academics from many different backgrounds who are tackling a wide range of societal and scientific challenges.
How did the US come to elect a convicted felon accused of trying to overturn an election? And what does the new Trump era mean for the world economy? Is he simply just the latest manifestation of the 1980s neoliberal “greed is good” political motto? Or will his extreme nationalism and isolationism put him on a collision course with other world powers?
I have been an economist for five decades. My research in economics has also led me to consider the roots of authoritarianism, the limits of socialism and the crises of left-wing politics. Since 2019 I have also been involved with colleagues, including political scientist Gerhard Schnyder, on a research project looking into the growth of populism.
One question that’s vital to understanding the current situation is whether neoliberalism led to the rise of Trump. The difficulty is that the word neoliberalism has been stretched enormously in meaning, to cover many leading politicians, including Margaret Thatcher, Ronald Reagan, Tony Blair, Emanuel Macron, Bill Clinton, Hillary Clinton, Joe Biden and Trump himself. The leaders of the Hungarian, Yugoslavian, and Chinese Communist parties, who introduced more markets into their planned economies (after 1956, in the 1950s and 1980s respectively), have all been described by prominent academics as neoliberal. Seemingly, anyone who supports some markets is neoliberal.
Since the late 1970s, I have supported a mixed economy with a private sector and markets, alongside public regulation, strategic planning and a strong welfare state. Some of the prominent critiques of neoliberalism seem to reject a mixed economy. Yet mixed economies with strong welfare states are among the best performing systems in the world.
Trump’s economic protectionism contrasts with the free trade rhetoric of Reagan and Thatcher, which was inspired by influential Chicago economists such as Milton Friedman and Friedrich Hayek. Instead of using an overstretched term, we should identify more specific forces and events. Here, the rise of Chicago style economics, and the election of Thatcher in 1979 and Reagan in 1980 are highly relevant.
Read more: Three possible futures for the global economy if Trump brings in new trade tariffs
Hayek and Friedman revived a 19th century strand of liberalism that promoted free markets with minimal government regulation, and a reduction of the size of the state. Although their analyses differ in some important respects, they both underestimated the vital role of the state in sustaining a modern market economy.
In increasingly complex economies, more state regulation is required to make market competition work. Even from a business point of view, increasing state intervention is needed to educate and train the workforce and to reduce absences due to ill health. To serve human welfare, as well as business interests, the majority of 20th century liberals became promoters of a welfare state.
But by the late 1950s, as a curious anomaly, the Chicago school of economists had abandoned the free market policy of opposition to oligopolies and monopolies. With this major concession to the large corporations, Chicago economics inspired Thatcher, Reagan and other leading politicians around the world.
From 1980 onwards, their policies led to reductions in taxes for the rich and rising inequalities of wealth and income, as French economist Thomas Piketty and others have demonstrated. Trade union power was reduced and real wage levels began to stagnate. As Piketty has shown, more wealth and power was passed to the rich.
Globalisation created some economic insecurity. Manufacturing jobs moved to China and other countries where labour was cheaper, as deindustrialisation accelerated in the developed west. Where there was inadequate retraining in alternative skills – as in the US and the UK – the traditional working class lost out.
Corporate power started to become increasingly concentrated. And, contrary to Chicago aspirations, during the 1980s, and after, in the US and UK, there was no significant reduction in the overall burden of taxation or in the size of the state. But the rich and the large corporations have prospered. Huge companies like Amazon, Google and Walmart (founded in 1994, 1998 and 1962 respectively) now dominate the global corporate landscape.
Using some core ideas in mainstream economics, intellectual developments since the 1980s have led to an enhanced celebration of greed and self-interest over the virtues of public service and care for others. Notions of duty or public service have become unfashionable. They are excluded from many economic models, where it is typically assumed that everyone maximises their own satisfaction or utility.
Rising inequality and threats to democracy
Like all revolutionaries, Trump did not come from nowhere. The Chicago economists had promoted the virtues of private property over the survival of representative democracy. They saw the latter as a virtue, but property mattered much more. In fact, the evidence suggests that both are vital. Consider the (nominal) GDP per capita of the top 30 economies in the world, excepting smaller countries such as Hong Kong, Iceland, Luxembourg, Macau, Qatar, San Marino and Singapore. All 30 are currently democracies, except the oil-rich United Arab Emirates. All are capitalist mixed economies, but with welfare states of various sizes.
The best performers are Ireland, Switzerland, Norway, Denmark, the Netherlands, Sweden, and the US. In seven of these countries in the full list, the welfare state is much stronger than in the US. By several criteria, social democratic welfare capitalisms, with larger public sectors and higher levels of taxation, have performed better than Anglo-American capitalism.
For prosperity, the existence of a private sector is important, but so too is democracy. Representative democracy can counter any slide toward dictatorship, help protect human rights and encourage pluralism and tolerance. There is also evidence that democracy reduces the chances of war and famine, and that it helps to put pressure on governments to deal with pollution and other environmental problems.
The proportion of the global population living in liberal democracies increased markedly in the second half of the 20th century. I am a member of the babyboom generation, born just after the end of the second world war. This generation has witnessed the forward march of democracy. In the 1970s, dictatorships fell in places like Greece, Portugal and Spain.
The 1980s and 1990s saw another surge of democratisation, with new democracies emerging in Latin America. The fall of the Berlin Wall in 1989 and the end of the cold war brought democracy to much of central and eastern Europe. But since the beginning of the 21st century, liberal democracy has been in retreat. It is now threatened in one of its first and most important homelands.
A world ripe for populism
Under Reagan and his Republican successors, the US Republican party was transformed from a pragmatic political organisation, which was capable of compromise and reaching some consensus with its opponents, to a party with an uncompromising ideology in favour of the rich.
Both Reagan and Thatcher ensured that political developments in favour of the rich were not reversed. Research shows that economic inequality can lead to a greater inequality of political power. In other words, politics reverts to an elite activity, by those and for those with money and influence.
Inequality of power leads to further economic inequality – a circular and cumulative process. It can lead to politicians being seen as out of touch with ordinary people.
In the US, the issue is compounded by how the parties are funded. The Citizens United organisation, for example, was founded in 1988 in the US to promote a deeply conservative agenda. In 2010 it won a case in the Supreme Court that ended restrictions on corporate spending in federal election campaigns. Since 2010 Citizens United has supported Trump.
The information ecosystem
Years before the political rise of Trump, the information ecosystem had already been undermined by monopoly ownership of big media, and the rise of social media as a home for conspiracy theories, misinformation, and attacks on experts.
In the past, most news and information was filtered and guided by specialists, working in accredited institutions. Science itself is an institutionalised system to screen and authenticate knowledge. Such a system is always imperfect. The new digital technologies of the 1990s raised hopes of open information systems, free and unfiltered.
But mass and social media have undermined these established mechanisms of accreditation and led to different outcomes. Even more seriously, big money and powerful political influencers have learned to manipulate the information ecosystem to their own advantage, with some experts saying this is an “industrial scale” problem.
As Walter Lippmann showed in his classic 1922 book, Public Opinion, information overload can often prompt people to adopt “cultural stereotypes” rather than evidence-based opinions. Today we now know much more about how people can select and interpret information in biased ways. For example, there is “confirmation bias”, where people seek information that confirms a belief and ignore contradictory evidence. Biases like this are profuse in echo chambers like X (formerly Twitter) and Facebook where algorithms insure users are largely exposed to information that confirms their preexisting beliefs.
There is also the “framing effect”, where the same evidence presented in different ways can lead to different responses. For example, people might react differently to a statement about a success rate (“This procedure has a 70% success rate”) compared to a failure rate (“This procedure has a 30% failure rate”), even though the information conveyed is identical.
The information explosion led by 24-hour news, smart phones and social media has greatly exacerbated these problems. These major limitations present difficulties in a democracy.
Read more: The dynamics that polarise us on social media are about to get worse
Repeated politico-economic shocks
In recent years, the problems of dealing with information overload have become much worse. When people lose trust in experts, then they often turn to populists, who provide easy answers instead of addressing real underlying problems. We have seen this in recent years with right-wing populist governments and representatives being elected across Europe.
In the UK, right-wing politics is grappling with an ideological transformation in many ways similar to that the US Republican party has undergone. Nigel Farage’s populist party, Reform UK, has surged to 25% in the polls. And the traditional centre-right Conservatives are debating to what degree it should adopt Reform’s approach, with some arguing for an electoral pact with Farage.
But we’ve already seen the Conservatives deploy many tactics used by Trump during the last 14 years of their time in government. Condemn experts. Promote simple solutions to complex problems. Endorse prejudice. Claim to represent the will of the people. The world has become ripe for such populism.
At the same time, globalisation continues to undermine job security, particularly in manufacturing, in the US and other western economies. Real wage growth has stagnated in the US for decades. There have been significant increases in US real wages since 2019, but not enough to restore confidence in government economic policies.
Confidence in government was also undermined by the Iraq invasion in 2003, led by then George W. Bush and Tony Blair, following false information that Saddam Hussein had weapons of mass destruction. When no such weapons were found, trust in establishment politicians was severely damaged. Hundreds of thousands of people died in the war and subsequent instability in Iraq.
The 2008 financial crash and subsequent austerity measures led to widespread political discontent and stimulated various forms of populism. Capitalism had suffered its biggest financial crisis since the 1930s. Banks had to be bailed out and governments had to rescue financial markets. In the US, 8 million jobs were lost in two years. World trade dropped by 20%.
Markets eventually recovered, but the crash brought suffering to millions. In November 2008, Queen Elizabeth II asked a UK group of economists why they did not see the crash coming. Adequate answers were not forthcoming. All this added to a growing mistrust of politicians and scientific experts.
There is some evidence that these trends were exacerbated by the COVID-19 pandemic. Inundated with misinformation on social media, large swathes of the population lost faith in the current political and economic system. Information abundance led not to enlightenment, but to a mistrust of experts, the blaming of other groups, and to a resurgence of racism and nationalism.
Trump built on these economic and political developments. He successfully courted the new billionaire elite and the owners of mass media. For many, it did not matter that President Biden’s policies had grown the US economy and greatly reduced unemployment. Many focused instead on the surge in prices, which was partly due to COVID-19 and the Ukraine war.
The rightist populist mindset was not dented by this economic success. Anti-immigration rhetoric won out. Trump made much use of the anti-immigrant card, referring to them as “stone-cold killers”, “monsters” and “vile animals”.
Historian and complexity scientist, Peter Turchin and his team have collected data on long-term political cycles, which reveal patterns and processes of decay that undermine the viability of states. They examine how and why past societies collapsed.
Writing for The Conversation last year, Daniel Hoyer, who works alongside Turchin, said that one of the most common patterns that in the historical record was how extreme inequality shows up in nearly every case of major crisis. “When big gaps exist between the haves and have-nots, not just in material wealth but also access to positions of power, this breeds frustration, dissent and turmoil.”
“Ages of discord”, as Turchin dubbed periods of great social unrest and violence, produce some of history’s most devastating events, including the US civil war of the 1860s, the early 20th-century Russian Revolution and the Taiping rebellion against the Chinese Qing dynasty, often said to be the deadliest civil war in history.
Hoyer writes: “All of these cases saw people become frustrated at extreme wealth inequality, along with lack of inclusion in the political process. Frustration bred anger, and eventually erupted into fighting that killed millions and affected many more.”
Turchin calls this “elite overproduction”, where aspiring groups try to gain shares of concentrated wealth and power. Discontent increases, with battles between existing and new elites, vying for power. Some elites gain control of parts of the media, undermining public trust. Norms of public discourse and behaviour are undermined. States fracture internally and key public institutions decline.
Trust in government
Trump has achieved power in a country that records a low level of trust in government. This mistrust was fertile ground for misinformation and the abuse of social media in Trump’s election campaign. Although distrust in government is not the only causal factor, it is useful to look at levels of trust in other democracies for comparison.
The Organisation for Economic Cooperation and Development has researched trust levels in 50 governments over 2019-23, which covers the years of the COVID-19 pandemic. The countries with the highest trust levels, expressed in percentage scores, are shown in the chart below:
They all have trust levels of 60% or above. Nine of these ten countries are in Europe. Four of them are Nordic states. All of them elect their governments by some system of proportional representation, including Ireland that uses a single transferable vote system.
Now consider the levels of trust in government in three other highly developed democracies: France has 43%, the UK 40%, and the US 31%.
Perhaps it is no coincidence that the ten countries with the highest trust in government have systems of proportional representation. By contrast, France, the UK and the US, which have much lower levels of trust in government, do not have proportional representation. France and the US are also systems where the elected presidents have substantial executive powers.
In UK constituencies the first-past-the-post electoral system creates a flip-flopping process of alternate periods of Tory and Labour government.
In France the presidential system has created movements from the right to the left and back. Although Emmanuel Macron is another centre ground politician, his main challenge in recent presidential electoral contests has been from the far right.
In the US, two parties – Democrats and Republicans – have been the only viable choices, not only for president, but for two houses of Congress, for more than a century. Since the 1960s, the system has become more polarised. Because of voting logjams in Congress, presidents have used executive orders and other powers to get things done.
Proportional systems also mean that coalitions are more likely. Coalitions do not please everyone, but they can reduce shifts to the extremes and encourage the search for consensus positions.
But research by political scientists on the effects of proportional representation versus other systems is in some respects inconclusive. And recent elections in places like Sweden, Austria and Germany show this system can help populist parties into power and prominence. So there is no perfect electoral solution, and there never has been.
How then can populist politics be countered? The control of the media by a few super-rich moguls must certainly been seen as factor, and legislation assuring greater competition should be prioritised if we are to have well-balanced democracies.
And without restricting free expression, there must be measures to counteract fake news – fact-checkers are needed now more than ever.
Economic and political reasons for popular discontent must be tackled. Governments cannot continue to duck the problem of extreme inequalities of wealth and power. Tighter legislative controls on large corporations would encode their responsibilities to people and to the planet.
Schools also need to prepare young people for their duties as citizens, to educate them in the dangers of dictatorship, and in the need to defend a vibrant, pluralist system of representative democracy, where we have duties to others and not simply to ourselves.
What next?
So what will the next four years bring? As it was in his first term as president, Trump’s focus will be maintaining his grip on power and lucratively serving himself and the billionaire elite around him. He has already indicated plans to cut welfare programmes including Medicaid, and has said that he will abandon policies to deal with the climate crisis, which will accelerate global warming.
Trump has also announced that he will reduce the size of the federal state and has tasked Elon Musk with identifying areas to slash, promising mass job cuts. Unlike his first presidency in 2017-21, he is now facing less constraints on doing this.
Trump is no economic liberal. His reckless tariff policy reflects this. He has threatened large tariffs of between 10% and 100% on Canadian, Mexican and Chinese imports into the US. These will be imposed by his government as taxes on imports. Companies will react by raising their prices, thus raising inflation in the US. He does not believe in free trade. Neither does he appreciate the potential inflationary and other adverse economic consequences of high tariffs and a global trade war.
Talking of war, Trump has suggested that he will wind down or terminate support for Ukraine. He would placate Russia, unwary of the consequences of appeasing dictators. This raises the question of by how much is he being influenced by the Russians. The situation in the Middle East also remains volatile. There is no guarantee that Trump, having made several reckless foreign policy statements regarding Canada, Greenland, Panama and elsewhere, will be able to provide diplomatic solutions.
Trump’s plan to round up and deport millions of illegal immigrants will lead to further discord within the US itself. The US is already a deeply fractured country. These policies will greatly exacerbate internal divisions. Some US states will resist Trump by providing safe havens for immigrants.
Despite the promise of so much turmoil, so far, the stock markets have not reacted adversely. In the short term, it is possible that tax cuts for billionaires and some other Trump measures will stimulate the financial markets. But this is unlikely to last long. Cuts in the federal government could create havoc. Internal battles could undermine political and economic confidence. A global trade war would contract the global economy, leaving the US adversely affected.
The rich may gain a lot, at least for a while, and until the adverse consequences develop in magnitude. But the poor and disadvantaged will suffer. Their plight will be blamed on immigrants and the resistance within the federal and state machines. The economic and political failings will be used to justify greater authoritarianism, including limitations on free speech. We live in very dangerous times.
For you: more from our Insights series:
To hear about new Insights articles, join the hundreds of thousands of people who value The Conversation’s evidence-based news. Subscribe to our newsletter.
Geoffrey Hodgson's research has received some funding from a NORFACE Network (EU) grant on ‘The Political Economy of “Democratic Backsliding” in the Eastern EU’. He is a member of the Liberal Democrats.
