Back in the 1970s the joke was that rundown Glasgow was Disneyland. “Aye, because this disnae work, and that disnae work . . . ” Well, we all live in “Disnaeland” now. You voted for Brexit? You ended up with Theresa May and now three options — her deal, no deal or some other deal (involving Norway), none of which has a majority in either the Commons or the country, implying another three options: another Tory leader, another referendum or another general election.
You voted for Donald Trump? You ended up with Nancy Pelosi back in charge of the House of Representatives and Robert Mueller rounding up the suspects.
You voted for Emmanuel Macron? You ended up with the gilets jaunes smashing up the Arc de Triomphe.
You invested in stocks? It didn’t work. Bonds? It didn’t work either. Bitcoin? That really didn’t work.
As 2018 draws to a less than happy close, it’s tempting simply to conclude that nothing works. Populism doesn’t work. Centrism doesn’t either. The same applies to investing. What 2018 offered you was a hundred ways to lose money.
What turned our planet into Disnaeworld? My answer to all democratic leaders is that you really cannot win — for seven reasons.
1) You can’t do anything about demographics, and for most democracies these are terrible.
2) You have inherited welfare states that transfer resources from younger to older voters, but the latter tend to be more numerous and turn out more in elections, so you can’t reform welfare and survive.
3) Your safety valve is that you can borrow from the bond market, and interest rates are very low, but that’s now changing and you can’t do anything about it because central banks are independent.
4) Your ageing population creates a demand for foreign labour and students, but immigration is politically unpopular, even when the immigrants come from northern Europe and genuinely ease skills shortages.
5) You might just be able to overcome these problems if there were a real external threat, but the truth is that ordinary people just aren’t that scared of Vladimir Putin or Xi Jinping, much less Kim Jong-un.
6) As for climate change, ask Macron how his proposed fuel tax is going.
7) Finally, social media have made it almost impossible for you to control the narrative. You can tweet to your heart’s content, but you are firing a water pistol into an ocean of extreme views and fake news.
So politics is a doomed venture. The best-performing democratic leader at the G20 in terms of longevity and popularity was Angela Merkel (13 years, 50% approval), the worst Macron (19 months, 26% approval and falling). That is because Merkel long ago learnt that the key to popularity is always to take the line of least resistance. She’s a strategic disaster but a tactical genius.
Can investors make money in a world of abject political failure? It’s not easy, I admit, but it’s not impossible.
First, don’t make the mistake of thinking authoritarian regimes are a better financial bet than democracies. Just look at G20 countries’ stock markets. True, in dollar terms the Saudi Arabian stock market has outperformed the others this year (it’s up 9%, which goes to show that investors care a lot less about royally ordered assassinations than journalists do). Russia has also done better than America. But Turkey has been the second-worst performer (down 43%) and China the third worst (down 27%).
The key is to buy the rumour and sell the news — or rather buy ahead of the hope and sell ahead of the reality check. Nearly every new government is given the benefit of the doubt by markets unless its leader is a raving Marxist. You should just assume that most glad, confident mornings will be over within one or two years of any election.
Brazil is a good illustration. The Sao Paulo stock market has jumped 15% in the past three months, buoyed by the election of the populist firebrand Jair Bolsonaro. Investors hope (as do I) that Bolsonaro’s Chicago University-trained finance minister, Paulo Guedes, will reform pensions, simplify taxes, slash red tape and stabilise the debt. The reality check — when these hopes encounter the swamp of Brazil’s Congress — lies ahead.
Can Bolsonaro avoid the fate of Mauricio Macri, who was the darling of the markets after his 2015 election victory in Argentina and now has a 35% approval rating and a nasty recession on his hands? Maybe, but he will deserve his nickname, “Myth”, if he does. In June 2017 I speculated that populism had a half-life of about a year. The cases of Messrs Macri and Macron show the same rapid decay also afflicts political centrism.
All political lives end in failure, Enoch Powell once said. These days, it seems, failure comes long before the careers end. The least popular leader at the G20 last weekend was the outgoing Brazilian president, Michel Temer: after less than 2½ years in office, he has a 7% approval rating.
Mrs May is not the only dead politician walking. To persevere in politics today you need to be like Glenn Close in the final scenes of Fatal Attraction. You keep coming at the electorate, wild-eyed and apparently unkillable. Boris Johnson thought he had drowned you in the bath, but no.
How was it possible to make money in 2018? The answer: load up on healthcare stocks. If all you did in January was invest in that sector and sell the rest, your total return to date has been 19%. This makes sense. The most extraordinary trend of recent years has been the deterioration of life expectancy and health quality in America. The opioid epidemic is only the most shocking manifestation of this crisis. Not only is the American population ageing; it is ailing.
True, many households lack adequate insurance or savings to cover their costs in the event of serious illness. But most individuals will gladly economise on everything else if it will enable them to buy treatment and medication for themselves or a loved one. In other words, when everything else has gone belly up, you can be sure that the last dollars in the last pockets will be going to the health insurers, healthcare providers and drug companies.
It did not need to be this way. Democracies could have learnt from one another, copying and sharing the Swiss system of decentralised government, the New Zealand system of prudent public finance, Japanese healthcare, Canadian immigration, German energy efficiency and so on. Future historians will wonder why best practices did not spread in that way.
Perhaps they would have, if the brightest people in my generation had gone into politics rather than finance. Without quite meaning to, the bankers contrived to make one thing easier than it had ever been before: government borrowing. Vast global markets for government debt and interest rates at truly unprecedented lows — that was what enabled the political class to duck all difficult decisions, leaving the next generation to sort it out. Now the bankers wonder why their children are all socialists.
Well, sooner or later they’ll get the chance to vote for socialism. And then they’ll find out the true meaning of Disnaeland. Because believe me, kids: nothing disnae work quite like socialism.
Niall Ferguson is the Milbank Family senior fellow at the Hoover Institution, Stanford