In today’s Issue:

  • Populists now in the outright lead
  • Can the legacy parties fight back?
  • Why they’re so bad at it

I’ve been predicting the rise of right-wing populism for almost a decade now. At one point I recorded a video inside the European Parliament predicting a “populist reformation.”

In fact, I moved back to Europe in 2015 and again in 2017 because of the trend. Our unstable politics make the region so much more interesting for investors. More interesting than my adopted home of Australia.

Except that a populist right-wing party now leads in Australia too!

In each country I’m a citizen of, the right-wing populist party now leads the polls. Germany, the UK, Australia.

My current home, Japan, offers the only antidote. The Japanese one-party rule system has actually listened to its voters. The new Prime Minister, Sanae Takaichi, is cutting migration.

Right…?

Actually, the crackdown on immigration hasn’t materialised. Admittedly, there’s been no Takaichi-wave like the Boris-wave. But even in Japan, the mainstream’s attempt to quell rising right-wing populist parties is proving all tip and no iceberg.

I’m sure you can guess what happens next.

Japanese people can’t see it coming. Just as the Australians couldn’t a year ago. And the UK a year before that.

I’ve watched each country’s polls shift to the populists as sure as a chain of dominoes falling.

But now that the populists are in the lead around Europe, here’s the big question for investors…

Can the legacy parties fight back?

We don’t often get upstart political parties leading in the polls. So we don’t really know what happens next.

Is this a flash in the pan? Can a political party go from parliamentary obscurity to government? How will our electoral system function?

I don’t know. But here’s what I do know:

The legacy parties’ efforts to fight off the populists have been… pathetic.

In Australia, the Prime Minister has just announced a major tax reform. It managed to annoy pretty much everyone. Well, almost everyone.

The Prime Minister of New Zealand is reportedly delighted.

These tax changes aren’t just controversial. I’ve never seen such a full-court-press from the media and social media against a policy change.

It left everyone asking what the hell Anthony Albanese was thinking.

The Prime Minister recently admitted that the reforms are designed to combat the rise of the right-wing populist One Nation Party.

What makes that interesting is that it is utterly delusional. The policy changes have only accelerated One Nations’ rise.

And that’s the point I want to make today.

Our established political parties are utterly at a loss. Not just generally, but when it comes to dealing with right-wing populists in particular.

They’ve tried ignoring them.

They’ve tried laughing at them.

They’ve tried insulting them.

They’ve tried excluding them.

Now they’re trying to fight them on policy.

And it’s going hilariously wrong.

In Germany, the centre-right party announced fiscal reforms allowing it to spend more. The Germans bent their frugal fiscal rules out of shape to try and bribe people to stop voting Alternative fur Deutschland.

It hasn’t worked there either.

In France, President Macron turned into a patriot to try and fend off the challenge from the populists. This was funny.

The Conservatives have picked up a lot of Reform UK’s policies. But that only undermines their credibility given Labour is backing former Tory initiatives. And it’s not like the Conservatives have a history of delivering on their promises.

It seems mainstream politicians simply have no clue how to deal with right-wing populists.

Why can’t the legacy parties fight back?

Some of these political parties have existed for more than a century. Surely they know how to deal with upstarts. Why are they failing so badly now?

One possibility is credibility. Voters will only be fooled so many times. Perhaps the mainstream parties have run out of goodwill. Even if they continue to change leaders faster than a tennis match.

Inflation could explain the new level of anger. A cost-of-living crisis has an awkward history of forcing political change.

Perhaps it’s down to the impossible fiscal constraints that prevent politicians from bribing voters away from populism any longer. Politicians have run out of other people’s money.

Alexander Fraser Tytler figured this out more than two centuries ago:

A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.

He missed how we get from democracy to dictatorship: with a fiscal crisis, when voting yourself largesse stops working. That puts democracy in a paralysis, which may be what we’re in now.

Hopefully it’ll only end in the metaphorical version of a hung parliament.

To be honest, my own leading theory is quite simple. Our political and civil-servant class has become so far removed from the rest of us that they simply don’t understand why people are voting for right-wing populists.

This would explain the delusional attempts to regain vote share in bizarre ways. Anyone on the street can predict these efforts will fail. The only way politicians can get it this wrong is to be off the streets at all times.

The populists, on the other hand, are simply telling voters what they want to hear. And they’re more in tune, giving them more success.

Investors need to realise that we need to see a major shift in the behaviour of legacy parties before the momentum of right-wing populist parties ends.

It would look like the opposite to what the Labour Party is up to lately…

Until next time,

Nick Hubble
Editor, The Fleet Street Letter

PS The established parties keep trying the same tactics and getting the same result. Why? Because they’re working from assumptions that no longer match reality. Jim Rickards believes investors are making a similar error with today’s AI boom. In his latest briefing, he explains why he thinks three widely owned AI stocks could be far riskier than most people realise, and why 26 August may prove to be a critical date for investors. If you haven’t watched it yet, now is the time.