Will There be Hyperinflation or Deflation?

Kiril Sokoloff interviews Dr. Lacy Hunt of Hoisington Investment Management, the world’s greatest monetary economist and expert on bonds, on the most important issues of the day. Dr. Hunt explains in very lucid language why many of today’s beliefs about the global economy are incorrect: The Fed is not printing money now. QE1, QE2 and QE3 were also not printing money. The current massive U.S. fiscal programs will not stimulate the economy, only accelerate its long-term downward-growth trajectory. The productivity of debt has fallen sharply, and with it, the velocity of money. The best that can be expected from global growth post-COVID is 1% in real per-capita terms. Having reached the zero bound, current monetary policy may be counterproductive. The U.S. has no net national savings and is dissaving for the first time since the 1930s. This means there will not be capital to invest. Based on an examination of 24 over-indebted economies between 1900 and 2008, the over-indebtedness was solved through austerity. The Fed has the power to lend. It does not have the power to spend. However, if the Federal Reserve Act is changed to give the Fed the power to spend, it would result in hyperinflation. The early warning signs are there. The Bank of England may have crossed the Rubicon by giving £500 billion to the UK government to pay its bills. Filmed May 18, 2020.

KIRIL SOKOLOFF: Well, coming back to David Hume’s famous paper, and you’ve referred to me a number of times. His conclusion was that governments should essentially run surpluses because there’s always a crisis or problematic. If you look at corporations coming into this with the worst balance sheets in history, with profits having been flat since 2012, 40% of Americans barely able to get $500 in an emergency, it seems to me that as we come out of this, one of the implications is going to be we need to be better prepared for the future. Do you think that that’s the way we’re going to go, that we will be, look, we got a real wakeup call here, we need to have money for a rainy day?

00:54:11

LACY HUNT: I think that’s the case for the private sector, but I don’t feel that that’s the case for the government sector. Remember, net national saving has the private sector and the private sector saving was fine. 8.50%, not bad. The problem was that we had a 6.50% government dissaving and so we only ended up with two. The real problem is that you have to have a net saving from the private, the government, the net foreign sector, and if the government, even though maybe well-intended, maybe the actions are very popular.

00:54:53

All of these measures that were taken to deal with the pandemic, they were very popular. The measures– and they were essential. They were humane, they had to be done. It would have been far better if we’ve been following Hume’s advice, which is you run surpluses so when you have an emergency, you have– and by the way, Adam Smith in the Wealth of Nations followed Hume, made the same recommendation. Of course, no one remembers that anymore. No one reads Hume and Smith.

00:55:27

KIRIL SOKOLOFF: To get to a positive net national savings, presumably that’s– I’m not saying it’s a governmental objective, but it should be a national objective in some form based on your point that in order to have money to invest, you’ve got to be able to save out of income. If government is going to keep on running deficits, at pick the number, 15 plus percent GDP, in order to have a positive net savings rate, that implies very significant private savings rate.

00:56:09

LACY HUNT: Unachievable, and let’s say that we bring back a lot of our operations, in other words. If that happens, then the current account deficit will start to shrink, but the current account deficit is always the opposite of the capital account. When you have a current account deficit, you have a capital account surplus, but the capital account surplus is net foreign saving. This is one of the problems. If you repatriate businesses, and you shrink the current account deficit, then you’re going to shrink net foreign saving. It’s quite possible that we will have two of saving movements. One for the increased level of government dissaving and also less positive foreign saving. We import a lot of saving from the rest of the world.

00:57:13

KIRIL SOKOLOFF: Given the output cap, not having the savings to invest, is that better than it might otherwise have been? Because we got five, six, seven years to fill that output gap, or is the transformative event that is the easiest way out, if that’s the right word. Is that dependent on having the capital and savings to invest? Does that mean that in order to have that transformative, new economy, we’re going to have to have a net national savings? Am I taking that–

00:57:54

LACY HUNT: The thing about those transformative events is that they often create a surge in income, and thus in saving that they finance themselves, but that’s why I use the term transformative. It cannot be evolutionary. Let’s think about the situation that we were in the late 1920s, early 1930s. We take on a great deal of debt in the ’20s and ’30s. We struggle throughout the 1930s. When Germany invades Poland, we still have an unemployment rate of 17% or 18%. We’ve come off the peak levels, but we still have a very high unemployment rate and we have a substantial number of people underemployed.

00:58:42

In other words, we really made very little progress to turning the economy. We stabilized things, and we ended the worst aspects of the Great Depression. Then World War II comes along. A lot of folks including the great JM Keynes believe that it was the deficit spending of World War II that shored the problems of the Great Depression. That’s not my reading. It is true that on a national income accounts basis, we ran deficits of 14%, 15% which is what we’re now running again by my calculation, national product account basis.

00:59:32

However, we had two other events that occurred simultaneously. Number one, 

  1. we had a surge in our exports, and 
  2. we had mandatory rationing. 

If you wanted to buy 10 pounds of sugar, you couldn’t. You could buy one maybe, you had a ration, and so people were paid to produce exports and to produce military goods. The private saving rate went up to 25% of net national income. We were able to cover the federal budget dissaving and we paid off the debts of the 1920s and 1930s. When World War II ended, Keynes suggested if we didn’t continue running the budget deficits of World War II, we would go back into the Great Depression, but that didn’t happen.

01:00:27

The budget was basically balanced all the way through and to the early 1960s. We ran small deficits, but we ran small surpluses on balance. It was close to balance. We opened up our export market, we opened up markets to the US, we financed the reconstruction in Europe and Japan, we had a tremendous resurgence. If you look at McKinsey’s 24 cases of overindebted economies and how they got out of it by austerity, one of their cases is the US during World War II. They labeled it a fortuitous circumstance. We didn’t go into World War II to get rid of the debt problem of the 1920s and ’30s.

01:01:14

It was something that happened as a result of the policy mixes but the folks in America were okay with the austerity because it was a great national endeavor. I don’t think that they would be willing to do that today. Everyone is relying on more government activity to solve the problem, not realizing that that’s the source of our deteriorating rate of economic performance.

01:01:44

KIRIL SOKOLOFF: Well, on that note, it’s been a really instructive ending [?].

Paul Krugman: Idea that Climate Change Requires Austere Back-to-Nature Lifestyle

60:42
thank you what is the most persistent
60:45
zombie idea on the left and is there one
60:47
is there an idea to what you have
60:50
subscribed in the past which you now
60:51
kind of put into that category oh boy I
60:55
mean the trend the left is not nearly as
60:58
good at maintaining zombie ideas partly
61:03
because there there are in fact not that
61:07
many leftist billionaires and and
61:09
billionaires there are some but not very
61:12
leftist and so I mean well let me put
61:20
this way we were talking about climate
61:22
and environment and and climate change
61:25
and economic growth I’m running to a lot
61:27
of people still who are now this is
61:30
telling you that there I don’t think
61:31
there are a large part of the electorate
61:33
but there are
61:34
but the circles I move in I run into
61:36
people who are sure that to fight
61:39
climate change we have to stop living
61:41
the way we’re living and a much more
61:43
austere back-to-nature lifestyle is the
61:47
only way to deal with climate and that’s
61:49
an idea that it’s just clearly wrong if
61:53
we actually asked by we know enough
61:55
about the technological and economic
61:57
solution to climate change that ASUS a
62:00
green society that does not burden the
62:02
planet would almost certainly be a
62:04
society that looks a whole lot like what
62:06
we have now in people with the driving
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cars they’d be using electricity but the
62:10
cars with the electric and the
62:12
electricity would be generated by solar
62:13
and wind and it but the actual rhythm of
62:16
daily life could look very much like
62:18
what we we have we don’t have to go back
62:20
to to an agrarian pastoral Eden to to to
62:25
deal with the issue but it’s it’s
62:26
something that sounds again it sounds
62:29
serious from a different point of view
62:30
it sounds like if you’re serious about
62:31
climate change you must be serious and
62:34
believing that we have to give up on
62:35
this consumer oriented society and and
62:38
all of these these comforts that we take
62:40
for granted but in fact it’s not true so
62:43
that would here that would be an example
62:44
of a kind of a left-wing zombie in other
62:46
countries in the belief that you can
62:49
just dictate all prices and you know you
62:53
can put price controls on everything and
62:54
not and never face shortages that’s not
62:58
something we see in the US but they
62:59
Venezuela clearly there’s some refusal
63:02
to face reality going on but that would
63:05
be these house but again zombies mostly
63:08
flourished because their big money
63:10
behind them not all of them but mostly
63:12
and and and the no.4 for every George
63:17
Soros there are 50 quiet billionaires
63:21
supporting extremely reactionary causes
63:23
and what about the question the question
63:25
of an idea you’ve changed your mind oh
63:27
so most of my changes have been in the
63:33
in the other direction look at minimum
63:36
wages no no a piece of economic research
63:41
has has shaken my views as much
63:46
actually I’m gonna give you two and and
63:50
me at this this is a great risk of
63:52
turning into a Monty Python routine
63:54
amongst the issues three okay so
64:00
actually so I’ll give you two one
64:01
minimum wages up until sometime in the
64:05
mid 1990s I believe that clearly
64:09
increases in minimum wages would cost
64:11
jobs they might be desirable otherwise
64:13
but econ 101 said that that’s what
64:15
happened and then we got this amazing
64:17
body of empirical research because we
64:19
get in the United States we get a lot of
64:21
natural experiments when one state
64:22
raises its minimum wage and the
64:24
neighboring state does not and the
64:26
overwhelming evidence says that minimum
64:28
wage increases at least within the range
64:30
we see in the US do not cost jobs and
64:33
that changed my view has said labor
64:34
markets are very different from where I
64:35
thought it actually moved me towards
64:38
emphasizing the role of power and in
64:40
labor relations and so on another one I
64:43
used to think that it was always
64:44
possible just by printing money to get
64:47
full employment and and the experience
64:50
of Japan in the late 1990s when despite
64:54
a very easy monetary policy they slid
64:56
into deflation changed my views totally
65:00
I there was a there was a group of us
65:03
actually of when I when I arrived at
65:05
Princeton in 2000 was a bunch of Japan
65:07
warriors who were really very shaken by
65:10
the Japanese experience because we we
65:12
looked at it said you know this could
65:13
happen to us so with me people you
65:16
wouldn’t have heard of but very
65:17
influential in the professional arts
65:18
Vince and Mike Woodford and the fourth
65:21
was Bernanke Ben Bernanke don’t know
65:24
what happened to him he disappeared I
65:26
think yeah so we so that but no the the
65:31
Japanese Japan’s Lost Decade
65:33
changed my view and basically made me
65:36
much more Keynesian much more believer
65:38
that there are times when you really
65:40
need to have the government do the
65:41
spending yes how do you successfully
65:45
regulate the financial markets while not
65:50
scaring the business community in sort
65:53
of trying to
65:55
in the middle of a class that any form
65:58
of common sense reform or tax is not
66:01
Marxist Leninist and it’s not going to
66:03
take away all their assets and money
66:05
okay you know we’ve done this before
66:10
right we imposed extensive bank
66:14
regulation in the 30s which didn’t
66:17
obviously cripple the economy we the
66:19
post-war generation was was the best
66:22
generation in in in certainly in US
66:24
economic history the the the only I
66:29
would say the problem is not scaring
66:31
people not looking Marxist the problem
66:33
with regulating financial markets is
66:35
first of all they’re the financiers have
66:39
a lot of clout but but beyond that it is
66:45
hard to keep up with financial
66:49
innovation which very often is not
66:53
innovating in the sense of you know
66:55
doing things better but as is innovating
66:58
a way of finding ways to set things up
67:01
that evade the regulations so you
67:04
regulate banks and then people create
67:06
something that is functionally a bank
67:07
but doesn’t technically meet the
67:09
definition of a bank and evades the
67:11
regulations it’s hard to keep up with
67:13
that and and if it’s not a well solved
67:16
problem in the we had a significant
67:21
financial reform in the US under Obama
67:24
not everything you I would have wanted
67:26
but it was significant but on many of
67:29
the issues it depends upon this
67:31
Financial Stability Council which has to
67:34
define systemic lis important
67:37
institutions that they’re mean and
67:40
there’s no clear definition it’s kind of
67:43
like pornography you know when you see
67:44
it which is not a stupid way to do it
67:47
but it depends upon having honest people
67:51
of goodwill in charge and now we have
67:55
the Trump administration so so the
67:58
dodd-frank is not a very effective tool
68:00
and it always depended upon upon good
68:04
leadership and
68:06
we have not found I haven’t come up with
68:08
a way to the thing about doing a regular
68:10
old-fashioned commercial banks is that
68:15
that system works the regulations work
68:18
the the guarantees work without
68:21
requiring that there be smart leadership
68:23
or good judgment calls at the top and
68:25
unfortunately everything we try to do to
68:27
deal with more modern financial
68:29
institutions is requires both goodwill
68:34
and sophistication which are both the
68:36
now and very short supply question from
68:39
the balcony please thanks very much so
68:41
we’ve mostly discussed zombi ideas in
68:43
the kind of domestic policy context i
68:45
wanted to ask about zombie ideas in the
68:47
international context in the sense of
68:50
the Washington Consensus and trade
68:51
liberalization and specifically I want
68:54
to ask what your thoughts are on the
68:56
extent to which countries can still
68:58
develop by exporting I has the impact of
69:02
technology and the scale of China made
69:06
it essentially impossible for a trade
69:07
liberalization to facilitate development
69:10
okay that’s a good question
69:13
I think empirically it’s just the
69:16
premise is wrong so we all know about
69:19
China and we know that China occupies
69:21
this huge space and China is a unique
69:25
success story nobody else has matched
69:27
their rates of growth but it’s not the
69:31
only success story so when I took I like
69:34
to talk about the the unfamiliar cases
69:39
Bangladesh Bangladesh is a desperately
69:43
poor country and and compared with
69:46
working conditions and in in the first
69:49
world it’s it’s is horrible and they
69:51
have factories that collapse and kill
69:53
hundreds of workers and all of that but
69:56
Bangladesh is actually they’ve they’ve
69:59
tripled their per capita income and
70:03
there there are very poor country but
70:06
they were a country that was right on
70:07
the edge of Malthusian starvation and
70:11
it’s all because of the ability to
70:13
export if the the ability basically
70:17
clothing labor-intensive
70:19
that they’ve been steadily gaining
70:21
market share at China’s expense because
70:23
China has been moving upscale and that’s
70:26
that’s showing that you can get yeah
70:28
that’s that’s major development that’s a
70:29
major change it’s it’s not it’s a long
70:32
way from from turning into into Western
70:35
Europe but it’s it’s it’s a very big
70:37
deal and it’s showing that the
70:39
globalization can still work for for
70:41
poor countries so I that’s that’s what
70:45
the line Bangladesh is not a it’s not a
70:48
banana republic it’s a pajama republic
70:51
but but that you know they can make fun
70:54
of it but in fact their use that’s a
70:56
very large number of people who are
70:57
lifted at least some ways above
71:00
starvation level by globalization and
71:03
another question from the balcony please
71:06
looking at it as a economist with a
71:08
mathematical mind what impact do you
71:11
think a shift a proportional
71:12
representation would have over time as
71:15
you compared to the electoral colleges
71:18
and first-past-the-post which we have in
71:19
the UK other British Commonwealth
71:22
countries which tend to over time have
71:24
led to two party states so what if we
71:26
shifted the proportional representation
71:28
okay I mean firstly the u.s. the the
71:33
u.s. electoral college system is
71:35
monstrosity that’s a that’s not about
71:38
first-past-the-post it’s about a system
71:40
that at the presidential level gives
71:42
disproportionate representation to to
71:45
some states with small populations and
71:48
at even more important we have the
71:50
Senate which where half the Senators are
71:53
elected by 16 percent of the population
71:55
so this is a that that’s crazy
71:58
that’s a deeply basically we’ve we’ve
72:00
evolved into a rotten borough system for
72:03
half of the US government and that’s
72:05
that’s a clear monstrosity as for the
72:08
rest I mean I don’t know I mean this is
72:13
not I’m not a political scientist I talk
72:16
to political scientists which by the way
72:18
is rare for economists we actually talk
72:20
I actually talk to these goods to other
72:21
social sciences and take them seriously
72:24
and but what I would say is that the the
72:29
there are places with proportional
72:31
representation
72:32
that also managed to be very
72:34
dysfunctional so you know Israel I
72:38
believe has proportional representation
72:39
and I would not say that Israeli
72:44
politics these past 15 years have been a
72:47
model of good ideas and wisdom
72:50
prevailing in fact they I mean every
72:52
system has its problems and one of the
72:54
problems with proportional
72:55
representation is it sometimes causes
72:57
small factional parties with with very
73:01
antisocial goals to to be kingmakers so
73:06
that’s not an easy solution either I
73:08
don’t really know what the answer is
73:10
except to say that that you know people
73:13
people are both generally clever and
73:19
often nasty and they can find a way to
73:21
screw up any system question trip down
73:24
here hi
73:25
you said earlier that the American
73:26
economy is in a pretty strong position
73:28
so I was wondering how much he thought
73:30
Trump could legitimately claim
73:32
responsibility for that and then
73:33
alongside that what are the strong II
73:35
cannot strongest economic arguments to
73:37
voters for voting against him okay the
73:41
reason that we’re in a relatively strong
73:43
economic position is that it’s basically
73:47
deficit spending after years and years
73:49
of saying no debt this is an existential
73:52
threat then we must have austerity which
73:54
really hobbled the US recovery under
73:58
Obama as soon as Trump was in office for
74:00
Republicans said oh we don’t care about
74:02
that I mean the last two State of the
74:04
Union speeches have not so much as
74:06
mentioned the deficit and that even
74:09
though it’s badly done it does give a
74:13
boost to demand so I guess you could say
74:16
the Trump has gets some credit in the
74:19
sense that by getting elected he caused
74:22
congressional Republicans to stop
74:24
sabotaging the economy that’s not a you
74:27
know vote Republican and and and and the
74:29
and the economy won’t be undermined by
74:31
by our sabotage efforts so that’s not a
74:34
great electoral slogan but it might win
74:36
in the election I have to say and I lost
74:40
the room what the rest of that was but
74:42
the
74:44
was one of the strong strongest economic
74:46
arguments to voters to vote against him
74:48
oh the thing about Trump is that he’s
74:50
managed to preside over a economy that
74:55
by sort of aggregate measures
74:58
unemployment rate is low GDP growth has
75:02
been pretty good not spectacular but
75:04
pretty good but which is is showing
75:08
increased hardship for many people
75:11
despite that I mean we were making huge
75:13
progress in reducing the number of
75:15
people without health insurance that has
75:17
now gone into reverse the number of
75:19
people who say that their that they are
75:23
that they are postponing or not
75:27
undertaking necessary medical treatment
75:29
because of expense has skyrocketed
75:32
and the America like the UK there’s
75:38
tremendous regional divergence we have a
75:43
large part of the large parts of the the
75:47
heartland which are in severe economic
75:50
decline as social collapse and that has
75:53
just accelerated you know despite the
75:55
low overall unemployment rate the state
75:58
of affairs in Eastern Kentucky is
76:01
terrible and life expectancy I guess it
76:06
rose slightly this past year but you
76:07
know mortality rates are rising and it’s
76:11
as in case an Angus Deaton say deaths of
76:14
despair people dying from from opioids
76:19
alcohol and suicide have been rising
76:22
despite the strong economy so this is
76:25
actually that earlier question about GDP
76:27
you know the GDP growth not saying that
76:31
the that it’s false but under under the
76:34
surface of that good GDP growth is
76:36
actually a substantial increase in
76:38
misery just a one final question from
76:43
thanks bull great to see you here my
76:48
question is about the u.s. minimum wage
76:50
obviously it’s very very low compared
76:53
it should be you know from visiting the
76:55
US for last 25 years it seems P and
76:57
getting no three jobs to make ends meet
77:00
what do you think the minimum wage
77:02
should be and one of the reasons other
77:05
than you know losing jobs that perhaps
77:07
people have been keeping it down the
77:09
minimum wage suppressed oh so I asked
77:12
that in Reverse I mean the reason the
77:14
minimum wage has been held down is
77:15
because employers want chief labor and
77:20
they have a lot of clout the question of
77:24
how high to go is an interesting one
77:26
and it’s the so even the the big move in
77:34
the u.s. is for $15 and that’s a I’d say
77:39
even $15 an hour even Alan Krueger who
77:43
was one of the key researchers on that
77:45
revelatory work was a little nervous
77:48
about 15 and that the problem is
77:52
regional the the state of New York the
77:55
state of California no problem you have
77:58
a $15 minimum wage and and there’s
78:00
absolutely no reason to think that
78:02
that’s economic difficulty we’re talking
78:05
about Mississippi or Alabama places with
78:08
much lower productivity you might start
78:10
to have some job loss at that level I
78:12
think that the preponderance of the
78:14
evidence says that $15 is okay that
78:18
there might be some minor job loss in
78:21
some of the least productive parts of
78:22
the US but but overall not a big deal I
78:26
think 20 I would start to make me really
78:28
nervous
78:29
that then you start to really be a
78:30
problem in in potentially problematic
78:33
territory but it’s it’s why they see
78:36
actually in this case I think a federal
78:38
minimum wage of 15 and then higher wages
78:40
and in in in appropriate States it makes
78:44
sense this is one of these cases where
78:45
federalism works to our advantage and
78:47
and it’s interesting by the way Alan
78:49
Krueger did do at one point he he went
78:52
to to Puerto Rico which part of the u.s.
78:55
is subject to the u.s. minimum wage and
78:57
much lower productivity and said there
78:59
we should be able to see clear evidence
79:01
that the minimum wage cost jobs and he
79:03
couldn’t find it he said I don’t really
79:05
believe this by
79:06
I can’t find the evidence so so for the
79:09
moment I say let’s let’s go for 15 and
79:11
see what happens and then maybe maybe
79:15
look for the high productivity states to
79:20
to go beyond that great I’m so sorry to
79:24
have to draw it to a conclusion but you
79:27
will have the opportunity to meet ball
79:29
and and get the book signed for now
79:32
please join me in thanking him for
79:34
really fascinating today all right

How Britain’s staid Conservative Party became a radical insurgency

The transformation of the Tory party leaves surviving MPs feeling uneasy

IMAGINE A CONSERVATIVE MP and your mind’s eye might conjure up Philip Hammond. The former chancellor is tall, grey and with a sense of humour that matches his fiscal policy: extra-dry. If not Mr Hammond, then perhaps a figure in the mould of Kenneth Clarke. The rotund, cigar-chomping jazz enthusiast has served in practically every senior government job bar prime minister in a 49-year stint as a Tory MP. Failing that, consider Sir Nicholas Soames, a former defence minister. He has a Churchillian manner, largely because Winston Churchill was his grandfather. The three embody the parliamentary Conservative Party in different ways. Yet they are no longer in it.

The trio were among 21 Conservative MPs to have the whip withdrawn and be barred from standing for the party again after they supported a plan to make Boris Johnson, the prime minister, seek a delay to Britain’s scheduled departure from the European Union on October 31st (see next story). The purge was only the most visible part of a revolution that is transforming the world’s oldest political party. Those who advocate

  • fiscal prudence,
  • social liberalism and an
  • orderly departure from the EU have been routed.

Those who demand free-spending authoritarianism and a “do-or-die” escape from the yoke of Brussels are ascendant. ConservativeHome, a blog for party activists, described this week as “the end of the Conservative Party as we have known it”.

The revolution has required ideological flexibility from those who wish to survive it. The cabinet is full of MPs who are historically small-state Conservatives. Four of the five authors of “Britannia Unchained”, a paean to small government published by ambitious young Tory MPs in 2012, when fiscal austerity was in fashion, now sit in a cabinet intent on opening the public-spending taps. A spending review on September 4th included measures that will increase the size of the state as a percentage of GDP for the first time since 2010. Sajid Javid, the chancellor, is a fan of Ayn Rand and hangs pictures of Margaret Thatcher in his office. Yet on Mr Johnson’s instructions he announced an extra £13.8bn ($16.9bn) in election-friendly giveaways, paid for with extra borrowing.

There is also new thinking on law and order. Another 20,000 police officers are to be hired, and a review of whether prison sentences are too soft is expected. Priti Patel, who has called for a clampdown on immigration and once supported the return of capital punishment, is home secretary. It is a far cry from what some in the party thought Mr Johnson had in store. “Expect a liberal centrist,” advised one MP, who now sits in the cabinet, before Mr Johnson became prime minister. Wags have dubbed the new Tory domestic agenda: “Fund the NHS, hang the paedos.”

But the hardest line is on Brexit. Conservative MPs appreciate that they must get Britain out of the EU if they are to keep their seats. Yet Mr Johnson’s approach, which seems most likely to end in no-deal, leaves a quiet majority of the parliamentary party uneasy. And it is not just former Remainers who fret. A member of the cabinet who enthusiastically campaigned for Brexit admits that no-deal would be a catastrophe. But MPs are willing to serve, partly because Mr Johnson seems determined to move things forward one way or another. “They may not agree, but they are happy for the direction,” says one cabinet minister.

Setting the route is Dominic Cummings, the prime minister’s chief adviser, who will not even say whether he is a member of the Conservatives. When running for office, Mr Johnson promised an inclusive, “one nation” style of government. Instead, he has set about shaking the country’s institutions, suspending Parliament for the longest period since 1945 in order to reduce the time MPs have to debate Brexit. Hitherto unimaginable tactics, such as asking the queen to veto anti-no-deal legislation, are now openly discussed. “This Conservative government…seems to not be very conservative, fiscally or institutionally,” noted Ryan Shorthouse of Bright Blue, a liberal Tory think-tank.

The strong-arm techniques are in stark contrast to the days when David Cameron ran the party, and rebels ran amok. Mr Cameron was unwilling to crack down on an increasingly daring Eurosceptic fringe, which eventually bullied him into holding the referendum. Under Mr Johnson, such sedition is not acceptable, as this week’s purge was intended to show. Figures from Vote Leave, the main campaigning group behind the Brexit vote, call the shots in Downing Street, causing long-serving Tory MPs to shake their jowls at the state of affairs. Sir Roger Gale, an MP since 1983, declared: “You have, at the heart of Number 10, as the prime minister’s senior adviser, an unelected, foul-mouthed oaf.” Mr Johnson was reportedly given a rough ride at a meeting of the 1922 Committee of Tory backbenchers on September 4th.

Yet for all the fury over the deselections, Mr Cummings’s strategy remains just about intact. The prime minister and his aides want an election in which Mr Johnson is portrayed as the champion of a people defied by wily politicians, with the promise of a cash tsunami about to break over Britain’s public services if people vote Tory. “He gets the election he wanted and the framing he wanted,” says one former Downing Street aide. Nor will the revolution necessarily be permanent. A socially conservative offer to voters tempted by Nigel Farage’s Brexit Party may last only until the next general election, says Tim Bale of Queen Mary University of London.

“What this country needs is sensible, moderate, progressive Conservative government,” declared Mr Johnson during a stilted performance in prime minister’s questions on September 4th. Yet with the Tory party in its current state, Britain will have to wait.

Steve Bannon Is a Fan of Italy’s Donald Trump

He’s crisscrossing Europe because he believes it’s a bellwether for the United States. The scary thing is he could be right.

MILAN — Italy is a political laboratory. During the Cold War, the question was whether the United States could keep the Communists from power. Then Italy produced Silvio Berlusconi and scandal-ridden showman politics long before the United States elected Donald Trump. Now, on the eve of European Parliament elections likely to result in a rightist lurch, it has an anti-immigrant, populist government whose strongman, Matteo Salvini, known to his followers as “the Captain,” is the Continent’s most seductive exponent of the new illiberalism.

Steve Bannon, Trump’s former chief strategist, has been close to Salvini for a while. That’s no surprise. Bannon is the foremost theorist and propagator of the global nationalist, anti-establishment backlash. He’s Trotsky to the Populist International. He sensed the disease eating at Western democracies — a globalized elite’s abandonment of the working class and the hinterland — before anyone. He spurred a revolt to make the invisible citizen visible and to save Western manufacturing jobs from what he calls the Chinese “totalitarian economic hegemon.”

Now Bannon is crisscrossing Europe ahead of the elections, held Thursday through next Sunday. He’s in Berlin one day, Paris the next. As he explained during several recent conversations and a meeting in New York, he believes that “Europe is six months to a year ahead of the United States on everything.” As with Brexit’s foreshadowing of Trump’s election, a victory for the right in Europe “will energize our base for 2020.” The notion of Wisconsin galvanized by Brussels may seem far-fetched, but then so did a President Trump.

Polls indicate that Salvini’s League party, transformed from a northern secessionist movement into the national face of the xenophobic right, will get over 30 percent of the Italian vote, up from 6.2 percent in 2014. Anti-immigrant and Euroskeptic parties look set to make the greatest gains, taking as many as 35 percent of the seats in Parliament, which influences European Union policy for more than a half-billion people. In France, Marine Le Pen’s nationalists are running neck-and-neck with President Emmanuel Macron’s pro-Europe party. In Britain, Nigel Farage’s new Brexit Party has leapt ahead of the center-right and center-left.

Salvini, whose party formed a government a year ago with the out-with-the-old-order Five Star Movement, is a central figure in this shift. The coalition buried mainstream parties. He is, Bannon told me, “the most important guy on the stage right now — he’s charismatic, plain-spoken, and he understands the machinery of government. His rallies are as intense as Trump’s. Italy is the center of politics — a country that has embraced nationalism against globalism, shattered the stereotypes, blown past the old paradigm of left and right.”

For all the upheaval, I found Italy intact, still tempering transactional modernity with humanity, still finding in beauty consolation for dysfunction. The new right has learned from the past. It does not disappear people. It does not do mass militarization. It’s subtler.

  • It scapegoats migrants,
  • instills fear,
  • glorifies an illusory past (what the Polish sociologist Zygmunt Bauman called “retrotopia”),
  • exalts machismo,
  • mocks do-gooder liberalism and
  • turns the angry drumbeat of social media into its hypnotic minute-by-minute mass rally.

Salvini, the suave savior, is everywhere other than in his interior minister’s office at Rome’s Viminale Palace. He’s out at rallies or at the local cafe in his trademark blue “Italia” sweatshirt. He’s at village fairs and conventions. He’s posting on Facebook up to 30 times a day to his 3.7 million followers, more than any other European politician. (Macron has 2.6 million followers.) He’s burnishing the profile of the tough young pol (he’s 46) who

  • keeps migrants out,
  • loosens gun laws,
  • brandishes a sniper rifle and
  • winks at Fascism —

all leavened with Mr.-Nice-Guy images of him sipping espresso or a Barolo.

His domination of the headlines is relentless. When, during my visit, a woman was gang raped near Viterbo, his call for “chemical castration” of the perpetrators led the news cycle for 24 hours. Like Trump, he’s a master of saying the unsayable to drown out the rest.

“I find Salvini repugnant, but he seems to have an incredible grip on society,” Nathalie Tocci, the director of Italy’s Institute of International Relations, told me. No wonder then that the European far-right has chosen Milan for its big pre-election rally, bringing together Salvini, Le Pen, Jörg Meuthen of the Alternative for Germany party and many other rightist figures.

A nationalist tide is still rising. “We need to mobilize,” Bannon told me. “This is not an era of persuasion, it’s an era of mobilization. People now move in tribes. Persuasion is highly overrated.”

Bannon gives the impression of a man trying vainly to keep up with the intergalactic speed of his thoughts. Ideas cascade. He offered me a snap dissection of American politics: blue-collar families were suckers: their sons and daughters went off to die in unwon wars; their equity evaporated with the 2008 meltdown, destroyed by “financial weapons of mass destruction”; their jobs migrated to China. All that was needed was somebody to adopt a new vernacular, say to heck with all that, and promise to stop “unlimited illegal immigration” and restore American greatness. His name was Trump. The rest is history.

In Europe, Bannon said, the backlash brew included several of these same factors. The “centralized government of Europe” and its austerity measures, uncontrolled immigration and the sense of people in the provinces that they were “disposable” produced the Salvini phenomenon and its look-alikes across the Continent.

“In Macron’s vision of a United States of Europe, Italy is South Carolina to France’s North Carolina,” Bannon told me. “But Italy wants to be Italy. It does not want to be South Carolina. The European Union has to be a union of nations.”

The fact is Italy is Italy, unmistakably so, with its high unemployment, stagnation, archaic public administration and chasm between the prosperous north (which Salvini’s League once wanted to turn into a secessionist state called Padania) and the southern Mezzogiorno. Salvini’s coalition has done nothing to solve these problems even as it has

  • demonized immigrants,
  • attacked an independent judiciary and
  • extolled an “Italians first” nation.

A federal Europe remains a chimera, even if the euro crisis revealed the need for budgetary integration. Bannon’s vision of Brussels bureaucrats devouring national identity for breakfast is largely a straw-man argument, useful for making the European Union the focus of all 21st-century angst.

The union has delivered peace and stability. It’s the great miracle of the second half of the 20th century; no miracle ever marketed itself so badly. It has also suffered from ideological exhaustion, remoteness, division and the failure to agree on an effective shared immigration policy — opening the way for Salvini’s salvos to hit home in a country that is the first stop for many African migrants.

Salvini grew up in Milan in a middle-class family, dropped out of university, joined the League in its early days in the 1990s and was shaped by years working at Radio Padania where he would listen to Italians’ gripes. “What he heard was complaints about immigrants, Europe, the rich,” Emanuele Fiano, a center-left parliamentarian, told me. “He’s run with that and is now borderline dangerous.”

The danger is not exit from the European Union — the government has come to its senses over that — or some Fascist reincarnation. It’s what Fabrizio Barca, a former minister for territorial cohesion, called the “Orbanization of the country,” in a reference to Viktor Orban, the right-wing Hungarian leader. In other words, insidious domination through the evisceration of independent checks and balances, leading Salvini to the kind of stranglehold on power enjoyed by Orban (with a pat on the back from Trump) or by Vladimir Putin. “The European Union has been ineffective against Orban,” Barca noted. Worse, it has been feckless.

Another threat, as in Trump’s United States, is of moral collapse. “I am not a Fascist but. …” is a phrase increasingly heard in Italy, with some positive judgment on Mussolini to round off the sentence. Salvini, in the judgment of Claudio Gatti, whose book “The Demons of Salvini” was just published in Italian, is “post-Fascist” — he refines many of its methods for a 21st-century audience.

Barca told me the abandonment of rural areas — the closing of small hospitals, marginal train lines, high schools — lay behind Salvini’s rise. Almost 65 percent of Italian land and perhaps 25 percent of its population have been affected by these cuts. “Rural areas and the peripheries, the places where people feel like nobody, are home to the League and Five Star,” he said. To the people there, Salvini declares: I will defend you. He does not offer a dream. He offers protection — mainly against the concocted threat of migrants, whose numbers were in fact plummeting before he took office because of an agreement reached with Libya.

The great task before the parties of the center-left and center-right that will most likely be battered in this election is to reconnect. They must restore a sense of recognition to the forgotten of globalization. Pedro Sánchez, the socialist Spanish prime minister, just won an important electoral victory after pushing through a 22 percent rise in the minimum wage, the largest in Spain in 40 years. There’s a lesson there. The nationalist backlash is powerful, but pro-European liberal sentiment is still stronger. If European elections feel more important, it’s also because European identity is growing.

As for the curiously prescient Italian political laboratory, Bannon is investing in it. He’s established an “Academy for the Judeo-Christian West” in a 13th-century monastery outside Rome. Its courses, he told me, will include “history, aesthetics and just plain instruction in how to get stuff done, including facing up to pressure, mock TV interviews with someone from CNN or The Guardian ripping your face off.”

Bannon described himself as an admirer of George Soros — “his methods, not his ideology” — and the way Soros had built up “cadres” throughout Europe. The monastery is the nationalist response to Soros’s liberalism. There’s a war of ideas going on in Italy and the United States. To shun the fight is to lose it. I am firmly in the liberal camp, but to win it helps to know and strive to understand one’s adversary.