These were statements of faith: the future would be an improvement on the present, and democratic politics was the vehicle that would take you there.
Now listen to the slogans of our time. ‘Make America Great Again’ does not promise a better future. It promises to restore a lost past. Brexit’s ‘Take Back Control’ was an implicit claim that control had been surrendered. Marine Le Pen’s 2022 campaign ran under ‘La France qu’on M’, where the M stands for Marine but sounds like aime, love, as though the present version of France no longer deserves affection.
Something has shifted. The optimism that defined postwar democratic politics has given way to nostalgia, resentment and a suspicion that the system no longer delivers.
That shift runs deeper than culture or mood. It raises a question beyond economics or any single policy failure: can liberal democracy survive the end of the conditions that created it?
Postwar democracy rested on a bargain, even if nobody called it that at the time. The system delivers rising prosperity, and in return citizens grant it legitimacy. Two forces underwrote the deal: young, growing populations and compounding productivity gains. Together they allowed Western governments to expand services and preside over rising living standards for decade after decade.
But both these forces have waned. The spending commitments they funded have not. Now, we face a civilisational problem disguised as a fiscal one.
In the three decades after 1945, Western economies grew at rates that now seem fantastical. West Germany’s Wirtschaftswunder delivered average annual growth of around 8 per cent through the 1950s. France’s Trente Glorieuses, the three decades of rapid growth after 1945, saw real wages double. Even Britain, the slowest of the major economies after the War, managed growth that lifted every generation above the one preceding it.
The economist Mancur Olson had a striking explanation. War and defeat, he argued, had destroyed not just factories but the interest groups and cartels that had parasitised prewar economies. When those lobbies were gone, competition could flourish.
We should think more about Olson these days, not because his historical account is universally accepted, but because of what it implies. If he was even half right, the golden era was built on an unrepeatable clean slate that no democracy can manufacture in peacetime. You cannot bomb your way to good governance, but apparently bombs can accidentally clear a path to it.
Postwar growth established a social contract. Governments could build hospitals, expand pensions and invest in infrastructure while still balancing their books, because the tax base grew almost as fast as the spending. (The rest was covered with what appeared to be manageable deficits.) Citizens felt better off. Their children, they were confident, would do better still.
Yet none of this has proven permanent. It was a product of specific circumstances: the reconstruction boom, rapid population growth, the entry of women into the workforce, technological advances that drove productivity ever higher. Western nations built their politics in the most benevolent circumstances and thought it would last forever.
Fertility has declined. Productivity has slowed sharply.
In 1960, the average woman in OECD countries had 3.3 children. By 2022, that figure had fallen to 1.5, well below the replacement rate of 2.1. In 1980, there were roughly five working age adults for every person over 65. Today the ratio is closer to three to one. By 2050, it will approach two to one.
Japan already spends a quarter of its GDP on public social programmes. Its working age population has been shrinking since the mid-1990s.
Productivity was supposed to compensate. Fewer workers producing more could, in theory, sustain the same living standards. But across the OECD, output per worker has grown markedly more slowly than in the decades before the global financial crisis. In Australia and New Zealand, multifactor productivity, which measures how well an economy combines labour and capital, has been essentially flat for much of the past two decades.
The arithmetic, for Western democracies, is unforgiving. A shrinking share of the population is of working-age. Stagnant output per worker cannot fund the welfare states that were affordable when populations were young and economies were booming. No political programme changes the maths.
Governments have responded according to the incentives of democratic politics: by borrowing. Public debt across the OECD has risen sharply as a share of GDP over the past three decades. The average now exceeds 100 per cent. Japan’s gross government debt has at times exceeded 250 per cent of GDP. Governments of the left borrow. Governments of the right borrow. The differences are marginal.
Yet even these figures dramatically understate the problem. Official debt counts only the bonds a government has issued. It ignores underfunded future liabilities like pensions, healthcare and social security.
Economists like Bernd Raffelhüschen and Lawrence Kotlikoff have tried to put numbers on this through generational accounting. They add official debt to the present value of every commitment a government has made but not funded. The totals are sobering.
In some European countries, the gap runs to several hundred per cent of GDP, three or four times the official figures. The precise numbers shift with assumptions about growth, interest rates and demographics. But even the rosiest calculations tell the same story: governments have promised far more than the headline statistics let on.
You cannot blame this on recklessness or bad faith. The promises were made during the years of plenty and cannot now be met, because the economy no longer grows fast enough. Yet the expectations of voters have not changed. So, borrowing fills the gap, the kind that shows up on the books and the kind that does not.
But debt is a claim on future income. If that income is growing slowly, the debt becomes harder to service, which means less money for the services that justify the borrowing. Each generation inherits a larger bill and a smaller capacity to pay it.
If the problem is so clear, why have democracies not adjusted?
To start with, there are the incentives any elected government faces. Finn Kydland and Edward Prescott won a Nobel Prize for a deceptively simple insight they called time inconsistency, developed first for monetary policy but now widely applied to fiscal decisions. It means that people and institutions know what they ought to do in the long run, and even plan to do it. Yet they abandon those plans when the pressure of the moment mounts. Every government promising fiscal discipline faces the same trap. The rewards of spending arrive before the next election. The costs land on someone else’s watch.
There is little one can do about this problem. Economists have sometimes proposed the political equivalent of Odysseus lashing himself to the mast to resist the Sirens. Debt brakes and fiscal rules would serve the same purpose for politicians. But unlike Odysseus, a democratic government can untie the ropes whenever it wants to. And it often does.
Then there is the ratchet in public spending, first identified by Robert Higgs: crises push expenditure up, but expenditure never fully retreats when the crisis passes. Public choice economists like Gordon Tullock and James Buchanan argued that democratic politics has an inherent bias towards deficits. That is not least because at every election the voters who depend on government transfers become a larger proportion of those who turn up to vote.
Worse, the true cost of the state has been hidden from citizens for over a century. Writing in 1903, the Italian scholar Amilcare Puviani laid out the playbook: rulers disguise how much government really costs. They borrow instead of taxing. The inflation that results is essentially a tax. Consumers pay off government debt at the checkout.
Politicians also give unpleasant levies pleasant names. Germany’s ‘Solidarity Surcharge’, introduced as a temporary measure after the country’s reunification in 1990, quietly flowed into general revenue for three decades.
Puviani called all these techniques fiscal illusion. By the time citizens work out what has been done on their behalf, the bill is already unpayable. A democracy in which a majority of voters depend on government transfers will find it extraordinarily difficult to vote to reduce those transfers. Any leader who seriously tried would likely be replaced by one who promised not to.
In economics, we have known about all these mechanisms for a long time. Our democracies continued to function anyway while there was enough growth to paper over the cracks.
But when growth disappears, Puviani’s argument ceases to be purely fiscal. It becomes a democratic one as well. Every gain for one group comes at the expense of another. The budget is no longer about dividing the proceeds of expansion, but about who bears the cost of contraction. Politics without growth becomes vicious, a negative-sum game.
We have seen this before. The democratic collapses of the interwar period happened because economic failure destroyed the material basis on which legitimacy rested. Weimar Germany is an obvious example. A republic that cannot deliver prosperity cannot hold the allegiance of its citizens for long. When the economy stops working for ordinary people, the strongmen who promise to fix it gain an audience.
As the economic dynamism of Western countries has come under pressure, the warning signs for their democracies are accumulating. In 2017, Pew Research found views on how democracy was working roughly evenly split across 12 high income countries. By 2025, dissatisfaction had climbed to 64 per cent against 35 per cent satisfied.
The generational picture is worse. The Open Society Barometer, surveying 30 countries, found that 35 per cent of adults aged 18 to 35 would support a strong leader who governs without legislatures or elections. Young voters in most Western democracies turn out at significantly lower rates than the middle aged.
That a third of young adults globally are prepared to walk away from the political system their grandparents built and defended, is alarming but also understandable. From the young generation’s perspective, the old deal no longer delivers. They cannot afford a house. Their wages do not keep pace. And they face a growing tax burden to fund promises made before they were born, and from which they will never benefit.
Wherever you look, economic performance is among the strongest predictors of whether people are satisfied with their democracy. Populism, declining trust in institutions, the pervasive sense that the game is rigged: these are symptoms. The disease is the end of the material bargain that made democracy feel worthwhile.
Of course, there are some counterexamples. There are countries that have, at least for a while, got their economies in order and reformed. Sweden restructured its pension system in the 1990s. Canada brought its fiscal house into order through deep cuts in the middle of the 1990s. New Zealand went through its own wrenching reform under the Fourth Labour Government in the 1980s, as did Australia under Hawke and Keating.
But each of these happened before ageing and productivity pressures became as acute as they are now. The window for adjustment is closing.
The timing could hardly be worse. Western democracies face authoritarian competitors that do not face electoral constraints. The civilisational question is whether democratic politics can restructure the postwar social contract before it collapses under its own weight.
Nobody campaigns to the tune of ‘Things Can Only Get Better’ anymore. Perhaps because nobody would believe it.
But a democracy that can no longer promise a better future may not remain a democracy for long.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE
Something has shifted. The optimism that defined postwar democratic politics has given way to nostalgia, resentment and a suspicion that the system no longer delivers.
That shift runs deeper than culture or mood. It raises a question beyond economics or any single policy failure: can liberal democracy survive the end of the conditions that created it?
Postwar democracy rested on a bargain, even if nobody called it that at the time. The system delivers rising prosperity, and in return citizens grant it legitimacy. Two forces underwrote the deal: young, growing populations and compounding productivity gains. Together they allowed Western governments to expand services and preside over rising living standards for decade after decade.
But both these forces have waned. The spending commitments they funded have not. Now, we face a civilisational problem disguised as a fiscal one.
In the three decades after 1945, Western economies grew at rates that now seem fantastical. West Germany’s Wirtschaftswunder delivered average annual growth of around 8 per cent through the 1950s. France’s Trente Glorieuses, the three decades of rapid growth after 1945, saw real wages double. Even Britain, the slowest of the major economies after the War, managed growth that lifted every generation above the one preceding it.
The economist Mancur Olson had a striking explanation. War and defeat, he argued, had destroyed not just factories but the interest groups and cartels that had parasitised prewar economies. When those lobbies were gone, competition could flourish.
We should think more about Olson these days, not because his historical account is universally accepted, but because of what it implies. If he was even half right, the golden era was built on an unrepeatable clean slate that no democracy can manufacture in peacetime. You cannot bomb your way to good governance, but apparently bombs can accidentally clear a path to it.
Postwar growth established a social contract. Governments could build hospitals, expand pensions and invest in infrastructure while still balancing their books, because the tax base grew almost as fast as the spending. (The rest was covered with what appeared to be manageable deficits.) Citizens felt better off. Their children, they were confident, would do better still.
Yet none of this has proven permanent. It was a product of specific circumstances: the reconstruction boom, rapid population growth, the entry of women into the workforce, technological advances that drove productivity ever higher. Western nations built their politics in the most benevolent circumstances and thought it would last forever.
Fertility has declined. Productivity has slowed sharply.
In 1960, the average woman in OECD countries had 3.3 children. By 2022, that figure had fallen to 1.5, well below the replacement rate of 2.1. In 1980, there were roughly five working age adults for every person over 65. Today the ratio is closer to three to one. By 2050, it will approach two to one.
Japan already spends a quarter of its GDP on public social programmes. Its working age population has been shrinking since the mid-1990s.
Productivity was supposed to compensate. Fewer workers producing more could, in theory, sustain the same living standards. But across the OECD, output per worker has grown markedly more slowly than in the decades before the global financial crisis. In Australia and New Zealand, multifactor productivity, which measures how well an economy combines labour and capital, has been essentially flat for much of the past two decades.
The arithmetic, for Western democracies, is unforgiving. A shrinking share of the population is of working-age. Stagnant output per worker cannot fund the welfare states that were affordable when populations were young and economies were booming. No political programme changes the maths.
Governments have responded according to the incentives of democratic politics: by borrowing. Public debt across the OECD has risen sharply as a share of GDP over the past three decades. The average now exceeds 100 per cent. Japan’s gross government debt has at times exceeded 250 per cent of GDP. Governments of the left borrow. Governments of the right borrow. The differences are marginal.
Yet even these figures dramatically understate the problem. Official debt counts only the bonds a government has issued. It ignores underfunded future liabilities like pensions, healthcare and social security.
Economists like Bernd Raffelhüschen and Lawrence Kotlikoff have tried to put numbers on this through generational accounting. They add official debt to the present value of every commitment a government has made but not funded. The totals are sobering.
In some European countries, the gap runs to several hundred per cent of GDP, three or four times the official figures. The precise numbers shift with assumptions about growth, interest rates and demographics. But even the rosiest calculations tell the same story: governments have promised far more than the headline statistics let on.
You cannot blame this on recklessness or bad faith. The promises were made during the years of plenty and cannot now be met, because the economy no longer grows fast enough. Yet the expectations of voters have not changed. So, borrowing fills the gap, the kind that shows up on the books and the kind that does not.
But debt is a claim on future income. If that income is growing slowly, the debt becomes harder to service, which means less money for the services that justify the borrowing. Each generation inherits a larger bill and a smaller capacity to pay it.
If the problem is so clear, why have democracies not adjusted?
To start with, there are the incentives any elected government faces. Finn Kydland and Edward Prescott won a Nobel Prize for a deceptively simple insight they called time inconsistency, developed first for monetary policy but now widely applied to fiscal decisions. It means that people and institutions know what they ought to do in the long run, and even plan to do it. Yet they abandon those plans when the pressure of the moment mounts. Every government promising fiscal discipline faces the same trap. The rewards of spending arrive before the next election. The costs land on someone else’s watch.
There is little one can do about this problem. Economists have sometimes proposed the political equivalent of Odysseus lashing himself to the mast to resist the Sirens. Debt brakes and fiscal rules would serve the same purpose for politicians. But unlike Odysseus, a democratic government can untie the ropes whenever it wants to. And it often does.
Then there is the ratchet in public spending, first identified by Robert Higgs: crises push expenditure up, but expenditure never fully retreats when the crisis passes. Public choice economists like Gordon Tullock and James Buchanan argued that democratic politics has an inherent bias towards deficits. That is not least because at every election the voters who depend on government transfers become a larger proportion of those who turn up to vote.
Worse, the true cost of the state has been hidden from citizens for over a century. Writing in 1903, the Italian scholar Amilcare Puviani laid out the playbook: rulers disguise how much government really costs. They borrow instead of taxing. The inflation that results is essentially a tax. Consumers pay off government debt at the checkout.
Politicians also give unpleasant levies pleasant names. Germany’s ‘Solidarity Surcharge’, introduced as a temporary measure after the country’s reunification in 1990, quietly flowed into general revenue for three decades.
Puviani called all these techniques fiscal illusion. By the time citizens work out what has been done on their behalf, the bill is already unpayable. A democracy in which a majority of voters depend on government transfers will find it extraordinarily difficult to vote to reduce those transfers. Any leader who seriously tried would likely be replaced by one who promised not to.
In economics, we have known about all these mechanisms for a long time. Our democracies continued to function anyway while there was enough growth to paper over the cracks.
But when growth disappears, Puviani’s argument ceases to be purely fiscal. It becomes a democratic one as well. Every gain for one group comes at the expense of another. The budget is no longer about dividing the proceeds of expansion, but about who bears the cost of contraction. Politics without growth becomes vicious, a negative-sum game.
We have seen this before. The democratic collapses of the interwar period happened because economic failure destroyed the material basis on which legitimacy rested. Weimar Germany is an obvious example. A republic that cannot deliver prosperity cannot hold the allegiance of its citizens for long. When the economy stops working for ordinary people, the strongmen who promise to fix it gain an audience.
As the economic dynamism of Western countries has come under pressure, the warning signs for their democracies are accumulating. In 2017, Pew Research found views on how democracy was working roughly evenly split across 12 high income countries. By 2025, dissatisfaction had climbed to 64 per cent against 35 per cent satisfied.
The generational picture is worse. The Open Society Barometer, surveying 30 countries, found that 35 per cent of adults aged 18 to 35 would support a strong leader who governs without legislatures or elections. Young voters in most Western democracies turn out at significantly lower rates than the middle aged.
That a third of young adults globally are prepared to walk away from the political system their grandparents built and defended, is alarming but also understandable. From the young generation’s perspective, the old deal no longer delivers. They cannot afford a house. Their wages do not keep pace. And they face a growing tax burden to fund promises made before they were born, and from which they will never benefit.
Wherever you look, economic performance is among the strongest predictors of whether people are satisfied with their democracy. Populism, declining trust in institutions, the pervasive sense that the game is rigged: these are symptoms. The disease is the end of the material bargain that made democracy feel worthwhile.
Of course, there are some counterexamples. There are countries that have, at least for a while, got their economies in order and reformed. Sweden restructured its pension system in the 1990s. Canada brought its fiscal house into order through deep cuts in the middle of the 1990s. New Zealand went through its own wrenching reform under the Fourth Labour Government in the 1980s, as did Australia under Hawke and Keating.
But each of these happened before ageing and productivity pressures became as acute as they are now. The window for adjustment is closing.
The timing could hardly be worse. Western democracies face authoritarian competitors that do not face electoral constraints. The civilisational question is whether democratic politics can restructure the postwar social contract before it collapses under its own weight.
Nobody campaigns to the tune of ‘Things Can Only Get Better’ anymore. Perhaps because nobody would believe it.
But a democracy that can no longer promise a better future may not remain a democracy for long.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE
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