The Return of Power Politics

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• Inflation and economic instability are no longer short-term problems but part of the system investors now operate in.
• Power and politics are increasingly shaping economic outcomes, limiting what governments and central banks can realistically fix.
• This blog explains why today’s economic challenges persist and what that could mean for markets going forward.

For most people, the sense that something is wrong did not arrive through markets or headlines. It came at the grocery store, in rent increases, insurance premiums, and the realization that life feels harder even when the economy is supposedly strong.

This disconnect is unsettling because we’re trained to believe that stable markets signal a stable world. When asset prices rise, volatility is low, and unemployment is contained, we’re told that the system is working. And yet, beneath those signals, trust is eroding, politics are fragmenting, geopolitics are hardening, and households feel poorer even when the numbers say they should not.

This is how regime change begins: not with collapse, but with confusion.

Economic systems rarely fail all at once. They fail gradually, then suddenly, and almost always after a long period of apparent success. The danger lies not in the volatility we can see, but in the stability that convinces us nothing fundamental has changed.

The System That Worked Too Well

The modern global economic order was built to solve a very real problem. After decades of inflation, instability, and political turmoil, policymakers wanted a system that delivered growth with fewer shocks. Globalization expanded supply. Independent central banks anchored inflation expectations. Capital flowed freely to where it was most productive. Markets became more efficient, more liquid, and more interconnected.

For a long time, it worked as inflation fell, growth became steadier, financial crises seemed containable, and risk appeared manageable, if not removable.

But every system that works well for long enough begins to create blind spots. Efficiency removes buffers, stability encourages leverage, and success narrows the range of imagined outcomes.

Over time, this system began to concentrate rewards upward while spreading fragility outward. Wages stagnated even as asset values soared. Credit substituted for income growth. Instead of serving as a social good, housing evolved into an investment vehicle, and the expansion of finance outpaced its intended role in the real economy.

None of this broke the system immediately. In fact, it made it look stronger. Asset owners prospered, and markets rose. Policymakers grew confident in their tools. But beneath the surface, resilience was being traded for optimization.

When Fixing One Problem Plants the Seeds of the Next

History shows that economic regimes do not collapse because they stop working altogether. They collapse because they solve one problem so thoroughly that they create another, usually larger, one in its place.

The postwar system favored labor and stability, but eventually inflation eroded its foundations. The neoliberal system favored capital and efficiency, but eventually inequality and fragility eroded its legitimacy. Each transition was framed as progress, yet each carried the seeds of its own undoing.

The global financial crisis was not an accident or an outlier. It was a stress fracture caused by decades of accumulated pressure. The response to that crisis reinforced the pattern rather than breaking it. Central banks absorbed more responsibility, and asset prices were stabilized. Growth resumed, but the underlying distributional issues remained unresolved.

What followed was a world in which markets recovered faster than people, and balance sheets healed faster than social trust. The system survived, but belief in it weakened.

Inflation Is Not the Same as Affordability

Much of today’s anger is misdiagnosed as inflation anxiety, when in reality it's an affordability crisis. Inflation measures how quickly prices change. Households experience the level at which prices settle.

When prices rise sharply and then stabilize, economists may declare victory, but many families don’t feel relief. A grocery bill that is 20% higher does not feel less painful because it has stopped rising. Rent that resets upward does not reset downward when inflation cools.

Wages, meanwhile, do not adjust with the same speed or certainty. For many households, the cost of necessities has permanently stepped higher, while income has not followed at the same pace. This gap between economic metrics and lived reality fuels distrust, because it makes people feel unseen by the system meant to serve them.

People do not revolt over data releases; they revolt over daily experience.

Concentration Creates Backlash

When wealth and opportunity concentrate, so does political pressure. This is not a moral observation, but a historical one.

Periods of high inequality tend to produce populist reactions, not because people reject markets, but because they feel excluded from them. The frustration is rarely articulated as a critique of capital allocation or monetary policy. It’s framed instead as betrayal, identity, and fairness.

The right often mobilizes this anger more effectively than the left, because it can channel economic frustration into narratives of national decline and cultural loss. Blame becomes easier to assign than solutions are to design.

This dynamic isn’t new. It has appeared repeatedly in periods when economic systems outgrew their social foundations. What’s different today is the speed at which these tensions travel, amplified by media, technology, and financial interconnectedness.

From Globalization to Power Politics

As trust in global systems weakens, nations revert to strategies that feel more tangible and controllable. Industrial policy replaces market faith and tariffs replace trade agreements. Strategic resources replace abstract efficiency.

The logic is simple, even if the outcomes are complex. When cooperation feels fragile, control feels safer. When supply chains break, resilience becomes more valuable than cost minimization. When geopolitical risk rises, national interest overrides global optimization.

This shift marks a return to a world where economics and power are inseparable. Capital flows increasingly respond not just to growth prospects, but to political alignment and security guarantees. Markets must now price not only earnings, but regime stability.

Efficiency built the old system. Resilience will shape the next one.

Why Deficits Are the Wrong Obsession

In times of transition, societies often fixate on the wrong risks. Fiscal discipline becomes a proxy for responsibility, even when the underlying issue is structural decay.

History offers sobering examples of governments prioritizing balance sheets over social stability, only to discover that economic prudence can be destabilizing when applied blindly. Deficits are a tool, not a moral failing. Used poorly, they can undermine confidence. Used thoughtfully, they can preserve cohesion.

The greater risk is not spending too much, but failing to invest in the foundations that allow growth, trust, and legitimacy to endure. An economy that underinvests in housing, infrastructure, energy, and social stability may look solvent on paper, but brittle in practice.

Markets ultimately care less about debt levels than about credible paths forward. Growth narratives stabilize systems. Austerity narratives fracture them.

What This Means for Investors

The challenge for investors isn’t predicting the future, but recognizing when the rules of the game are changing. Regime shifts are rarely priced smoothly. They arrive through volatility, correlation breakdowns, and political surprises.

This does not mean abandoning markets or embracing pessimism. It means acknowledging that risk is not always visible in price movements, and that stability itself can be a source of danger.

Diversification must extend beyond asset classes to include political, geographic, and structural awareness. Resilience matters more than optimization. Survival matters more than precision.

The most enduring investors are rarely those who forecast best. They are those who build portfolios capable of withstanding outcomes they did not foresee.

The Lesson History Keeps Repeating

Every generation believes it understands risk better than the last. Every system believes it has solved the problems that doomed its predecessors. And every era is eventually reminded that progress does not eliminate uncertainty, it merely changes its form.

The world is not ending, but it’s changing, and change is rarely comfortable for systems built on assumptions of permanence. A key mistake in moments like these is believing that yesterday’s stability guarantees tomorrow’s order. History suggests the opposite: Stability often precedes transition, and confidence often blinds us to fragility.

When the system stops working for enough people, history does not ask permission before it starts repeating itself.

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This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up for our Newsletteror subscribe on your preferred podcast platformso that you don't miss out on future episodes.