100 Not Out

To reach the age of 100 is a significant event for anyone. When the centurion in question is the man (formerly) known as Maestro, one of the most significant central bankers of modern times, it is surprising that more was not made of the fact that Alan Greenspan celebrated his 100^th birthday on 6 March. Admittedly he has been out of the limelight for the past two decades, and his reputation was tarnished by the GFC which was widely blamed on his laissez-faire approach in the decade prior to 2008. But his hold over markets during his two decades as Fed Chair was unprecedented and he made a number of policy contributions that remain relevant today.

Such was his stature that during a presidential debate in 2000 when John McCain was asked whether he would reappoint Greenspan if he were elected president, McCain quipped: “Not only would I reappoint him, but if he died we’d prop him up and put sunglasses on him as they did in the movie Weekend at Bernie’s.” Contrast that with the remarks made by President Trump about outgoing Fed Chair Jay Powell to understand the radical shift in the respect shown to those in public office and the institutions they lead.

Assessing the legacy and the key takeaways for today

For someone who sat atop the Fed for so long, and who presided over so many important events in financial history, he obviously got a lot of things right, though we should not gloss over his mistakes. His first test as Chair came on 19 October 1987 – just two months into his tenure – when the market crash which came to be known as Black Monday precipitated the first market rout of the modern globalised era. Greenspan calmed markets with a 30-word statement: “The Federal Reserve, consistent with its responsibilities as the nation’s central bank, affirms today its readiness to serve as a source of liquidity to support the economic and financial system.” It worked and thus the legend of the Greenspan put was born. The combination of interest rate cuts and repos was subsequently deployed during the Mexican peso crisis of 1994-95, and again in the wake of the 1997 Asian financial crisis which prompted the 1998 collapse of Long-Term Capital Management. Following the bursting of the dot-com bubble in 2001 the Fed was at it again, preventing a major market correction from dragging the economy into a more serious recession.

By the late-1990s, Greenspan was hailed as the Maestro who would always be there to provide support to financial markets. But it bred complacency by creating a climate of moral hazard. The phrase “Don’t Fight the Fed”, coined by the investor Martin Zweig in 1970, became closely associated with the actions of the Fed under Greenspan. Wall Street loved Greenspan for a reason – his policies helped banks generate sizeable profits and made rock stars of those bankers and analysts who were able to ride the wave. But after hubris came nemesis. Greenspan’s light touch was at least partially responsible for the build-up of off-balance sheet debt which was the primary cause of the 2008 market collapse. Working in markets around the turn of the century, I was always cautious of going overboard in praising Greenspan’s achievements. Looking back through some of my old writings, I came across this from August 2002: “It is always wise to be wary of the reputations which the markets create for certain individuals (viz. Mr Greenspan as history may yet pass a different judgement on the conduct of Fed policy during the 1990s boom).”

Greenspan’s tenure coincided with a period of growing economic imbalances. The greatest boom and bust on his watch was the equity boom of the late-1990s and while he vehemently denied that the Fed could have done much to stem the boom, arguing that bubbles are only evident in hindsight, it was obvious to many that the equity market would pop at some point. Greenspan fuelled the flames of the tech bubble by extolling the virtues of new technology and talking up the productivity revolution that they appeared to have triggered.

Yet for all the criticisms, it would be churlish to deny that the actions of the Fed in 1987, 1998 and 2001 to pump liquidity into the US economy prevented a much more serious global downturn than might otherwise have occurred. Nor should Greenspan’s role in advancing the cause of central bank transparency be underplayed. Prior to 1994 the FOMC did not even communicate to markets at what level it set the funds rate – this had to be inferred from market actions by the New York Fed. In addition, the Fed was a leader in publishing the minutes of policy meetings, which considerably improved policy transparency. A return to the pre-1994 world is almost unthinkable today. For all the modern talk of central banks providing forward guidance, it was Greenspan’s Fed which helped write the template, even if his Delphic utterances could be difficult to translate (as he once half-jokingly told Congress in 1987: “If I seem unduly clear to you, you must have misunderstood what I said.”)

While Greenspan’s free market leanings placed too much faith in the ability of financial markets to regulate themselves, we did at least learn much from the mistakes of the Greenspan era. In the rational world of science, in which he placed much faith, that would be regarded as progress. We should also give him credit for not taking received wisdom at face value. His belief that the US economy’s growth rate was faster than implied by the prevailing view of the NAIRU (5% at the time) meant that Greenspan resisted pressure to raise rates aggressively, and the Fed thus allowed the US economic upswing to continue for longer than traditional models suggested was safe. Data subsequently showed that an acceleration in productivity growth suggested he was right – the economy’s speed limit had increased.

An important takeaway for modern day policymakers is that they should pay close attention to the supply side of the economy, particularly the economy’s potential growth rate and the neutral rate (r*). At a time when AI threatens to upend many of our beliefs about the economy’s productive potential, an understanding of the economy’s growth potential is more important than ever. As in the late-1990s, policymakers may again be forced to decide whether apparently unsustainable growth reflects excess demand or a genuine shift in the economy’s productive capacity.

Last word

Greenspan’s tenure as Fed Chair produced a number of paradoxes. The crisis management playbook, which he helped pioneer, remains the template for modern central banking. Yet his hands-off approach to regulation was instrumental in ushering in a period of tighter financial regulation. He communicated frequently with markets, although they did not always understand the message he was trying to convey. He was the most important public official of his day, yet we never really knew his beliefs on many issues until long after he retired. Nonetheless, it is testimony to his importance that his legacy is still debated and that the legacy of the 1990s revolution in central banking continues to echo. Happy 100^th birthday Mr Greenspan.

Deindustrialisation: The rights and wrongs

Marco Rubio’s speech at the Munich Security Conference last weekend was greeted with relief in some quarters for being less bombastic than JD Vance’s aggressive speech in 2025. But in many ways, the underlying message was the same and it did nothing to dissuade the audience that the United States and Europe have fundamentally different geopolitical views and interests. Nonetheless, the speech was interesting and contained some points I agreed with, many that I disagreed with, and one in particular that touched on an economic issue worthy of further thought.

Was deindustrialisation inevitable?

Rubio opined that “Deindustrialization was not inevitable.  It was a conscious policy choice, a decades-long economic undertaking that stripped our nations of their wealth, of their productive capacity, and of their independence.  And the loss of our supply chain sovereignty was not a function of a prosperous and healthy system of global trade.  It was foolish.  It was a foolish but voluntary transformation of our economy that left us dependent on others for our needs and dangerously vulnerable to crisis.”

In my view, the idea that “deindustrialization was not inevitable” is both right and wrong. In order to unpack this, we should recall that the prevailing economic model across the Anglo-Saxon world from the 1980s onwards was heavily influenced by the ideas of Milton Friedman and the Chicago School. They strongly argued that markets allocate resources more efficiently than governments, and that shareholder primacy and capital mobility were normal features of a globalising economy. In order to make this model work, financial markets were deregulated and capital markets became increasingly global in scope. Firms came under strong pressure to relocate production to lower-cost jurisdictions, automate labour-intensive processes and shed capacity that no longer met required rates of return.

Trade barriers were lowered, partly through the completion of the EU single market, but most importantly as a result of China’s accession to the WTO in 2001. And who was the prime advocate of that accession? None other than the United States. However, the result was that in a world of falling trade barriers and increasingly rapid technological change, maintaining high-cost domestic manufacturing often meant either accepting lower profitability or subsidising inefficiency. Detroit’s decline was not wholly due to the inexorable rise of Shiyan – it was aided and abetted by government policy.

But while deindustrialisation was a consequence of governmental decisions, voters also expressed a clear preference for this model. Resources were reallocated towards sectors in which advanced economies enjoyed a comparative advantage – finance, high-value services, technology and knowledge-intensive activities – while production was outsourced to regions which enjoyed lower costs. As a result, consumers benefited from lower-priced goods. After the inflationary turmoil of the 1970s, voters supported policies that prioritised price stability, efficiency and consumer welfare. To that extent, the economic settlement reflected societal preferences as well as political ideology. It was as much a reflection of societal choice as a policy imposed by governments.

We are paying a price

Unfortunately, the gains from a relatively laissez faire policy were unevenly distributed. Indeed, many of us have long argued that the pace at which large parts of the western world deindustrialised, particularly the UK, was always going to create the left-behind communities that politicians now struggle to engage with. Labour was far less mobile than capital, with the result that workers in former industrial regions could not simply retrain overnight or relocate at negligible cost. Skills were industry-specific; social networks were geographically rooted and housing markets were illiquid. What appeared as efficient reallocation in the macro numbers manifested locally as long-term unemployment, wage stagnation, deteriorating public services and social fragmentation.

Although the economic orthodoxy of the time assumed that the operation of market forces would generate new opportunities which would ultimately absorb displaced labour, the duration of the adjustment process was underestimated. In short, while deindustrialisation was perceived as economically rational, it was never economically costless. Perhaps the real problem was the absence of subsequent government engagement. Communities were told that there was nothing that governments could do to prevent the forces of globalisation ripping old industries apart and that they would have to reinvent themselves or face the consequences. Some of the old industries were admittedly unsustainable – coal mining for one – but governments could have done more to cushion the blow for other industries. In the UK, the government blew the windfall gains from oil revenues on tax cuts, rather than building a fund that could have provided support to those communities disadvantaged by the switch from coal to oil.

Thus, while countries such as Norway used resource windfalls to build long-term stabilisation mechanisms, the UK opted for rapid liberalisation with comparatively limited regional industrial policy. A similar position was adopted in the US. Successive governments ignored the fact that while many of the structural forces driving deindustrialisation were powerful and perhaps unavoidable to some degree, they gave little thought as to how society should manage the transition. This, in my view, is why you can debate Rubio’s position from both sides. Deindustrialisation can be seen as a response to the turmoil of the 1970s. We could have struggled on, supporting old industries in a stagnant economy. But the good times of the late-1980s and 1990s would not have happened, and China would have industrialised anyway. Or governments could attempt to fix things – which they did, albeit imperfectly.

Deindustrialisation and parallels with the AI revolution

Advances in AI threaten to unleash even more economic turmoil, for which governments around the world are woefully unprepared. If this popular essay is any guide, the AI models available today are “unrecognizable from what existed even six months ago ... ” and they are coming for your job. This excellent paper by Charles Jones (well worth a read) argues that “AI will likely be the most important technology we have ever developed” and poses the question “What if machines … can perform every task a human can do but more cheaply?” The object here is not to debate what AI can do, nor whether it will replace human labour (we can deal with that issue another time). The more immediate point is that transformative technologies have the power to reshape economies and societies at extraordinary speed. If the risks appear large enough, perhaps we should be trying to pause or even halt the process. But is that remotely feasible? Can you imagine the political backlash from figures such as Rubio if governments were to act in such a way?

The deeper issue is not whether we should stop AI, but whether we could. Once a technology offers clear economic, strategic or military advantages, it acquires a momentum of its own. No major economy can afford to fall behind; no government wishes to explain why it chose restraint while rivals accelerated. In that sense, technological change is not always a policy choice. It can become a structural inevitability. Deindustrialisation in advanced economies forty years ago followed just such a path. It was politically contentious and socially painful, yet in a world of global competition and mobile capital it proved effectively irreversible. AI may represent a similar moment. The real danger lies not in the technology itself but in the illusion that it can be switched off. The task for policymakers is not prevention, but preparation because history suggests that once transformation begins, it rarely asks permission.

Last word

Precisely because the combination of technology and politics is a process rather than a discrete choice, Rubio is wrong to suggest that deindustrialisation was simply a matter of political will. It represented the cumulative consequence of a policy regime that prioritised capital mobility, trade liberalisation and financial integration. It is true that governments could have done more to mitigate the costs, but once advanced economies committed to that path the industrial base adjusted accordingly. At that point, reversal would have required costs and disruptions far greater than those incurred by continuation. What began as a series of policy choices hardened into economic structure.

AI may follow the same trajectory. Early regulatory decisions matter, but once firms – and indeed wider society – reorganise production around algorithmic systems and autonomous capabilities become embedded, restraint becomes extraordinarily costly. The question is not whether policymakers approve of the direction of travel, but whether they are prepared for its consequences. As of now, they are not. It is important to be aware of this because, when future politicians tell us of the mistakes our society made, we should remember that many of the choices made were not ours to take.

2026: TrAIumphalism

If 2025 was the year when artificial intelligence escaped the laboratory and Donald Trump escaped political gravity, 2026 will see the consequences of these events play out further on the global stage. It will be another year dominated by political and policy uncertainty, with cyclical economic considerations likely to take a backseat as policymakers grapple with changing geopolitical circumstances. That said, worries of a bursting of the AI bubble will keep policymakers on their toes, as markets party like it was 1999. However, the crucial difference between today and the dawn of the millennium is that we are no longer basking in the glow of the peace dividend that formed the backdrop to the economic environment of the time. Consumers are anxious; governments are heavily indebted and policy choices are more constrained. Buckle up for another trip around the sun.

Rampant Trumpism

Trade policy dominated the first half of 2025 as President Trump followed through on his threat to use tariffs as a means of extracting concessions from trading partners. By September 2025, the average effective US import tariff rate stood at 10.65%, up from 2.2% in January. Analysis conducted by UPenn Wharton suggests that tariff rate changes generated $124.5 bn in net customs revenue in the first nine months of 2025, while importer shifts in purchasing behaviour reduced potential revenue by only $31.5 bn. In other words, they achieved the goal of revenue generation without derailing the economy, which may embolden Trump to further weaponize trade. But the longer-term effects have yet to feed through. Consumers do not like paying higher prices while the full impacts on growth and inflation have yet to be felt. Bottom line: We can expect to hear more on Trump and tariffs in 2026.

Meanwhile, Jay Powell’s term as Fed Chair will end in May. Concerns that his successor will be more willing to accede to Trump’s demands for looser monetary policy in order to boost growth has the potential to undermine Fed independence. Markets will be keeping a close eye on this issue.

But it is in the realm of geopolitics where Trump will have the biggest influence. In 2024 he promised that “when I’m back in the White House, we will expel the warmongers, the profiteers … and we will restore world peace.” Admittedly, he did enforce a deal in the Middle East in 2025, but this is honoured more in the breach, and he has had no impact on ending the war in Ukraine, despite promising in June 2024 that “I will have that war settled between Putin and Zelenskyy as president-elect before I take office.” Indeed, Trump’s casual disregard for Russian activities close to NATO’s borders (and sometimes inside them) has undermined trust in US willingness to guarantee European security. US military strikes against Iran and Nigeria demonstrate that Trump is not shy about projecting force. But the January 2026 action to overthrow Venezuelan president Maduro, with Trump promising to run the country “until such time as we can do a safe, proper and judicious transition” has raised question marks around whether his foreign policy is ultimately guided by a coherent vision of peace or by transactional calculations that vary from case to case. The result is not disengagement, but an erratic form of activism that has left allies uncertain, adversaries emboldened and global risks harder to price.

As The Economist noted at the end of 2025, the main beneficiary of Trump’s bombast is China. It resisted US tariff pressure, exposing how dependent America and its allies remain on Chinese manufacturing value chains. Moreover, Trump’s strategy has often played into China’s hands. Bilateral tariffs alienated allies rather than building a coordinated response, while attacks on science funding, immigration and foreign researchers will ultimately weaken America’s innovative edge.

The 2026 Midterms may act as a check on Trump’s ambitions. The smart money suggests that the House of Representatives is likely to come under Democratic control following next November’s elections, with the result that a divided Congress will mount some serious opposition to his plans. History is on the Democrats’ side: Only twice in 14 Midterms since 1970 has the House majority aligned with the President’s party. In addition, Trump’s net approval ratings are in negative territory, though admittedly by less than at this point during his first term (although his approval rating has dropped faster, albeit from a higher starting point in 2025). But it would be unwise to fall back on historical patterns to justify betting against him – after all, this is a President who revels in tearing up the rulebook.

AI caramba

Progress in AI will continue to dominate the economic conversation. The most pressing concern for policymakers is the prospect that the AI bubble will burst, dragging down markets in its wake, in much the same way as happened in 2001 following the deflation of the tech bubble. This is a valid concern: Market concentration is high, with the Magnificent 7 accounting for 34% of the S&P500 market cap. Market valuations also look exceptionally toppy, with Robert Shiller’s CAPE measure estimated to have reached 39.4x in December – a value exceeded only in 1999-2000 on data back to 1881. Indeed, the OBR was so concerned about the prospect of spillover effects from a global equity price correction that the November EFO included a scenario in which a 35% decline in equity prices was estimated to produce a 0.6% reduction in UK GDP in 2027-28. It is not only the financial markets which are increasingly AI dependent: In the first half of 2025, business investment in information processing equipment accounted for the bulk of US GDP growth. Any reversal of the AI boom could have significant impacts on the real economy.

While caution is warranted, there are significant differences to the 1999-2000 boom. The current AI cycle is driven by profitable, cash-rich companies which are experiencing robust demand for their products. Admittedly, expectations have outstripped earnings growth as investors engage in a process of price discovery in a wholly new environment, so some wobbles are likely along the way. But there is real demand for the products emerging from the latest AI revolution, backed by an emerging infrastructure. A key trend in 2026 will be the continued shift from experimentation to integration as corporates begin to embed generative AI tools more deeply into core business processes. This will drive productivity gains, although these are likely to be uneven and manifest in ways that are hard to measure in conventional statistics. As with past general-purpose technologies, the biggest effects will come not from flashy applications but from mundane process redesign: faster coding cycles, cheaper discovery processes and increasingly automated customer support functions.

This may add to social tensions as large companies with data, capital and managerial capacity pull further ahead, while smaller firms struggle to keep up. There are increasing concerns that graduate entry level jobs will feel the AI squeeze as white-collar occupations once thought relatively insulated from automation become vulnerable to the application of new technology. The political significance of this phenomenon will increase in 2026, especially as it collides with an already febrile debate about inequality, immigration and cultural change. We see these concerns manifested in the rise of political populism across Europe and the US. 2026 will likely see further declines in the popularity of centrist politicians (Emmanuel Macron and Keir Starmer to name but two) as they struggle to manage the fallout from these competing forces and deliver a return of the feelgood factor that they have long promised their electorates.

Other things to watch

In the absence of any shocks, there are few things to get excited about on the macro front although fiscal policy across the industrialised world remains an area to watch. In the US, Trump’s bias towards tax cuts balanced with (theoretical) spending restraint may start to put some strain on Treasury markets, especially if the new Fed Chair is perceived as soft on inflation. Across the wider world, high debt levels and interest rates which are considerably higher than four years ago will limit government’s room for fiscal manoeuvre. Markets are unlikely to be prepared to fund unlimited borrowing, while voters are not willing to pay higher taxes. This can has been kicked down the road for so long that it is one that most people ignore. We may do so at our peril.

Geopolitically, the world remains unsettled. The risk in 2026 is less of sudden escalation than of chronic instability as conflicts drag on, diplomatic frameworks weaken and international institutions struggle to command authority. For businesses and investors, the defining challenge of 2026 will be navigating a world where technological acceleration coincides with political friction. Scenario planning will become a core managerial skill as businesses will have to adjust rapidly to changing economic and geopolitical currents.

Clearly, 2026 will not be a year of calm. It will be a year in which the forces unleashed in the first half of the decade take firmer shape as we take another step along a road increasingly less framed by the post-1945 settlement. Never was Yogi Berra’s aphorism more apt: “The future ain't what it used to be.”