Published in Quadrant (Sydney), 30 March 2026
Campaign slogans used to sell the future. In 1960, John F. Kennedy promised Americans a “New Frontier”. Bill Clinton chose Fleetwood Mac’s “Don’t Stop” as his anthem. Tony Blair swept into Downing Street to D:Ream’s “Things Can Only Get Better”. Gerhard Schröder promised Germans he would not do everything differently, but many things better. 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” implicitly claimed control had been surrendered. In 2022, Marine Le Pen campaigned for “La France qu’on M”, where the M stands for Marine but sounds like aime, love, as though present-day France no longer deserves affection. Something has shifted. The optimism that defined post-war 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?
Post-war democracy rested on an unspoken bargain. The system delivered rising prosperity, and in return citizens granted it legitimacy. Two forces underwrote the deal: young, growing populations, and compounding productivity gains that allowed Western governments to expand services and preside over rising living standards for decades. Both these forces have waned but the spending commitments they funded have not. Now, we face a civilisational problem disguised as a fiscal one.
For three decades after 1945, Western economies grew at rates that now seem fantastical. West Germany’s Wirtschaftswunder (economic miracle) delivered average annual growth of around 8 per cent through the 1950s. In France’s Trente Glorieuses (thirty glorious years) after 1945, real wages doubled. 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, destroyed not just factories but parasitic interest groups and cartels that crippled pre-war economies. Without those lobbies, competition flourished.
We should think more about Olson, not because his account is universally accepted, but because of what it implies. If he was even half right, the golden era was built on a clean slate that no democracy can manufacture in peacetime. You cannot bomb your way to good governance, but bombs can inadvertently clear a path to it.
Post-war 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 seemingly 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.
But 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 sixty-five. 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 programs. 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 since the global financial crisis. In Australia and New Zealand, multi-factor productivity, which measures how well an economy combines labour and capital, has been essentially flat for much of the past two decades.
The arithmetic in the West is unforgiving. A shrinking share of the population is working-age. Stagnant output per worker cannot fund welfare states that were affordable when populations were young and economies boomed. No political program changes the maths.
Governments have responded to the incentives of democracies: by borrowing. Public debt as a share of GDP has risen sharply across the OECD over the past three decades. The average 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 issues. It ignores underfunded 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 the present value of every commitment a government has made but not funded to official debt. The totals are sobering.
In some European countries, the gap runs to several hundred per cent of GDP—three or four times the official figure. It shifts with assumptions about growth, interest rates and demographics. But even using the rosiest calculations, governments have promised far more than the headline statistics let on.
You cannot blame this on recklessness or bad faith. Promises made during the years of plenty cannot be met because the economy no longer grows fast enough. Yet voter expectations haven’t changed, so borrowing fills the gap, the kind that shows up on the books and the kind that doesn’t.
But debt is a claim on future income. If income is growing slowly, the debt becomes harder to service, leaving less money for the services that justify borrowing. Each generation inherits a larger bill and a smaller capacity to pay it.
If the problem is clear, why haven’t democracies adjusted?
To start with, any elected government faces incentives. Finn Kydland and Edward Prescott won a Nobel Prize for a deceptively simple insight they called “time inconsistency”, developed for monetary policy but now widely applied to fiscal decisions. It says people and institutions know what they ought to do but abandon those plans when pressure 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. Economists have proposed debt brakes and fiscal rules, the political equivalent of Odysseus lashing himself to the mast to resist the Sirens. But unlike Odysseus, democratic governments can—and do—untie the ropes whenever they want to.
Then there is the ratchet in public spending, first identified by Robert Higgs: crises push up expenditure, but it 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, not least because at each election, voters who depend on government transfers become a larger proportion of the total.
Worse, the true cost of the state has been hidden from citizens for over a century. In 1903, Amilcare Puviani laid out the playbook: rulers disguise the cost of government, and borrow instead of taxing. The resulting inflation is essentially a tax generated by government debt that consumers pay at the checkout. Politicians give unpleasant levies pleasant names. Germany’s “Solidarity Surcharge”, introduced as a temporary measure after reunification in 1990, quietly flowed into general revenue for three decades.
Puviani called these techniques fiscal illusion. By the time citizens work out what has been done, the bill is 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 tries would likely be replaced by one who promises not to.
In economics, this has been known for a long time, but our democracies continued to function while there was enough growth to paper over the cracks. But when growth disappears, Puviani’s illusion ceases to be purely fiscal. It becomes democratic as well. Every gain for one group comes at the expense of another. The budget is about who bears the cost of contraction. Politics becomes a vicious, negative-sum game.
We have seen this before. Democracies collapsed in the interwar period because economic failure destroyed their legitimacy. Weimar Germany is an obvious example. A republic that cannot deliver prosperity cannot long hold the allegiance of its citizens. When the economy stops working for ordinary people, strongmen who promise to fix it gain an audience.
As the economic dynamism of the West comes under pressure, the warning signs for democracies accumulate. In 2017, Pew Research found satisfaction with democracy was roughly evenly split in twelve high-income countries. By 2025, only 35 per cent were satisfied.
The generational picture is worse. The Open Society Barometer, surveying thirty countries, found 35 per cent of adults aged eighteen to thirty-five would support a strong leader who governed without legislatures or elections. Young voters in the West mostly turn out at significantly lower rates than the middle-aged.
This is alarming but understandable. For the young, the old deal no longer delivers. They cannot afford a house. Their wages do not keep pace with inflation. And they face growing taxes to fund promises made before they were born, from which they will never benefit.
Economic performance is one of the strongest predictors of satisfaction with democracy. Populism, declining trust in institutions, and the pervasive sense that the game is rigged, are symptoms. The disease is the end of material well-being that made democracy feel worthwhile.
Some countries have, at least for a while, reformed. Sweden restructured its pensions in the 1990s. Canada brought its fiscal house into order through deep cuts in the 1990s. New Zealand went through wrenching reform under Labour in the 1980s, as did Australia under Hawke and Keating. But 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 post-war 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 cannot promise a better future may not remain a democracy for long.
