Intelligence Squared

Is it Game Over for Keir Starmer? Martin Wolf for The Intelligence Squared Economic Outlook 2026 (Part Two)

February 16, 2026

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  • Populist governments, both left and right-wing, tend to entrench themselves for about 15 years by subverting electoral institutions, leading to significant GDP per head declines (10% for right-wing, 15% for left-wing). 
  • Disgruntlement leading to populism stems from colossal disruptions like deindustrialization and the financial crisis, which eroded public confidence in elites due to perceived incompetence and corruption. 
  • The AI boom presents three distinct aspects—transformative social/economic impact, unsustainable stock prices, and the risk of a major investment bubble bursting, which could trigger a severe global growth slowdown offset only by potentially unsustainable fiscal deficits. 

Segments

Populism’s Economic Damage
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(00:01:55)
  • Key Takeaway: Populist governments cause severe, long-lasting economic damage, with GDP per head falling by 10% (right-wing) or 15% (left-wing) after 15 entrenched years.
  • Summary: Populist governments tend to last about 15 years because they systematically subvert electoral institutions. Right-wing populism results in a 10% drop in GDP per head, while left-wing populism causes a 15% drop, largely due to the latter’s tendency to annul property rights, as seen in Venezuela under Chávez and Maduro.
Roots of Public Disgruntlement
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(00:04:20)
  • Key Takeaway: Public disgruntlement is rooted in the colossal social and economic shock of deindustrialization and the elites’ perceived incompetence following the 2008 financial crisis bailout.
  • Summary: Deindustrialization caused significant social and economic change, particularly in former industrial areas. The financial crisis severely damaged confidence in elites after the financial system imploded and was subsequently rescued while ordinary people faced stagnation. This loss of trust in institutions is a major driver of current political instability.
Davos Takeaways and Uncertainty
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(00:08:42)
  • Key Takeaway: Key Davos observations included the terrifying nature of Donald Trump’s rhetoric, the business community’s fear of antagonizing him, and the overwhelming excitement/anxiety surrounding the AI boom.
  • Summary: Donald Trump’s rhetoric was described as deeply offensive and contemptuous of allies, speaking like a despot. Business leaders are largely terrified to criticize him, though some, like Jamie Diamond, have taken a stand. The AI boom is viewed as a very big deal with massive ramifications, comparable to the 1990s internet revolution.
AI Boom: Risks and Opportunities
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(00:14:36)
  • Key Takeaway: The AI boom carries a nightmare scenario where a bursting investment bubble forces massive fiscal deficits onto already high debt levels, leading to a severe global slowdown.
  • Summary: The AI boom must be separated into its technology impact, stock market sustainability, and investment cycle. If the investment boom ends like the dot-com bubble, fiscal policy would need to offset the slowdown, potentially pushing US debt-to-GDP ratios to levels seen only after World War II, risking market instability.
Demographic Pressures and Debt
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(00:20:05)
  • Key Takeaway: The UK’s long-term debt path is unambiguously explosive under current policies, requiring drastic measures like higher average tax rates (towards 50%) or significant labor participation increases.
  • Summary: Governments cannot reverse demographic trends like low birth rates or easily implement politically toxic pension reforms. The Office for Budget Responsibility forecasts show an explosive debt path unless the UK accepts much higher taxation, substantially increases labor activity among older people, or achieves much higher sustained GDP growth.
Geopolitical Risk: Iran Conflict
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(00:34:57)
  • Key Takeaway: An American attack on Iran would have negligible economic impact unless Iran successfully closes the Straits of Hormuz, which would double oil prices and trigger an inflation shock similar to the second oil shock.
  • Summary: The economic impact of a direct US attack on Iran is expected to be minimal unless the Strait of Hormuz is closed. If the Strait is closed, it would halt about 25% of world oil supply, likely doubling oil prices and causing a massive worldwide inflationary spike, potentially leading to a ‘Volcker event’.
Historical Economic Perspective
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(00:38:18)
  • Key Takeaway: The post-1946 global economy experienced an unparalleled economic boom, with world GDP per head increasing five-fold, a feat unimaginable to those living in 1946.
  • Summary: The period between 1946 and the present day represents an economic boom unparalleled in world history, with real GDP per head increasing five-fold across most countries. This historical context suggests that extraordinarily good economic outcomes are possible, even if current outlooks appear uncertain.