It may have been caused by what happened in 2008, or the causes may run deeper than that. We are witnessing it at work in the US, and the result is that there is a chance the global economy may be brought down to its knees. We are seeing it in the UK too, and in Europe it may yet erupt. This is the rise of extremism, and investors need to factor in its inherent risk.

There used to be an adage about voting that went something like this: If you haven’t voted labour before you are 30, there is something wrong with your heart. If you haven’t voted Conservative by the time you are 50, there is something wrong with your head.

That was back in the 1970s before the rise of New Labour, when the policies of both the Labour and Conservative parties look rather moderate compared to those of today. They used to say that James Callaghan was the best Conservative Prime Minister the Labour Party ever had. Ted Heath was so moderate he makes Nick Clegg seem like rabid extremist. Then in the late 1990s and early noughties, the two main parties were so similar, that to liken the gap that separated their ideology to the thickness of cigarette paper, was to exaggerate. It was boring. In those days you could turn up at the election booth unsure which way you were going to vote – with your heart and brain interchangeable.

It may that those old enough to remember those days wish they would return, particularly bearing in mind the way party politics in the UK has become so extreme. Ed Miliband seems to have decided his best course is to follow Francoise Hollande’s near suicidal economic policies. As for the Tories, with the possible exception of Mr Cameron, and Michael Heseltine, they are lurching so far to the right that they are in danger of making Attila the Hun look like a moderate. The finance crisis of 2008 was a symptom of capitalism not working. There was too much greed, too much inequality. Some seem to respond by saying: “Let’s have even more of that.”

So we blame immigrants, even though the UK has less immigration as a proportion of its population than other countries whose electorate seem far less concerned about this issue. We blame the EU, benefit cheats, and now the scurrilous unemployed. Two years ago a well-known personal finance writer, who now writes for the ‘Times’, suggested that the unemployed should not be allowed to vote. Now we are seeing policies that seem only one step removed from bringing back the workhouse. Don’t underestimate the seriousness of public attitudes. You only need to spend time looking at comments on Facebook, and you will see that xenophobia is rife. “I am no racist,” is the gist of many Facebook comments, “but I think all Muslims should go home.”

But the polarisation of UK politics is yet nothing compared to what we are seeing in the US. Such extremism threatens to bring down the global economy – and that’s no exaggeration. It doesn’t bear thinking about what will happen if the US defaults. In the Eurozone, we keep hearing about how we need to give things more time, to be patient, to let hard work win through. It seems that if we have seen such extremism rise in the US and the UK, then the prognosis for the Eurozone, where the economic plight of millions is much more serious, is truly terrifying.

All this is happening at a time when technology has the potential to change the world for the better.

It is tempting to say investors need to buy gold, in response. A surge in gold is surely the most likely response to US default. It is surprising that it has not risen more this week.

And yet there is hope. It’s not exaggerating to say that – providing politicians don’t do anything stupid, which they might – the UK is poised to enjoy its best economic run for a very long time. Maybe what the UK needs is many more years of coalition governments.

As for the US, the one thing about the US economy is its extraordinary ability to re-invent itself. What the world needs is for it to re-invent its political system.

 

© Investment & Business News 2013