Dear Reader,

Welcome to the fifth and final installment of this special series on the individuals who have been influential in shaping my worldview. I hope you enjoyed the penultimate essay yesterday, where I shared my thoughts on Lacy Hunt’s research into how the economy has become resistant to stimulus. If you missed it, you can access it here.

This series has been full of “big-ideas” that every investor ought to know about and understand. Picking my favorite one is like trying to choose among my children—impossible. Saying that, I do believe I have saved the biggest, and possibly the most important, for last.

Today, I am sending you my insights into famed historian Niall Ferguson’s argument behind why he believes the post-WWII liberal international order is over.

The vast majority of us have only lived (and invested) during a period when the liberal international order—defined as the framework of rules, alliances, and institutions that has promoted economic liberalization around the world since 1945—was growing in strength.

Most of us have taken for granted that globalization will continue to expand and markets open up as the liberal international order furthers its reach around the world. But the situation is changing, fast. The backlash against decades of unfettered globalization is picking up steam with support for populism on the rise and protectionist policies back in style. Worse, this is happening at a time when the US is less willing to play the global leadership role it has done since the end of WWII.

How this trend develops has serious implications for financial markets and the societies we live in. That’s why I had to share the insights I have gained from talking to Niall with you. This essay is going to change how you think about the world we live in.

I have included an excerpt from the Niall Ferguson article, below. When you click to read the full article, you can share your thoughts and feedback at the bottom of that page.

John Mauldin

What Does the End of the Liberal International
Order Mean for Markets?

Over the past four decades, globalization has enabled the transfer of millions of jobs from the US to various emerging-market countries. It changed the relative value of capital and labor all over the world. The top earners started getting a larger share of their income from investments than from their labor. They own the “means of production,” and the producers did increasingly well from the ’70s forward. 

Nobody paid much attention to the unevenly distributed benefits of globalization, until around 40 million Americans lost their jobs in the 2007–2009 recession. Now, the backlash has begun, and it’s not going to stop until the situation improves for those who have been left behind.

Globalization has lost its political support, and that raises an important question about the future of the global economy. If globalization has fallen out of favor with large swaths of the voting public, what does the future look like for the American-led order which has promoted economic liberalization and liberal values around the world since the end of WWII?

This system, defined as the Liberal International Order, is the framework of rules, alliances, and institutions that is credited with the relative peace and prosperity the world has enjoyed since 1945. So, if the order has lost support, will the world plunge into beggar-thy-neighbor protectionism? Worse, without the threat of military intervention by the US and its allies, will regional powers start to challenge one another?

One man answering these pressing questions is my good friend, Niall Ferguson.