All you need is growth

Trust in government has sunk to all-time lows across most developed countries. And if it is not at an all-time low, it is close to it. At every election, people kick out the previous government, vote in a new bunch, realise that they aren’t any better, and then the cycle starts again. How can an incoming government break that cycle? To paraphrase Warren Buffett, the answer is simple, but not easy.

In 2011, the Quarterly Journal of Economics published what I consider one of the most important economics papers in the 21^st century. Ulrike Malmendier and Stefan Nagel’s Depression Babies showed how experiences shape our attitude towards investments, the economy and politics, not just in the moment and the immediate aftermath, but for the rest of our lives. The experience of the Great Depression could be seen in attitudes some eight decades later.

A new paper in the same journal looks at the relationship between trust in government and lifetime experience of economic growth. The charts below show the experience of Americans born in the late 19^th and early 20^th century and those born in the second half of the 20^th century. The horizontal axis shows the average real GDP growth per year in the US during their lifetime (to the year shown on top of each chart) and compares it with their trust in the US federal government as measured in surveys. People who experienced higher average economic growth during their lifetime trusted the government more.

Trust in government and lifetime growth experience of US cohorts

Source: Besley et al. (2026)

What works across generations of Americans can also be seen in international comparisons. The chart below compares the average annual GDP growth from 2009 to 2019 across countries with the trust in government. Countries with low growth, like Greece, Italy or Japan, show very low levels of trust in government, while countries with high growth, like China, Bangladesh and Ethiopia, show high levels of trust.

Trust in government and growth from 2009 to 2019 across countries

Source: Besley et al. (2026)

Of course, there are many interlinkages between growth and trust in government. If corruption is rampant in a country, it will undermine trust in government and lower growth at the same time. Meanwhile, a country like Mongolia has seen high growth as it has benefited from the rise of China, but trust in the government remains incredibly low.

The dynamics are complex, but I the results confirm my belief that all politics is based on economics. If people don’t feel like things are getting better, no government can survive. Meanwhile, if people feel like things are getting better for them, they will accept a whole lot of misery in other domains of life (look at the illiberal democracies or authoritarian countries with high growth). “It’s the economy, stupid”, helped Bill Clinton into the White House, and it remains as true today as it was back then.

But here is the bad news for most of us and for aspiring politicians in particular: Growth is not going to get better in the future. Trend growth is declining across the developed world and in much of the developing world as well.

Expected trend growth rates per decade

Source: OECD

An ageing population and slowing productivity growth (despite AI and all the other technological advances) conspire to a dismal future where growth declines decade after decade. And that means political stability is unlikely to return for long unless we finally come to our collective senses and accept that the promises that governments made to us in the past (pension systems, social welfare systems) are simply not sustainable and that we have to make hard choices. But I doubt that any political party is willing to confront these hard choices. And in democracies, I remain convinced that no politician who tells the truth to voters about these hard choices will ever be elected.

Happy days are coming….