Five years on from the Covid crisis you may be relieved to know this is not a piece about Personal Protective Equipment. PPE is also the abbreviation for Politics, Philosophy and Economics, arguably the most storied academic degree offered by the University of Oxford.

Favoured by many politicians, PPE graduates include David Cameron, William Hague, Ed Miliband, Ed Balls, Rishi Sunak, Yvette Cooper, Rachel Reeves and, erm, Liz Truss.

This perhaps reflects a recognition by many people seeking to rule the world that it is the interplay between these three disciplines that runs the world.

I would go further, though, and argue that most of the time the order in which these three subjects matter is actually EPP: economics followed by politics, then underpinned by a philosophy.

As James Carville, Bill Clinton’s 1992 election campaign strategist, famously quipped, “It’s the economy, stupid!”

This was an overt recognition that political careers are made and lost, and campaigns therefore fought, based on delivery or otherwise of an economic agenda.

Allow your politics to be influenced too much by a philosophy and you end with Trussonomics.

As result, although they wouldn’t wish to admit it, politicians often find themselves reacting to economic events rather than driving them. The 2008 Global Financial Crisis was a good example of this.

For this reason, leaders endeavour to keep the wheels going round on the economic bus to secure their political futures, thereby allowing them to remain in power long enough to pursue any political agenda.

Until now…

The second Trump Presidency has, for the first time in a long time, ushered in a period, perhaps only briefly, when politics leads economics.

We now have a White House that throws around tariffs like confetti, seeks to cut federal spending by adopting a scorched earth policy to the US civil service and, most prominently, wants to bring ‘peace’ at all costs – and potentially great cost depending on whose side you’re on – to both the Middle East and Ukraine.

This has left markets in reaction mode, with policymakers and investors alike having to adapt to whatever comes next from the US administration.

The challenge here is that there is arguably no underlying philosophy, beyond “making great television”.

I think this explains why markets have been relatively steady in one of the most politically volatile periods in recent memory. It is not that there is complacency about the political backdrop, it is more that there is cluelessness.

Perhaps that is changing now though. Following the US election result the S&P 500 index rose to a peak 8% gain in mid-January. Yesterday it closed 2.9% below where it stood on the 5th November 2024. Similarly, the MSCI All Companies World index is now exactly where it was before the election, having gained 7% in the interim.

Economics may yet reassert its influence over politics. That would probably be a good thing.