Weekly Economic Commentary: Regime Change


  • Reflections from Budapest

Hungary, perhaps more than most nations, is no stranger to regime change.

The settled history of the region dates to Roman times. A number of tribes inhabited the area during the first centuries after Christ; the Magyars arrived shortly before the end of the first millennium. The Magyars were overrun by the Mongols in the 1200s, and the Ottomans arrived in the 1500s. The Habsburgs took over from the Ottomans, ultimately founding the Austro-Hungarian Empire. The Empire dissolved after the First World War, and its territory was partitioned.

The Second World War began a long, challenging period for Hungary. First the Nazis and then the communists installed their versions of totalitarian rule, creating terribly unfortunate outcomes for Hungary’s people and its economy. It was scant compensation, but Hungary was allowed to begin experimenting with capitalism a bit earlier than other Eastern European states, chartering what was called “Goulash Communism” after Soviet tanks crushed the 1956 revolution.

Weekly Economic Commentary - 08/01/19 - Chart 1

As a result, Hungary was well-positioned to take advantage of the fall of the Berlin Wall. The Third Republic was established in 1989, and Hungary became one of the most dynamic markets in Europe. The long series of regime changes has ultimately resulted in an eclectic and resilient culture that attracts visitors and capital alike.

The term “regime change” unifies the range of topics that our group of economists explored together. On many fronts, dramatic breaks from past patterns are challenging our models and our sensibilities. As Hungary’s history shows us, our success at collectively acclimating to these changing times will determine our prosperity.

The group’s consensus outlook was the first sign of change. Since last year’s survey, growth prospects have been downgraded and recession probabilities upgraded. Policy postures seen last year as too easy are now viewed as about right. Our current collective concerns center on nationalism and protectionism, the populist movement’s economic manifesto. Just as countries are becoming more aggressive, international authorities are losing traction. A particularly troubling development is the influence of the World Trade Organization declining just as its caseload is rising.