Tomorrow it will be two months since Donald Trump and Benyamin Netanyahu started their unwarranted attack on Iran. They took the whole world by surprise and have, since then, caused massive global havoc, mostly economically. The effects of Trump’s tariffs pale in contrast.
But look back almost exactly four years for a similar misadventure. Vladimir Putin attacked Ukraine, and caused havoc, even though the scale of disruption was nowhere as severe as it is now — and it’s only just begun. Nevertheless, a lot of damage was caused by Putin also.
Why do these super-muscular, less than intelligent leaders do this? And come to grief? These superpowers have been failing regularly: the US failed in Vietnam and the USSR in Afghanistan.
These were the two big failures but there are lots more smaller ones, like Cuba in 1962 for the US, and Angola for the USSR between 1975 and 1992.
This doesn’t mean that they have never won. But the victories have been small. Granada, Nicaragua, Chechnya, Crimea are a few that come to mind. Big deal. Any gorilla can swat a fly.
Mostly, though, it’s been stalemate or defeat which has caused these countries massive reputational damage. The two superpowers, muscle notwithstanding, in any real sense of the term, have ceased to be superpowers after such disastrous encounters.
The USSR after Afghanistan is a stark case in point and now, very possibly, the US after Iran. The USSR actually broke up into 15 parts.
What remains is modern day Russia which sells energy and weapons and absolutely nothing else. That’s what the Afghans did to the USSR. Reduced it to a bipolar economy which is now a vassal of China.
The denouement
Such a breakup will not happen to the US. Nevertheless, the Iranians are doing to the US what the Afghans did to the USSR: showing that the emperor has no clothes. Chances are that the US, too, will become a seller of technology, energy and weapons. Tariffs will not change the fact that its industrial economy is an uncompetitive and sclerotic joke.
Above all, however, it’s the loss of ability to bully others. They try, of course, but progressively other countries stop taking them very seriously. Even the European Union is now telling the US to take a walk which is quite a change.
It’s not as if this is happening for the first time. It’s been happening for at least 1,500 years: Rome, Turkey, Britain, etc., were all superpowers in their day. The difference between then and now is the pace at which a superpower ceases to be one. What took several decades earlier, now happens in a single decade.
Usually there are some saving graces. In the case of the USSR it is oil, gas and weapons that allow it to assert itself. In the case of the US it is technology and finance. But these advantages don’t compensate for the perception that they are countries where stupidity dominates policy.
Sadly for the gorillas, the advantage doesn’t last forever, as older superpowers discovered when decline started. Random unforeseen events can leave a superpower stranded because of hugely enhanced vulnerabilities that gradually become apparent to all.
Spectre of unemployment
It’s hard to pinpoint the details of the likely consequences of a superpower’s loss of power, but one overall thing is certain: it is always accompanied by a massive disruption of economic life.
This time around higher energy costs, along with the need to keep shareholders happy, will result in non-governmental employers turning to labour substitution in a big way.
So there’s going to be massive unemployment because of the double whammy of costly energy and easy capital injection via AI. The last time unemployment on this scale happened was in the 1930s during the Great Depression. That’s why Keynes came up with his solution that governments must intervene to prop up demand.
But will standard Keynesian solutions work now? Yes, but only to a very limited extent because the capacity of governments to intervene has also been severely impaired after the financial crisis of 2008. You only have to read the IMF’s warnings on national debt to see why.
There will also be a big increase in inflation because of supply disruptions. Once again there’s absolutely nothing that governments can do to increase supply.
I hope I am dead wrong but a decade of directionless economic activity awaits the world. We are going to see a huge reduction in both aggregate demand and aggregate supply.
This has already begun to happen and it will only get worse. As in the past a single, delusional leader has done this.
Published on April 27, 2026