The economic cost of populism

https://www.aeaweb.org/articles?id=10.1257/aer.20202045&from=f

by sieste • 3 years ago

43 65 3 years ago

We build a new long run cross- country database to study the macroeconomic history of populism. We identify 51 populist presidents and prime ministers from 1900 to 2020 and show that the economic cost of populism is high. After 15 years, GDP per capita is 10% lower compared to a plausible non-populist counterfactual. Economic disintegration, decreasing macroeconomic stability, and the erosion of institutions typically go hand in hand with populist rule.

It's interesting to take the words in this abstract on face value alone.

Populism is a range of political stances that emphasize the idea of "the people" and often juxtapose this group against "the elite" [0].

An economy is an area of the production, distribution and trade, as well as consumption of goods and services [1].

So, when the people get what they want, they do less work and consume less.

Are we missing something?

[0] https://en.wikipedia.org/wiki/Populism

[1] https://en.wikipedia.org/wiki/Economy

LaundroMat2• 3 years ago

I don't have access to the article, but do they define "populism" in it?

The same Wikipedia article you linked to also says

In popular discourse—where the term has often been used pejoratively—it has sometimes been used synonymously with demagogy, to describe politicians who present overly simplistic answers to complex questions in a highly emotional manner, or with political opportunism, to characterise politicians who seek to please voters without rational consideration as to the best course of action.

With this definition, it's not about getting people what they want.

nonrandomstring4• 3 years ago

I think that's closer to the definition I adhere to as well.

So I think there are two "dirty" words in this abstract, 'populism' and 'economy', both of which assume meanings as the interpreter pleases, hence my distate at the prima facie "woollyness" of the research.

LAC-Tech4• 3 years ago

Yeah someone else linked it. It was fairly meaningless:

According to today’s workhorse definition, populism is defined as a political style centered on the supposed struggle of “people vs. the establishment” (Mudde 2004). Populists place the narrative of “people vs. elites” at the center of their political agenda and then claim to be the sole representative of “the people.” This definition has become increasingly dominant, and is now also widely used by economists (see Section 2, and the recent survey paper by Guriev and Papaioannou, 2020). Populist leaders claim to represent the “true, common people” against the dishonest “elites,” thus separating society into two seemingly homogeneous and antagonistic groups.

TeeMassive4• 3 years ago

I'm a populist and read and follow quite a few populist intellectuals.

My definition of populism is a political doctrine whose goal is to distribute power and decision making towards the people.

It differs from socialism whose focus is the distribution of wealth, traditionally done through a centralized decision making process.

It also differs from conservatism where an elite enforces strong moral rules and traditionally defers to big private institutions.

Populism is firmly opposed to demagogy. Demagogy is the practice of charismatic leaders to make fantastic promises if they'll be given more power. They do not empower the people, they empower themselves.

willis9362• 3 years ago

That Nazi regime accomplished a lot of work. Hitler is history's most successful populist. Did he help Germany's bottom line?

RandomLensman8• 3 years ago

By what measure was Hitler a successful populist? He needed other parties to get into power and then a huge suppression apparatus to stay in power.

Tainnor• 3 years ago

German cities in rubble and a divided Germany. That's the result of Nazi rule. It probably didn't help Germany's bottom line.

cstross• 3 years ago

It's decades since I read him, but per William Shirer, by 1939 the Third Reich was facing looming bankruptcy (by turning a firehose of cash on its problems—creating make-work jobs, running a massive rearmamanent program, building up huge armed forces, and bread and circuses). Indeed from one perspective the post-1938 expansion of Hitler's reich was driven by the urgent need to steal money and resources from the neighbours to stave off a total economic collapse.

Like turning to bank robbery to pay off the maxed-out credit cards. (Which works for a short while, right up until you hit a bank with a SWAT team waiting for you.)

AstralStorm• 3 years ago

Ultimately quite the opposite, and the only reason Germany got back up so well after the war is because it was subject to Marshall's Plan investment on the West, and on the East side was a demo of how good the Soviets are.

TeeMassive4• 3 years ago

The Nazis were very elitist and extended the power and interventionism of the economy to its extremes. In terms of votes they never were popular. They were the opposite of populists.

toss14• 3 years ago

>Are we missing something?

Yes

H.L.Menken: For every complex problem there is an answer that is clear, simple, and wrong.

Populism is about revenge of the narcissistic dullards who are sick of the experts getting to say how things run and what to do.

Just because experts also get it wrong sometimes doesn't mean that they should be thrown out, yet the populists are happy to do it (usually backed by behind-the-scenes moneyed interests who want to destroy regulations preventing them from externalizing costs)

Their populist leaders throw out or disregard the experts, and start letting the moneyed interests externalize costs in thousands of frankly stupider (but popular) decisions. It also popularizes things like bigotry and anti-science aggression, which increases friction and bad decisions in the private sphere. These bad decisions seem great at first, but eventually accumulate to a far poorer performing economy & society.

Populism literally corrodes the foundations of a complex & successful society.

nonrandomstring4• 3 years ago

narcissistic dullards who are sick of the experts getting to say how things run and what to do.

I'm not picking on a easy whipping boy, but isn't that a rather good description of Mark Zuckerberg, his well documented disdain for the establishment, authority and traditional structure?

Might it also encompass more of us "entrepreneurs" and hackers than we care to admit? All of us who regularly feel "all these so-called experts...they're doing it wrong! Let me show you"

Challengers to the incumbents aren't necessarily always destructive, simply iconoclastic. They're part of a dynamic [0].

Perhaps "populism" is a more complex concept than we, and the linked paper, are giving credit for (in a narrow political frame of "economics". Whose economics?

[0] A complex dynamic between "elites" and "masses" that is well analysed by Adam Curtis in many documetray projects.

inglor_cz2• 3 years ago

Your argument somewhat hinges on supposed existence of experts who know how things run and what to do.

Are there even such experts with regard to the economy? The economic academia is full of competing schools of thought which prescribe completely incompatible recipes how to run things.

Which of those are experts and which are fakes? Which one of those schools would you choose to run things in your country?

There was an interesting example of Pinochet choosing the Chicagoans to run the economy in Chile. Chile certainly grew in GDP, but it also grew a bunch of societal problems coming from inequality, and once Pinochet was gone, the Left resurged, though arguably not to the levels seen before.

tomComb• 3 years ago

You’ve made a big leap in your assumption about how populism produced less economic activity.

Maybe populism’s disregard for democratic institutions resulted in more corruption which hurt growth?

Neither of us know.

amelius• 3 years ago

GP is wrong, in populism people never get what they want because the populist leader uses fear to control them.

One result of this fear play is that these people don't take the right decisions and thus fail to make their personal finances a factor in what they vote for, leading to economic losses.

abecedarius2• 3 years ago

The paper does try to look into some outcomes besides GDP growth, including indices of inequality and democratic institutions. They don't see evidence of improvements there.

Obviously these are hard to resolve in statistics, and people are biased towards their preferred pictures (both ways).

ksey3• 3 years ago

What we are missing is industry. People and politicians by themselves really cant take on the financial sector. They are the modern day rent collecting feudal lords.

The Financial Sector(banks/insurers/real estate/stocks/bonds) has a much larger say on the allocation of resources (the economy) than anyone else including politicians and individual corporations.

The counter balance is not just people. It has to come from people+industry. The western industries have basically been hollowed out thanks to financialization.

Even Google and Apple bow to the shareholder. The shareholder doesn't do any actually work, but is sitting on his ass demanding greater rewards even if it means fucking others over, or even the entire system. Same thing with real estate and insurance. So we end up with monopolies.

Now the system is fucked, cause we have already peaked in terms of customers available to milk. Everyone is in debt to keep things afloat. The FED balance sheet has jumped from 900 billion to 9 trillion in mostly junk debt. People/Politicians we already saw during 2008 gfc folded, when they had a real shot at change.

Its in the interest of Google, Apple et al to use their influence to get on the right side of this.

RandomLensman8• 3 years ago

A lot of the capital allocation is driven by rules and regulation (incl. on taxation) - the political say is much bigger than you make it out to be.

api• 3 years ago

The shareholder of big companies is usually other big companies, universities, or… the people. The people own these things by way of retirement funds, savings accounts, CDs, index funds, etc. It’s just that they are often unaware.

The financial industry definitely has outsized power and charges excessive fees but the situation is not at all as simple as the financial industry owning everything. It’s a complicated web of ownership with finance being deeply embedded within it and controlling a lot of the hubs of the network effect.

FrustratedMonky2• 3 years ago

They do not get what they want.

The theory is that 'populist' got in by being 'popular' NOT being 'good at governing'.

Work Example: It's a form of the guy that gets promoted just because he is friendly with the boss.

The people are the boss, and he got in because he sucked up to them. Told them what they wanted to hear, but can't really do it, or do anything well.

PicassoCTs• 3 years ago

The ugly truth is that human society is not crisis stable. As in, if there is not a constant economic surplus, society falls apart into little "wartribes" ready to go at each others throat- or one huge wartribe ready to got at a external others throat. Populism, is just the first democratic expression of this falling apart. So embrace eternal surplus providing, embrace ritualistic slaughter, embrace ritualistic civil war or try to hack human nature.

adamors• 3 years ago

Would be interesting to read it but it’s behind membershipwall

dmwilcox• 3 years ago

Long live the philosopher king??

I mean only somewhat in jest this is precisely the debate going on since Plato's not so subtle critiques of Pericles' Athens circa 400 BC

hansmeierbaum• 3 years ago

PDF (working paper version): https://s28d3fe3418cce1f4.jimcontent.com/download/version/16...

LAC-Tech4• 3 years ago

The resurgence of the term "populism" has always been curious to me.

As far as I can tell it means "people not voting how they are supposed to". Much like how we have ousting/coup, freedom-fighter/terrorist, government/regime, we have democracy/populism.

febra_• 3 years ago

What about the alt/far-right? They fall under the umbrella of populism and seem quite dangerous, especially towards minorities.

LAC-Tech4• 3 years ago

Sorry I don't quite understand what you're asking.

vixen99• 3 years ago

I understand the sense and to what end the term populist is often used but to what extent is a political party that wins an election, a populist party given that it's the most popular party? Does a landslide election result mean the winning party is a populist party? If not, why not? As to your question: can you give specific examples to clarify what you mean?

TeeMassive4• 3 years ago

They're elitists, no populists.

hkpack2• 3 years ago

For the majority of cases, it just means "ignore the complexity of reality and go with the simple solution".

Sometimes, populists do really believe in what they are saying and doing. And the simplicity is what makes them popular - hence populism.

The problem is that reality doesn't care. I have yet to see the case when following a populist leader doesn't end up in a disaster.

LAC-Tech4• 3 years ago

Essentially a meaningless term then. Everyone in mainstream politics has to present some kind of simple solution that ignores the complexities of the problem, because you can't pass a complex solution through a media filter and get voters out the other side.

So everything is populist. Again which makes the term meaningless.

TeeMassive4• 3 years ago

The alternative is what? Always defer to expert elites just because they pretend to have a grasp on the "complexity of reality" as good philosopher kings?

How did that ever not ended up in disaster and the worse calamities?

carlosjobim• 3 years ago

Don't forget that when foreign leaders do something our leaders do not like, they are "un-democratic", even if their people have explicitly asked them to do such a thing by vote.

mberning• 3 years ago

40+ years of hollowing out the middle working class has clearly not been good. Unless you are in the billionaire class. Revolutions happen when a certain proportion of people cannot attain the necessities of life. Food, shelter, work, family. It can and will be branded many ways, populism, nationalism, protectionism, whatever, but the root cause is a real problem and the billionaire masters of the universe do not want to see it solved.

sdeframond• 3 years ago

So, is it causation or correlation ?

ThomPete• 3 years ago

Completely meaningles.

Calculating based on vague terms like populism is so in the eye of the beholder.

Why is this even a thing?

peyton• 3 years ago

Their “synthetic doppelgänger economy” seems a little off. Fig B1 Burlesconi 2001 is particularly egregious.

mark_l_watson• 3 years ago

So what? GDP is also increased with more wars, and other activities that enrich the elites and usually do much less for middle and lower classes.

I would like to see the “happiness index’ for populist vs. non-populist led countries. Since counterfactuals are used in the abstract, I will add one: normalize for each countries’ naturual resources.

pydry4• 3 years ago

This. If the populist leader reduces the GDP by 2% and decreases a high gini coefficient by 0.2 that's a hit-it-out-of-the-park economic win for the majority of people.

Not according to the authors of the study, obviously. To them an extra 80 cents in a homeless guy's pocket is worse for everybody than an extra dollar in Bill Gates' pocket.

Then there's the reversal of cause and effect - were those populists the cause of economic decline or did they get into power because they were surfing a wave of resentment caused by it? Were the economic decline and the populist leader both caused by external actors cough Ukraine cough?

Manuel Funke, Moritz Schularick and Christoph Trebesch say "we show that the economic cost of populism is high" so no, they clearly they don't think that this is a plausible explanation but they also don't seem to have accounted for it.

abecedarius2• 3 years ago

The paper covers data on gini coefficients and sees no evidence of its reduction.

seydor• 3 years ago

10% is not high. (some) Populism is part and parcel of democracy. Taking an example out of China it seems authoritarianism is good for GDP. so what?

The economic cost of populism

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