Mainstream political parties normally claim that populist parties, if they ever got to power, would damage the economy. We have clear evidence that they are right, and right in a big way. A paper in the American Economic Review (one of the top economics journals) published nearly two years ago, looked at the macroeconomic consequences of populist regimes coming to power. The results can be summed up in the chart below (from this working paper version)
The black line is the average difference between GDP under a populist government compared to a counterfactual GDP without the populist government. If the populist government was in power for 15 years, GDP would be over 10% lower as a result of that government. I have used the analysis for right wing populists: for a similar chart for all populists see the paper, or this useful summary by Joel Suss in the FT.
There are obviously countless issues in any analysis of this type, like how a populist government is defined, how you do the counterfactual, how you ensure you are not getting reverse causality (i.e. bad economic times encourage the election of populists etc) and so on. For those interested in those issues the paper is very readable.
The UK is part of this data set, because it rightly labels the Johnson government as populist. We know that the Johnson government reduced UK GDP because of Brexit, by a total of 4% according to the OBR. But the UK’s response to the pandemic was also pretty bad in large part because of the Johnson government. So our own national experience is consistent with the chart above.
Besides GDP, the paper also finds that debt to GDP increases under a populist government, and there is weaker evidence that inflation also increases. The reasons why GDP falls under a populist government are only touched on in the paper, but they are pretty obvious. First, populist governments tend to restrict overseas trade: Brexit, and Trump’s tariffs, are clear examples. Putting barriers up that make overseas trade more difficult reduces GDP. The paper provides average effects for the impact of populism on trade, but it is more useful to look at the specific measures imposed by a particular populist government.
A second reason populist governments reduce GDP is that they make their countries less open to people from overseas, as well as goods from overseas. Populist governments tend to weaken an independent judicial system, and that among other things weakens the confidence of business to invest. Our current vintage of right wing populists appear very hostile to academia, and academia is where innovation starts, and where the expertise to implement innovation often comes from. Populists tend to devalue expertise, which allows them to make unrealistic promises on tax and spending, creating budgetary problems. I could go on with specifics, but more generally, societies where one part is ‘othered’ or declared the enemy within tend to work less well than those that are more unified. Societies where the governing elite is mainly concerned with making money at other people's expense work less well than societies where innovation is the key to becoming wealthy. [1]
One obvious question is why, if the macroeconomic impact of populist governments is so bad, they don’t get voted out of power quite quickly. Unfortunately they generally don’t. The paper estimates that on average populist governments tend to stay in power longer than other governments. There are two reasons for this depressing result. First, populists rig the democratic system to make their re-election more likely, either directly through gerrymandering for example or by restrictions on press freedom. Second, the social and economic reasons for the rise in populism tend to be persistent.
The topic of our time is why today iwe are seeing such a rise in right wing populism, populism that all too easily morphs into forms of fascism. It is of course important to understand why some groups of people are more receptive to populist messages than others. But in understanding why now is different from previous post-war decades, I don’t think that is where we should focus. In the UK, for example, the BNP has always had support, and racism used to be much more prevalent. What has changed over the last few decades is the attitude of the political and media elites.
When I started this blog, it was the early period of UK austerity and I was obsessed with how a UK government could disregard basic macroeconomics (don’t cut spending in a demand deficient recession where interest rates have hit their floor), but also why that policy was popular despite its disregard for what every first year economics student is taught. I talked a bit about the transmission mechanism between academic knowledge and policy, and how that mechanism can break down or be disrupted. Periods where expertise was ignored or contested could still then be considered undesirable departures from an accepted norm.
Of course since then we have had Brexit, which was another case where this breakdown occurred with devastating consequences for the UK economy. Unfortunately today political parties ignoring academic expertise has become routine. In the US we now have an administration that actively contests expertise not just in economics, but in climate science and medicine. I and many others have written extensively on how the media, owned by self-interested members of the plutocracy or run by their lackies, can not just ignore academic expertise but through propaganda counteract any influence it might have. [2]
For those who still doubt the critical role the media can play in all this just look at what has happened and is happening in the US. The biggest social media company bought up by someone who thinks Farage isn’t right wing enough for the UK, and who has changed that company so that it promotes the far right. US media that isn’t already owned by plutocrats who support Trump is being bought up by them. A media that once could be described as manufacturing consent is being turned into a propaganda machine for the Republicans and Trump. You can see the same processes starting in the UK. As Professor Emily Bell puts it in this fascinating discussion, “the patterns are almost exactly the same” in the UK and US.
The information and knowledge that populism severely damages the economy is there and is in the public domain, but the media increasingly acts to hide that from the public or distort that information so that much of the public never gets to understand it. Reality tends to win out in the end because it’s hard to disguise what is happening to people’s incomes, which is why Brexit is now much less popular than it was, but societies are increasingly losing their ability to avoid these pitfalls in advance. The reason this is happening is because a significant number of the ridiculously rich have decided their interests are served by promoting populism, and by investing in the means to promote populism.
[1] More speculatively, as right wing populists often appeal to a rose coloured view of the past as something to return to, it is not surprising that they enact policies that take society backwards. There also seems to be an aversion against current sacrifice for future gain.
[2] It is sometimes claimed that those voting for populists don’t care about negative economic effects. I think this may be true for a minority, but is not true for most. Those who voted for Brexit were significantly more optimistic about the economy because they believed the lies about ‘project fear’ and more money for the NHS.
No comments:
Post a Comment
Unfortunately because of spam with embedded links (which then flag up warnings about the whole site on some browsers), I have to personally moderate all comments. As a result, your comment may not appear for some time. In addition, I cannot publish comments with links to websites because it takes too much time to check whether these sites are legitimate.