Populism's Common Denominator

Barry Eichengreen

Populism's Common Denominator

What unites supporters of authoritarian, upstart politicians like US President Donald Trump and Brazilian President-elect Jair Bolsonaro is revulsion against the corruption of the political process. But voters will learn the hard way that strongman rule exacerbates rather than mitigates corruption.

BRUSSELS – Following Emmanuel Macron’s election as president of France in May 2017, global elites breathed a sigh of relief. The populist wave, they reassured themselves, had crested. Voters had regained their sanity. Helped along by an electoral system in which the two leading candidates faced off in a second round, the “silent majority” had united behind the centrist candidate in the runoff.

But now we have Brazil’s presidential election, in which Jair Bolsonaro, who displays the authoritarian, anti-establishment, and anti-other tendencies of a textbook populist, won decisively in the second round. A two-round electoral system in which the runoff pits a populist outsider against the last mainstream candidate standing is no guarantee, evidently, that the center will hold.

A similar lesson flows from Italy’s election earlier this year. The country’s electoral rules had been reformed to add a majoritarian element to its proportional representation system, the goal being to encourage pre-election coalition building among mainstream parties. Instead, it brought to power a coalition of the populist left and right. Electoral engineering, it would seem, is not only ineffective in beating back the extremist threat; it can have unintended, counterproductive consequences.

Containing populism, it follows, requires more than fine-tuning the electoral system. It requires addressing the basic grievances responsible for voters’ rejection of mainstream politicians and parties in the first place.

Unfortunately, there is little agreement about the nature of those grievances and therefore no consensus on how to respond.

One view, naturally favored by economists, is that economic complaints are at the root of the populist revolt. Italy has experienced stagnant productivity growth for more than two decades, while unemployment – particularly youth unemployment – has risen to devastating levels. Brazil, having only recently become accustomed to the status of a fast-growing economy, experienced a massive recession in 2015-2016, and 2018 is shaping up to be another bleak year.

But the US fits awkwardly into this mold. By the time of the 2016 election that brought President Donald Trump to power, the US economy had been expanding for six consecutive years. This is a reminder that populism is about more than economic growth. It is also about distribution, something that is equally a problem in Italy and Brazil. And it is about economic insecurity: Even those who are benefiting now have doubts about whether they – and their children – will benefit in the future.

Still, the booming US economy should at least give pause to those who favor the narrowly economic interpretation of the current wave of populism.

Alternatively, the current wave of populism has been viewed as a response to the perceived threat, as much political as economic, from so-called outsiders to the dominant cultural group. For Italian populists like Matteo Salvini, this means immigrants, primarily dark-skinned people from Africa who wear their outsider status on their sleeves. For Bolsonaro, it means racial minorities, women, and other groups that challenge the hegemony of the white working class. Trump displays both tendencies, claiming without substantiation that Middle East terrorists are among the migrants and asylum seekers from Central America, while reinforcing the racial, religious, and anti-feminist animus of his base.

Again, however, actual electoral behavior does not fall neatly along predicted lines. Bolsonaro received a surprising degree of support from black voters. Trump gained a strong plurality from women in an election held shortly after the release of the notorious “Access Hollywood” tape, on which Trump was heard boasting about sexual assaults he had committed.

What unites supporters of these upstart politicians, therefore, must be something else. In fact, the main ingredient is revulsion against the corruption of the political process. Voters are attracted to political outsiders – the more authoritarian the better – who promise to “drain the swamp.” Herein lies the appeal of Trump and Bolsonaro, who promise to clean up their countries’ “mess” by whatever means necessary. The corruption and ineffectiveness of a succession of mainstream coalitions, and the promise of outsiders to do better, whether credible or not, similarly motivates Italian supporters of the right-wing League party and the left-wing Five Star Movement.

Unfortunately, voters have no way of gauging who is truly committed to rooting out corruption. And, by delegating this task to a leader with authoritarian tendencies, they empower him to repopulate the swamp rather than draining it – to simply replace the mainstream’s alligators with his own. We have already seen this tendency in the US. We are about to see it in Italy and Brazil.

Voters will learn the hard way that authoritarianism exacerbates rather than mitigates corruption, because it abolishes checks and balances on those pulling the levers of power. Once they learn this lesson, they are likely to give mainstream politicians and the democratic process another chance. Unfortunately, political institutions and civil society can suffer very considerable damage in the interim.

Blame the Economists?

J. Bradford DeLong 

Ever since the 2008 financial crash and subsequent recession, economists have been pilloried for failing to foresee the crisis, and for not convincing policymakers of what needed to be done to address it. But the upheavals of the past decade were more a product of historical contingency than technocratic failure.

BERKELEY – Now that we are witnessing what looks like the historic decline of the West, it is worth asking what role economists might have played in the disasters of the past decade.

From the end of World War II until 2007, Western political leaders at least acted as if they were interested in achieving full employment, price stability, an acceptably fair distribution of income and wealth, and an open international order in which all countries would benefit from trade and finance. True, these goals were always in tension, such that we sometimes put growth incentives before income equality, and openness before the interests of specific workers or industries. Nevertheless, the general thrust of policymaking was toward all four objectives.

Then came 2008, when everything changed. The goal of full employment dropped off Western leaders’ radar, even though there was neither a threat of inflation nor additional benefits to be gained from increased openness. Likewise, the goal of creating an international order that serves everyone was summarily abandoned. Both objectives were sacrificed in the interest of restoring the fortunes of the super-rich, perhaps with a distant hope that the wealth would “trickle down” someday.

At the macro level, the story of the post-2008 decade is almost always understood as a failure of economic analysis and communication. We economists supposedly failed to convey to politicians and bureaucrats what needed to be done, because we hadn’t analyzed the situation fully and properly in real time.

Some economists, like Carmen M. Reinhart and Kenneth Rogoff of Harvard University, saw the dangers of the financial crisis, but greatly exaggerated the risks of public spending to boost employment in its aftermath. Others, like me, understood that expansionary monetary policies would not be enough; but, because we had looked at global imbalances the wrong way, we missed the principal source of risk – US financial mis-regulation.

Still others, like then-US Federal Reserve Chairman Ben Bernanke, understood the importance of keeping interest rates low, but overestimated the effectiveness of additional monetary-policy tools such as quantitative easing. The moral of the story is that if only we economists had spoken up sooner, been more convincing on the issues where we were right, and recognized where we were wrong, the situation today would be considerably better.

The Columbia University historian Adam Tooze has little use for this narrative. In his new history of the post-2007 era, Crashed: How a Decade of Financial Crises Changed the World, he shows that the economic history of the past ten years has been driven more by deep historical currents than by technocrats’ errors of analysis and communication.

Specifically, in the years before the crisis, financial deregulation and tax cuts for the rich had been driving government deficits and debt ever higher, while further increasing inequality. Making matters worse, George W. Bush’s administration decided to wage an ill-advised war against Iraq, effectively squandering America’s credibility to lead the North Atlantic through the crisis years.

It was also during this time that the Republican Party began to suffer a nervous breakdown. As if Bush’s lack of qualifications and former Vice President Dick Cheney’s war-mongering weren’t bad enough, the party doubled down on its cynicism. In 2008, Republicans rallied behind the late Senator John McCain’s running mate, Sarah Palin, a folksy demagogue who was even less suited for office than Bush or Cheney; and in 2010, the party was essentially hijacked by the populist Tea Party.

After the 2008 crash and the so-called Great Recession, years of tepid growth laid the groundwork for a political upheaval in 2016. While Republicans embraced a brutish, race-baiting reality-TV star, many Democrats swooned for a self-declared socialist senator with scarcely any legislative achievements to his name. “This denouement,” Tooze writes, “might have seemed a little cartoonish,” as if life was imitating the art of the HBO series “Veep.”

Of course, we have yet to mention a key figure. Between the financial crisis of 2008 and the political crisis of 2016 came the presidency of Barack Obama. In 2004, when he was still a rising star in the Senate, Obama had warned that failing to build a “purple America” that supports the working and middle classes would lead to nativism and political breakdown.

Yet, after the crash, the Obama administration had little stomach for the medicine that former President Franklin D. Roosevelt had prescribed to address problems of such magnitude. “The country needs…bold persistent experimentation,” Roosevelt said in 1932, at the height of the Great Depression. “It is common sense to take a method and try it; if it fails, admit it frankly and try another. But above all, try something.”

The fact that Obama failed to take aggressive action, despite having recognized the need for it beforehand, is a testament to Tooze’s central argument. Professional economists could not convince those in power of what needed to be done, because those in power were operating in a context of political breakdown and lost American credibility. With policymaking having been subjected to the malign influence of a rising plutocracy, economists calling for “bold persistent experimentation” were swimming against the tide – even though well-founded economic theories justified precisely that course of action.

Still, I do not find Tooze’s arguments to be as strong as he thinks they are. We economists and our theories did make a big difference. With the exception of Greece, advanced economies experienced nothing like a rerun of the Great Depression, which was a very real possibility at the height of the crisis. Had we been smarter, more articulate, and less divided and distracted by red herrings, we might have made a bigger difference. But that doesn’t mean we made no difference at all. /project-syndicate