Saturday , February 24 2018
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The Economics of Rising Populism

Summary:
Here’s a talk I did with Alan Tonelson of the Henry George School in New York. I think economic populism is alive and well — and still a driving force of politics in the US and Europe. Take a look at the video. Let me say a few things here first. While populism is still a force to reckon with, the recent economic growth spurt that started last year makes it less virulent. I have said this since last June. Personally, I’ve gone back and forth on this issue of populism. I entitled one of my first posts here, nearly ten years ago, “Populism: The real economic danger in this recession.” I think this was the sixth post I wrote on this site. That post took a fairly negative view of political populism. But just nine days later, I followed it up with another post, a thought

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Here’s a talk I did with Alan Tonelson of the Henry George School in New York. I think economic populism is alive and well — and still a driving force of politics in the US and Europe. Take a look at the video.

Let me say a few things here first. While populism is still a force to reckon with, the recent economic growth spurt that started last year makes it less virulent. I have said this since last June.

Personally, I’ve gone back and forth on this issue of populism. I entitled one of my first posts here, nearly ten years ago, “Populism: The real economic danger in this recession.” I think this was the sixth post I wrote on this site. That post took a fairly negative view of political populism.

But just nine days later, I followed it up with another post, a thought piece on populism that has become one of my favorites, “A populist interpretation of the latest Boom-Bust cycle“. That post draws heavily from Jared Diamond’s book Guns, Germs and Steel and his framework of kleptocracy:

Diamond says the Kleptocrats maintain power using 4 different methods:

“1. Disarm the populace, and arm the elite.”

“2. Make the masses happy by redistributing much of the tribute received, in popular ways.”

“3. Use the monopoly of force to promote happiness, by maintaining public order and curbing violence. This is potentially a big and underappreciated advantage of centralized societies over noncentralized ones.”

“4. The remaining way for kleptocrats to gain public support is to construct an ideology or religion justifying kleptocracy.”

When I wrote this piece, I didn’t do so as advocacy, but as an interpretation, a possible way of viewing the bigger picture. But as time has gone on, when we have seen something happening politically that enriches the ‘elites’ — as the recent tax cuts in the US do — I have always gone back to this framework, asking myself if it fits. And invariably it does.

More recently, I have taken to a piece that Harvard economist Dani Rodrik wrote in defense of economic populism, but warning against political populism. Take these paragraphs for instance:

These are examples of restraints on economic policy that take the form of delegation to autonomous agencies, technocrats, or external rules. As described, they serve the valuable function of preventing those in power from shooting themselves in the foot by pursuing short-sighted policies.

But there are other scenarios as well, in which the consequences of restraints on economic policy may be less salutary. In particular, restraints may be instituted by special interests or elites themselves, to cement permanent control over policymaking. In such cases, delegation to autonomous agencies or signing on to global rules does not serve society, but only a narrow caste of “insiders.”

Part of today’s populist backlash is rooted in the belief, not entirely unjustified, that this scenario describes much economic policymaking in recent decades. Multinational corporations and investors have increasingly shaped the agenda of international trade negotiations, resulting in global regimes that disproportionately benefit capital at the expense of labor. Stringent patent rules and international investor tribunals are prime examples. So is the capture of autonomous agencies by the industries they are supposed to regulate. Banks and other financial institutions have been especially successful at getting their way and instituting rules that give them free rein.

This makes a lot of sense about what’s driving populism. Read the whole thing. It is quite good. Given these paragraphs, the interesting bit is his warning at the end, contrasting political and economic populism:

We should constantly be wary of populism that stifles political pluralism and undermines liberal democratic norms. Political populism is a menace to be avoided at all costs. Economic populism, by contrast, is occasionally necessary. Indeed, at such times, it may be the only way to forestall its much more dangerous political cousin.

Perhaps Rodrik was thinking about Recep Tayyip Erdoğan, the current President of Turkey, his native country. That makes me think of Benito Mussolini, the infamous early 20th century Italian dictator. Here’s the first tweet in a thread of mine on Mussolini from late January. I think the way he usurped power is under-appreciated.  

Look at Erdoğan and Russian President Vladimir Putin as heirs to Benito Mussolini in how they usurped and consolidated power in a democratic system.

Bottom line: Fear political populism and the loss of democracy but embrace economic populism as necessary to prevent ‘elites’ from shaping the global agenda to suit their needs at the cost of the needs of the middle classes and the poor.

With that message, here’s my talk with Alan. 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

Edward Harrison
I am a former European credit markets and M&A guy who started out as a diplomat. — so I have some pretty diverse interests.

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