“Economic populism has always led to failure”

The over-condemnation of globalization, the impact of hollowing out of industry on inequality and social cohesion, and economic populism have made remarkable progress during this presidential election. Both right and left. If the issues raised are relevant, the proposed solution is often just as dangerous. History teaches us that populist experiments systematically led to economic impasse. Decoding by economist Andre Cartapanis.

L’Express: Candidates at the two extremes (right and left) won more than 40% of the votes in the first round of the presidential election. How do you define economic populism?

Andre Cartapanis : Difficult to define accurately. It is neither a political doctrine nor an economic theory like liberalism, monetarists, or Keynesianism. Even an ideology with the alleged contours. It’s actually a “soft” concept that has continued to traverse modern history in new ways from the 1930s to the present day. This is why I like to talk about the populist experience both in terms of political systems and the exercise of power, and in the field of economic policy.

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However, these experiences always have the same foundation. First, the idea is that income stagnation and poverty are primarily external factors. Second, beyond the accusations of inequality, the opposition between “them” and “us” between the people and the elite. Starting with these various assumptions, populists, of course, have adopted fairly radical changes in economic policy with a series of measures. Reconquest of national sovereignty by implementing protective trade-oriented measures. Obligation to protect the state against economic instability and threats from abroad. Rejection of both financial and budgetary “assumed” macroeconomic constraints. Price Control … This shift is usually accompanied by a “demand shock” with a sharp rise in wages. And the distinction between small businesses and large groups, as if the “small” ones are fine and the “big” ones are inevitably suspicious.

These economic invariants are combined with strong political heterogeneity. Right-wing populism, on the other hand, is characterized by worsening nationalism. Left-wing populism is characterized by reconquering economic power for the benefit of the popular class (potential nationalization). This reading grid can be seen in the interwar experience in Germany, Italy, and especially Latin America until the 1990s. It’s Juan Peron’s Argentina, but it’s also Salvador Allende’s Chile …

Whether right or left, you claim that economic populism leads to failure …

Yes, in both cases! But we have to make a distinction between short-term and medium-term. Every time, after the implementation of these unrestricted economic policies, there will be a period of improvement. Freezing prices and sharply rising wages will increase household purchasing power and accelerate growth. Then things get worse. After a significant increase in demand, a bottleneck arises as production declines due to reduced investment that accompanies a decline in corporate profitability.

These constraints at supply levels will help ease price freezes, recover inflation, and even hyperinflation, as well as rapidly widen public deficits, trade deficits, capital flight, and exchange rate declines. .. .. This concludes the Peron experience in Allende, Argentina or Chile. More recently, the scenario of Chavez and Maduro in Venezuela, or Erdogan in Turkey. Each time, it has very serious consequences for the poorest people who should a prioritize the greatest benefit from these policies.

How would you describe these repeated failures?

These policies overlook the interdependence that arises in the market economy. They can work in a controlled economy that is less open to the outside world, but not in a market economy. Economic populism minimizes inflation risk and systematically underestimates external, commercial, or financial constraints. These are strategies that focus on short-term political demands at the expense of long-term.

Do you think the Trump experiment in the United States is a form of new populism? ??

absolutely. You can also cite the strategies pursued by Recep Tayyip Erdogan in Turkey since 2018. The experience of these new populists is certainly characterized by the policy changes implemented, but there are no deep doubts about the economic model to date. In the case of Trump, the focus was primarily on exposing and fighting perceived unfair competition from China. Therefore, reliance on protectionism or voluntary depreciation of exchange rates.

Without falling into trumpism, could we say that the former US President wasn’t completely wrong in this regard …?

Without a doubt. However, the response to the trade war with China has not been successful. Tariffs on certain products increased by up to 40%, and as a result of allocations imposed on China, the bilateral trade deficit between the United States and China steadily decreased in 2020, but fell sharply again in 2021. bottom. It was accompanied by a much larger trade deficit in the US economy with all partners. Tariffs imposed by the Trump administration are mainly passed on to the prices of groceries purchased overseas. Thus, the war was, in the first place, afflicted by households, especially the poorest.

Do you think it’s good to throw everything away in this series of measures? Is there good economic populism and bad economic populism?

Turkish economist Dani Rodrik, a professor at Harvard University, gives an answer that I find quite accurate to this question. Over the last few decades, we have undoubtedly gone too far in hyperglobalization, resulting in increasing inequality in the countries most integrated into world trade. Therefore, it is legal to deviate from certain established principles in order to regain autonomy and national leverage. It’s good economic populism. But when it fails, and when this is almost always the case, it inevitably leads to the exercise of authoritarian or non-liberal power.

Perhaps the “whatever the cost” pandemic and the disappearance of budgetary constraints ultimately justified a very pagan economic policy.

Indeed, the measures taken during the 2008-2009 financial crisis, and during Covid, are strangely similar to the specific strategies advocated by the new populists. And so far, it’s also true that unconventional monetary and fiscal policies haven’t caused the failures associated with populist experiments. The exact opposite! They even made it possible to avoid the 1930s type of depression scenario. However, the price to pay is the price of a head-on rush into debt. What if inflation continues to fall and central banks raise interest rates significantly?

Is Marine Le Pen’s economic program a feature of right-wing populists?

It has all the elements: light budgets, national preferences, wage shocks, and especially the prosecution of Europe and immigrants as the cause of all our illnesses … it’s always the same story: appealing to protected trade principles. Immediate purchasing power, ignoring the long-term impact on the investment and production capacity to distribute. Decoy!

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André Cartapanis is an economist and professor at Sciencespo Aix. He is also a member of the Circle of Economists. He co-authored an essay, Economists react to populists and Recently published by Odile Jacob under the guidance of Hippolyte d’Albis and Françoise Benhamou.


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