Is Populism the End or Salvation of Liberal Democracy?

in the day. What he writes gets read by most of the people who count, and lately, like a lot of us, he's found himself writing less about economics and more about politics and populism, how it's shaping the economic landscape today and what policymakers might do in response. So I was delighted to have a conversation with him about this on stage earlier this week at the Resolution Foundation, a London based think tank, at an event organized by

the British Society of Professional Economists. It was such a wide ranging chat we decided to devote this program to it. I started by pointing out there were quite a lot of different definitions of populism out there. For some economists, it seemed to be just anything political and non mainstream that might cause trouble for others. It was a tool kid of techniques for unscrupulous politicians, not really an ideology, of course. Marxist would say, it's when the ruling elite

persuades workers to vote against their own self interest. I asked Martin which definition of populism he found those useful. I think there are two ways of thinking about this. One is popularism is what politicians whom we everybody would agree a populist do, and that's quite a wide range

of things. But I would argue that there is one common thread to all populism, be it of the left or the right, which is the mobilization of people politically, often in response to various economic social stresses, against existing elites. The essence of the common element of this is anti elitism, and that allows you and the policies that are seen and the systems that are seen as to favoring elites. Um,

that's what populace argue they're doing. So the main point to make about this is when we think about the political direction of an origins of populism, it's very complicated and you have to anchor your ideas about it. I think very much in the context of your own society country, and work out whether the forces are unleashed here are on the whole going to prove to be or could be made beneficial, or going to be utterly destructive of

existing functioning, valid and important institutions. And there's plenty we can unpack on that. But just to insert a few facts, because I've got economists at my disposal, this is an audience of economists. They have done various studies thinking about just what share of G twenty g d P is currently in the hands of populist governments, and they actually have that there's a catchule which as they actually talked about populace and non democratic regimes have put them together,

which is startling. But you can also look at the populace together, So the populace or non democratic regimes. Even in twenty sixteen, about thirty three percent of G twenty g d P was in the hands of populace or non democrats, and that's up from about ten percent around the time of the crisis um but most recently it's now gone up to sixty eight percent, So sixty eight percent of global of G twenty g d P in

the hands of non democratic regimes or populace. Now, of course, for our pus of purposes, we might be interested in just the populace. And that's forty three percent now versus eight percent. And as if you look at the European elections, actually the share of populist parties was a bit smaller, and the last European that's gone up eight percent. But we're still we're talking a sort of slightly smaller number

when you just look across the European political scene. But it is certainly we're not We have not seen what I think some people were hoping to see in the last few years, that somehow there'd been a sort of turnaround, a peak popularism, the moment that you still haven't seen a populist government being defeated in subsequent polls. If you look in the Czech Republic, Romainia, Hungary and Turkey, they've

all been re elected, which I think is telling. Serrita is the exception to this, but you can argue that's because they stopped being very popular they started actually following the rules of the system. Um. But this is including lots of different things in the mix. You know it is, including Bodemoss and City and Trump, and also the right wing populists tend to be a bit Do they include Modi as a populist? They do, so it's getting part of the problem. How are you so I may actually

check that. I'm not sure about Moody. I think we have we did. I had debate with them even about Trump, because you could argue he's part of a he's in the mainstream party whether you like it or not, but anyway, or he's taken over a mainstream party. But that all does run together a lot of left right wing lists. And it sort of seems to me that the right wing populace these days are doing a lot better than the left wing populace. But does it matter the difference?

Should we think differently about them? Right wing populace will emphasize the nation and or the ethnicity against other nations and ethnic groups, and the left wing political and tends tends to be conservative and hierarchical within this structure and quite happy with extreme inequality as Trump is showing, and left wing populace will tend to volk be much more egalitarian, as I said, class base and in the Latin American history they've had both equally, but in this in European history,

and particularly in the recent times, the right populace have basically done much better than the left wing populace. It is relevant, I mean, when you get onto the differences of right and left, obviously, then it becomes relevant for thinking about whether there could be positive consequences from pulism or or not. And it did strike me when I was thinking about this that the populace, when you look back in the history, are a bit like that difference

between freedom fighters and terrorists. It sort of depends on whether the system ended up better at the end or not. And if we thought that they made the system better, as for example, the populace maybe in the late nineteenth century, and certainly the populist movements in the US which helped trigger the New Deal or put pressure to produce the New Deal institutions, we look at them and we say, well,

that was kind of good populism. So we think of it in a different category, clearly than the populism which culminated in national socialism and Hitler's Germany. But that kind of gets to this point of is it is it ultimately about changing the system for the better or fundamentally

undermining it. And I sort of it feels like the jury is the kind of populism we're seeing now seems to feed on the sort of reduced credibility democratic institutions, and certainly the case of President Trump often seems to revel in that. But it is also, as you say, pointing in the direction of some policies that might be a good idea. I think the in terms of the benefits of actual potential populous pressures, you can perhaps think

about in two possible ways. Historically, so first, in very dangerous situations where people are very unhappy for very many different reasons at different points in history, there have been

pretty standard democratic politicians who have responded effectively. In the US case, the two most remarkable cases of the two Roosevelts, the both potentially in American terms, aristocrats who in the case of theater or responded to all this upwelling of pressure against the trusts and the rest of it to introduce some really quite rad call antitrust policies particularly and other similar things. And then, of course FDRUM. So first

you can have sensible responses by conventional politicians. I think the EU has basically handled this terribly because they handled the crisis terribly, and that has tended to make the unhappiness. You know, why do we have Salvini instead of Mario Monty. There's no surprise about that. Mario Monty was set up to fail now, So that's one thing. And and the worst case of this in the history of the world, I think is the move. You know, Hitler was in

my view of direct consequence of Brunning. Um, It's quite obvious. He was written about this many times. There was no chance of Hitler winning an election at a mini school share of the vote. I think it's about seven percent. I can't be exactly something like that, and he was got a third three years later. Wonder, I mean he can. Brunning collapsed in the economy, so the way democratic politicians respond really really matters. Going for Brexit as a solution

to all this was insane, but there we are. This is where we are. The second thing, of course, camp populists themselves do good things well, it depends on what you mean by populists. I'm sure if I think hard I could think of some examples where populists have tended had done well. But the usual problem in the populists in power is they don't recognize because it's something they

don't trust the elites at all. So they don't trust elite mantra about resource limits, budget treat constraints and all the rest of it, confidence in business so well that they basically smashed the economy. I'm trying to think very hard of whether there's an obvious case where somebody we'd all agree was a populist leader really succeeded in leaving a much stronger economy. They're that person in herit in

a much stronger society. I think it's rather rare. By and large, successful reformers, including radical reformers, are far more disciplined and self disciplined than populist leaders tend to be. I guess we get back to that question, that sort of definition around the tool kit we have if you do see successful quote unquote mainstream leaders who are successful because in a populist era they've borrowed some of the clothes or some of the techniques of populism. And in fact,

you might have said that about President Macquin. It made it, made it pull off the fantastic trick at least for a while of making profoundly mainstream centrist policies look exciting and radical. Radical. Well FDR was radical. I mean he

busts the gold standard. That's big stuff in America. But he was radically in an extraordinarily self disciplined or interestingly disciplined where really great politicians know how to handle these problems in those situations, and they are unfortunately not that

common in recent times. They haven't existed in the worst I think you're right, but I think that's not the same to say that there's no populist leader who has remained through and through a populist leader that has achieved a successful change of regime isn't necessarily the kind of effect that we're looking for, because it would often be the case that it's the pressure of populace. Like in Europe, you have a lot of you know those whatever it is twenty eight percent of Europe of European m EPs.

They actually don't control the europe Parliament. They contribute to the fragmenting of the system, but potentially they are also pushing European political leaders in the direction of some positive things. That's exactly copied. It's how mainstream politicians respond to populist pressures and the recognition by them that there are real issues that they've got to find clever ways of dealing with, even if they're radical. Radicalism is not the same as populism.

And strongly in favor of radicalism, and we obviously need it, but we have to have discipline radicalism. The great thing about the really important performance Swedish social Democrats in that the dagger Helllander, for example, probably the most successful reformer, was that he throughout that long period of radical reforming Sweden,

he knew exactly what he was doing and why. If you look at the main sort of macroeconomic tools that we have in the world today, the sort of default settings, if you like, they're remarkably little changed by the global financial crisis. Our economists a little bit of fault for not producing enough ideas that are future. There's plenty of people running for president on the Democrats side at the moment who like to think they might be the next FDR. You know, you get a lot of explicit references to

new Deal. Are they being given the right kind of ideas by economists to this into a positive a positive event for um and make for populist forces Actually produce some good on economic policy. I think that we have been extraordinarily inhibited and conventional in our responses, which doesn't mean that changing things will be easy, but recognizing there are some very very big questions and thinking about how we might handle them, and some of them very uncomfortable

for me and others. So what are what are the things that I've been thinking about in the last nine years since the crisis or ten years, thank god its twelve years now since the gressum So, first of all, pretty obviously, I was one of the people and remain one of the people who think that all countries that had the means to do had to get back to

full employment as quickly as possible. Um. Second, I think we and I've written this for years, I think that relying on the central bank just to manipulate financial markets rather directly funding government in these situations is ridiculous. The inhibition on direct monetary financing is ridiculous. I understand the risks with it, but I think it's perfectly workable in a recession stroke depression to go for direct monetary financing,

and I think it would have made a difference. I think we have to think very very seriously about tendencies in the market economy towards anti competitive structures. I think there's a lot of evidence of declining competition, a lot of evidence in our market economies increased monopolies or quasi monopolies, A lot of them, of course, of far are in American particularly, but I think we have to look at that very very carefully, be much more aggressive on that

front um. I think we're going to have to be very radical on acid ownership. We are getting quite extreme concentrations of wealth across the world, and we're that's not compatible, to my mind, with a sustainable democracy. Aristotle said this I discovered, so that means we're going to have to be quite radical about distribution of wealth. Income will follow from that, but actually I think wealth is quite important. The right thing to do is for radical parties to

come up with radical ideas. I've been rather depressed by how limited and ill thought out and ill work through such proposals are. In the American case, I think Elizabeth Warren has been quite interesting. But of course there are some things the Americans have to do because what they've got is so crazy, like the health system, that we

don't have to do. But I think overall the reaction of policymakers have made this critique in my book, and these arguments and politicians to the obvious problems of our societies have been so limited. There's one final issue which I have a different view for us, which is I think we have to recognize an immigration is a first class political issue and we can't view it as a

purely economic issue. Now, the question then is what a sensible immigration policy would look like that is politically acceptable and manageable is obviously very very difficult. But pretending that this is an issue that can just be looked at from the pure labor market point of view is I think politically very unwhite. So there are a lot of big issues out there which the center, if you like

broadly defined, has to grapple with. If we're going to have stable democracies, well there's otherwise we get somebody called Boris Johnson as for and then what the hell is going to happen? So you could say this the UK and Brexit is an example of where we it's it is this simplistic to only be looking at economic causes and economic policies. But I think you're you are right

when you look at the future. You know, the perception of the response to the financial crisis, and how weighted that was towards asset markets and how beneficial it was towards for the wealthy. I think will come back to haunt the central bankers when we have the next crisis. And I wonder whether you think they're thinking enough about that that if the first thing they do is resort again to quantit of using and the perception of that is it's giving a lot of money to people who

already have it, who own these assets. Is that going to cause a further backlash and we will be dealing with further consequences of the response to the next crisis. So, first of all, I think your comment on British policy is just our personal remark. I think I do accept that one of George Osborne's great virtues was that he ignored what he said, so so he while setting this out as a major fiscal crisis, in the end, he

ignored his own rules reasonably successfully. Um I still think I still think that he could have done substantially better. There are other things that have happened since the crisis, whose origin who, which I think fall outside this discussion. Um, which I simply don't understand. The collapse of productivity growth in the UK is so extreme and I have yet to read, and please send me anything that you think is relevant a really convincing explanation of why this has

happened to such an extreme degree in this country. We jumped from being America to being Italy, as it were, overnight. It's quite extraordinary. UM. On the future, I think that the central bankers I know are fairly frightened, but they vary between being fairly and very frightened about what would happen, what they would do in another significant crisis or even another significant recession on a crisis, because their policy toolbox

is pretty constrained. To put it mildly now, there is an argument that if you do enough quee and the standard kind that can be made the equivalent. But given where bondy yields are today, um, where in Germany or Japan you've got nowhere to go. So in the UK you don't have arch the US a little bit more. Um, you'd have to buy the whole bond stock, and then I think you'd have to go and buy pretty good

chunk of the equity stock. I once suggested the Japanese solution would be to buy the whole dollar bond stock. If they're going to do kiwi in Japan, the sensible thing is not to buy jgbs. But US treasuries just tweet that Donald Trump, and of course that would solve their problems by crashing exchange rate. But it's not, of course a generalizable policy, and it would be regarded as a war, an act of war in fact the Americans.

So I actually think it is almost inconceivable if we have another big recession in this situation, that we won't end up with some version of helicopter money. Uh. And as I like to point out, and we've got Steve Keene talking about people's quie, I think he uses that right in Francis Coppola. But helicopter money was invented by Milton Freedment therefore must be respectable, uh, at least from the right wing point of view. UM. I don't see what else we would do in that situation except scatter

money everywhere. UM. I have a colleague who believes passionately and going to you know, minus six minus seven interest rates. It's technically possible as long as you completely restructure the way you do banking and you get rid of all cash. That's not where we are now, So it's not a technically possible um policy. So there is a view, and I've seen an economist, many economists will say, Okay, so we have this populist and maybe in the long run it's going to be the end of the democratic system.

They wouldn't quite put it this way, but maybe in the long run it's undermining all of our values and our institutions and teaching us all the wrong lessons about what leadership is. But short medium term it produces lucive fiscal policy and slightly looser monetary policy, with central banks a bit more aware of the implications of what they're doing than they might have been in the past, and those two things in the current macro environment, and not

such a bad thing. What would you say about that? I mean, I would also I would worry a little bit about the on the one hand, On the other hand implicit in that, but just on the second part, if we're not so worried about the future of the world and the democracy, well here we're particularly really talking

about the US. So you can argue, in the real response to this delusion in France has produced slightly lucif fiscal doesn't have to be people in very modestly fiscal policy in Italy because of concern about again very very my I mean, the EU is a pretty remarkably so far this could blow it blow up. I don't know what's going to happen with Italy, but the Eurozone, let's say, which is the has produced a remarkably effective straight check it. So the you know, tant fiscal policy in the last

ten years has been astoundingly disciplined. But in the US there's a really interesting case because what most of what people would think of was full employment when they had a structural deficit of about three percent of GDP. The president came along and raised it to five roughly as a big fiscal expansion by the world's biggest economy, which a it has been one of the lowest unemployment rates in his history, I think the lowest for a half

a century. Though that measurement there is difficult, and he's browbeating or succeeded in persuading the faith that it's got to start losing again. So that's where you are getting quite a significant expansionary boost there are two or three questions about this. The first is, of course the way the deficit was produced, which is a massively regressive fact tax card. When you can discuss that, and whether you

think the corporate that's one question. The second question is is he actually taking quite a more significant risk of inflation than we think now we don't know um. And the third problem, which is there's something else going on which you haven't mentioned, which is really the core of Trance populism as a policy maker, which is he started this,

in my view, completely insane trade war. And and I've just been looking at just on a lecture this afternoon to a lot of Chinese people, and I've just had one of my charts, and it shows that if at the end of all this, Mr Trump does impose the rest of the threat darists on China, and certainly that's not inconceivable, then the US overall will have an average tariff, an average tariff, so that because of the tarifties imposed on China and other countries, which puts in well more

protectionists than India and slightly below Brazil. Now that's a big deal, right, This is the world's most important economy. That changes the whole system. Do you think you can preserve anything alike an open trading system if the US

goes a wall to that degree. So I think people who just focus on America, which is basically business, and say, when he's given us this huge tax cuts and I can increase what I pay myself and my salad, my shares are worth more, are, to put it mouth in very short sighted because he's blowing up the parts of the world system which I regard as beneficial and above all are very franchile. And that's what US households prospectively

will lose more from the taris. Of course, most Americans will lose more from the arrists, and they will gain from the tax cracks. I'm not sure that we've established whether a populism is the end of all, the salvation of democracy or either, or maybe the salvation of economics, even if it's not the salvation of liberal democracy. Thank you very much everyone for thank you mine, thanks for

listening to Stephanomics. We'll be back next week with more on the ground inside into the global economy and more Bloomberg porters. In the meantime, you can find us on the Bloomberg Terminal website, app or wherever you get your podcast. We'd love it if you took the time to rate and review our show so it can reach more people. For more news and analysis from Bloomberg Economics through the week, follow at Economics on Twitter, and you can also find

me on at my Stephanomics. This episode was produced by Magnus Hendrickson, with special thanks to Martin Wolfe and everyone at the Society of Professional Economists and the Resolution Foundation for making that conversation possible, especially Katie Abberton, Liberty York and Kevin Daley. Our executive producer is Scott Landman, and the head of Bloomberg Podcast is francescan The