[Trump’s] nationalistic view reminds me, of course, of [Juan] Peron, in some regards.
– Sebastion Edwards
Financial Times‘s Cardiff Garcia has an incredibly enlightening interview with UCLA economist Sebastian Edwards on the economics of populism.
Garcia: …Americans have been taken off-guard by some of the phrasings of Donald Trump and what he says is part of his agenda. But that if you’re from Latin America, you’ve seen how a lot of this movie plays out before.
Edwards: That is correct. You’ve seen it before. The modus operandi is very similar. And it’s very ironic. You have Donald Trump, and the way he approaches many of these issues is not too different to what Hugo Chavez did in Venezuela. And that’s exactly what makes this whole story quite fascinating.
How is “populism” defined? Edwards elaborates,
Rudi Dornbusch and I defined the economics of populism as an economic programme, a package of policies, that disregarded good, solid received wisdom on economics. And in the case of Latin America, which is going to be interesting when we compare it to Donald Trump, disregarded all budget and monetary constraints – and violated all those constraints, as the populists do, in a way that generates euphoria in the immediate short run, but ultimately results in a very deep crisis that affects, in particular, those that were supposed to be benefited by the whole programme. So populist economics is an economic policy package that disregards budget constraints, macroeconomic constraints, good solid productivity constraints, and generates short run benefits at the cost of crisis in the future.
…So those are the policies, what I described. And what the populist leader does then is that in a rhetoric that is quite extreme, and where he or she divides the population between “us, the people” and “them” – and it’s a vague “them”…In that rhetoric, the populist leader takes the discourse directly to the people through big rallies, a referendum, plebiscites. I’m talking about Hugo Chavez and Donald Trump, who continues to be, although he’s now the president, in campaign mode. And in doing this [he] skips the institutions. For instance, they tend to dislike the central bank because it is an institution that tends to maintain sound policies in most countries. First thing that Hugo Chavez did was fire Ruth de Krivoy, the Governor of the central bank of Venezuela, right. So they disregard the institutions, both economic and political.
Garcia notes “that the majority of the populist leaders [Edwards] studied have been left wing. A lot of Marxists.” But as Edwards explains,
In some ways, [Juan] Peron, who had great sympathy for the fascist movements – he was a great admirer of Benito Mussolini – was right wing in many respects. 3 So there is no reason why we cannot have corporatist right-wing populist leaders that favour specific groups in their rhetoric and in their policies and again, very clearly blame, in quotation marks, “the other” for the suffering of “us, the people”. And in the case of Latin America, often “the other” was related to some foreign force – the multinationals, international speculators and, of course, the International Monetary Fund. And what is very ironic is that in the case of Donald Trump, foreigners also are blamed for the plight of the people and, in this case, they are immigrants, the Chinese and international terrorists.
Edwards then lays out the conditions for a populist leader to emerge:
[T]he first phase is a deep public dissatisfaction and discontent. And this dissatisfaction and discontent is of two types. Sometimes it’s quite abrupt. And in Latin America, usually that abrupt crisis has been associated historically with a very large devaluation of the currency…In other cases, the crisis develops much more slowly and it’s a simmering crisis. And that is what we can see in the United States where there is a simmering dissatisfaction, in particular among white, blue collar workers. So first phase, great dissatisfaction. And you can see it in country after country after country…The second phase is the emergence of this populist leader, very charismatic, who operates outside of the political institutions…So this leader that comes out is extremely forceful, very articulate, and in rallies and in direct appeal to the people, provides this very nationalistic rhetoric and gets the people to approve this particular political programme that disregards all sorts of constraints of good, solid economic management.
What does this begin to look like in practice?:
And what we see in many of these populist extremisms in Latin America is that the authority starts picking up on specific companies, firms, conglomerates. And the strong man or the strong woman (Cristina in Argentina) would call the CEO or the controlling figure of that company and would threaten him or her personally or would denounce that company in public rallies, and would direct the mobs to riot and to maybe even break into those stores. And then they are called in and they are told, you have to reduce your prices, or you have to do this, or you have to do that, and you have to raise wages by 50% while, at the same time, you cannot increase the prices of your product. Which, of course, is a variant of what Trump is doing with companies that want to invest and start plans in other parts of the world. So the rule of law, and in particular, the impersonal treatment – equal treatment of everyone in front of the regulators, and so on and so forth – starts to disappear.
The whole thing is great.