Edward Harrison is the founder of the blog Credit Writedowns and is a finance specialist at Global Macro Advisors. Previously, Edward was a strategy and finance executive at Deutsche Bank, Bain, and Yahoo. He started his career as a diplomat and speaks German, Dutch, Swedish, Spanish and French. Edward holds an MBA from Columbia University and a BA in Economics from Dartmouth College.
Here’s a talk I did with Alan Tonelson at the Henry George School in New York. I think economic populism is alive and well. It’s still a driving force of politics in the US, and in Europe too. But, while populism is still a potent force, recent economic growth makes it less virulent. I have said so since last June.
Personally, I’ve gone back and forth on the issue. One of my first posts nearly ten years ago was “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.
Nine days later, I followed it up with another post: “A populist interpretation of the latest Boom-Bust cycle”. This was a thought piece on populism. And it’s become one of my favorites. I drew heavily from Jared Diamond’s book Guns, Germs and Steel and his framework of kleptocracy:
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 wasn’t advocating a view. It was more of a framing, a way to see the bigger picture. Over time, I have come to appreciate its framing. Any time something enriches the ‘elites’ — as the recent tax cuts in the US do — I have always gone back to this framework. And it always works well.
More recently, I have taken to a piece by Harvard economist Dani Rodrik in defense of economic populism. Take these paragraphs for instance:
…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. 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. We should avoid political populism as a menace. 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.
Rodrik hails from Turkey. So, perhaps he was thinking about Recep Tayyip Erdoğan, the current President. Erdoğan makes me think of Benito Mussolini, the infamous early 20th century Italian dictator. I think the way he usurped power is under-appreciated. Here’s my first tweet in a thread on Mussolini from late January.
How Benito Mussolini Took Power https://t.co/1npvEULg7W this is interesting: “This was the origin of the myth of his “seizure” of power: but there was no seizure. Instead he was appointed by the existing powers, who thought they could use him for their own ends.”
— Edward Harrison (@edwardnh)
I see 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. Embrace economic populism as necessary to protect the needs of the middle classes and the poor.
With that message, here’s my talk with Alan.