Populism: Tyranny of the Majority - Part 2

Economic populism undermines the true interests of the people

This post about economic populism is Part Two of a series about populism. Part One focused on political populism.

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Economic populism - even more so than political populism - is a tricky concept to define. To some, it simply represents economic policies that benefit average Americans. To others, it is irresponsible, shortsighted governmental overreach, justified by “the will of the people.” Sorting out the truth about economic populism is important, not just because clear definitions are helpful, but because it is, at its core, a dangerous ideology that is often packaged in much less threatening branding. For America to achieve the best, most fair version of itself, we must resist the false gold and recent popularity of economic populism.

According to New York Times senior writer, David Leonhardt, the recent resurgence of economic populism is “the new centrism.” He calls this latest version “neopopulism” and argues that it simply seeks to “reinvigorate the American economy and compete with the country’s global rivals” by rejecting certain free-market principles, especially free trade.

Mr. Leonhardt is a talented, insightful writer who accurately points out the emerging skepticism of unregulated free-markets, but he is wrong to advocate for populism as the new, sensible alternative. To justify doing so, he dilutes and distorts the concept into a seemingly harmless version of itself that becomes a permission structure for bad policy.

Like political populism, the most distilled version of economic populism inherently contains an illiberal tendency to transgress the rights of others in service to the will of the people. “The people” may be right to demand a more equal society, but populists err by undermining freedom and fairness in an attempt to increase freedom and fairness. This illiberalism is the core of populism, but the concept contains additional layers.

I argue that there are essentially three layers to economic populism: pro-people policy intentions, pandering economics, and illiberal policy implementation. While there is nothing wrong with pro-people policy intentions, pandering and illiberal policies are detrimental and dangerous. To truly be economic populism, you need all three.

Pro-People

The underlying intention of economic populism is to help “the people.” There is nothing wrong with this; in fact it is critical to a healthy society. Unregulated capitalism leads to market failures and rigid inequalities that benefit those with capital at the expense of those without it. Populists seek to solve these problems.

However, efforts to solve these problems are not inherently populist. Creating a free public education system, establishing Social Security, or building public infrastructure are simply wise investments for an empowered citizenry. None of those examples require a reductionist view of “the righteous people vs the illegitimate elites” to justify their implementation. It is just good policy.

Being “pro-people” is a worthy goal, shared by populists and non-populists alike. And while it is part of what makes up economic populism, it is misleading to define populism exclusively as pro-people. Populism contains other, more troubling aspects. 

Pandering Economics

The second layer to economic populism is pandering economics. An understandable consequence of a grievance mindset (even if that grievance may be justified) is to demand quick fixes to satisfy the moral outrage of “the people.” Unfortunately, crafting policy from this perspective often ends up hurting the very people it seeks to help.

Many Democrats and Republicans seem to share a renewed interest in pandering economics. Price controls, protectionism, demand subsidies, excluding taxes on tips, and ignoring the national debt are all examples of poorly designed, short-termist policies that address a common frustration but do more harm than good.

Price controls, such as rent control, is a particularly good example. Housing is extremely unaffordable right now and people are understandably upset. However, capping the price of rent is counter-productive. It undermines incentives to build new rental units, which, in turn, limits the supply of housing and further drives up prices. Better solutions focus on increasing the supply of housing to solve the underlying problem.

Trade protectionism is another misguided policy area that has gotten more popular lately. An increasing number of politicians are rethinking free-trade as they weigh the downsides of globalization. The problem is that disengaging from global markets by adding tariffs to all imported goods does not “put America first;” just the opposite. It undermines America’s economic dynamism, by increasing input costs for American manufacturers and decreasing their output. It also directly increases the price of imported consumer goods.

A study by Foreign Affairs of nations that have pursued populist policies shows that those nations have 10% lower GDP after 15 years, driven mostly by their protectionist policies. An extreme example is Venezuela:

“Protectionism, nepotism, and nationalizations of the oil, mining, finance, telecommunications, and agriculture industries, among other sectors, created an economic disaster without precedent in a modern peacetime state - resulting in famine, medical crises, and mass migration out of the country.”

Mr. Leonhardt may celebrate protectionism as the “new centrism” but he is advocating for unwise, pandering policies that have an established track record of harm. 

Illiberal and Unrestrained

The last, and most problematic, layer of economic populism is the illiberal and unrestrained way in which many of the populist policies are implemented. In a paper that weighs the pros and cons of economic populism Harvard professor, Dani Rodrik, identifies that one of its fundamental characteristics is the circumvention of restraints of delegated and decentralized governance:

“Similarly in economics, populists reject restraints on the conduct of economic policy. Autonomous regulatory agencies, independent central banks, and external constraints (such as global trade rules) narrow their policy options and hence need to be overcome.”

This question of restraints mirrors the exact same concern of political populism. Liberal democracy puts restraints on the governing majority so that they do not violate the rights of individuals or political minorities, or trample on fair and free institutions. Political and economic populists alike chafe at these constraints. They believe they are exempt because they carry a moral mandate of “the people.” Who counts as “the people” is, of course, a subjective assessment by the populists themselves. 

A prominent example of unrestrained economic populism is former President Trump’s desire to have more control over the Federal Reserve, the central banking system of the United States, which is intentionally kept separate from political control. When asked about the topic, Mr. Trump said:

“I feel the president should have at least [a] say in there, yeah. I feel that strongly. I think that, in my case, I made a lot of money. I was very successful, and I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman.”

Gaining power over the Fed would give Mr. Trump direct control of the key levers of the economy, allowing him to manipulate them for his political purposes and, in doing so, almost certainly undermine the long-term health of the economy.

Another example worth considering is President Biden’s original student debt relief package, in which he attempted to unilaterally forgive $430 billion in student loans  - before the Supreme Court struck it down. However admirable Biden’s intentions, canceling debt contracts of that magnitude without an act of Congress is an audacious use of executive power. It also raises ethical questions about freedom and fairness for those not receiving the debt relief and for all Americans shouldering the increased federal debt burden. A classic hallmark of economic populism is inconsistent and selective benefits being doled out by a strong central government. This fits that trend. 

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Economic populism is an illiberal, pandering policy approach intended to help “the people.” However, it does the opposite. Not just because many of its policies are unwise, but because it erodes - with each illiberal transgression - the rule of law that is necessary for a healthy economy and society.

America has serious problems of economic opportunity and fairness, but this nation also has a remarkable track record of economic achievement because of the open and stable economic system we have built. Populism seeks to undo that system in the vain hope that unrestrained, quick-fix solutions will solve all of America's problems. They won’t. Truly doing what is best for all Americans requires doing the hard work of building consensus around sound, fair policies that give all Americans an equal chance at success. That is what a pro-people, liberal democracy is all about.