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Post Today's Rise of Populism...Why?
Created by John Eipper on 08/17/19 4:01 AM

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Today's Rise of Populism...Why? (Jordi Molins, Spain, 08/17/19 4:01 am)

John Eipper wisely asked: "the fundamental question is not whether populism is taking over much of the world, but rather why, and why now?"

My hypothesis is people around the world feel the extremely loose monetary policies of the Developed World are reaching an end. As a consequence, they want governments that will "protect" them when / if currency wars will start.

Central Banks (CB) were able to become submissive to their corresponding governments without apparently doing so. CB established an artificial level for inflation at 2%. There is no single scientific paper that can proof that 2% is the "right" level for inflation.

Globalisation is a deflationary force. Goods and services that cannot be provided globally (e.g. haircuts) probably have a "normal" inflation. But "global" goods and services should have been naturally in deflation for the last three decades.

CB, instead, considered the 2% target as a God Commandment. Why? Because trying to target a 2% inflation level allowed CB to provide a very low level of interest rates, much lower than it should have been if we had accepted deflation as a gift (which it is, at least when deflation comes from an oversupply of extraordinary new items, both in quality and in price) and not as the most terrible outcome (as CB do).

Politicians were pleased with extremely low interest rates, and CB could argue they were not succumbing to political pressure, since they were doing their job (keeping inflation at 2%).

But as always, the law of unintended consequences started to show up: companies and families have become too dependent on low interest rates. Now, we cannot even imagine what life would be with interest rates at say 4%. Everybody believes that trying that would be "the end of the world."  The Fed tried to raise rates, and immediately the government changed the leadership towards a much more politically oriented (i.e. submissive) one. In Europe, even worse: the new President of the ECB will be a convicted politician. With many other high-quality candidates available, it seems clear why a person of the credentials of Ms Lagarde was chosen for that role.

Politicians are extremely reluctant to impose short-term costs on their constituencies. It is much easier to find external scapegoats. As a consequence, world politicians have a much bigger incentive to try to devalue their currencies, in case there is some kind of economic crisis (which is likely on the medium term, due to the unsustainable low interest rates), rather than try a Volkerian approach.

Then, my answer to John's question is: people believe that populist politicians will be able to implement a beggar-thy-neighbor policy before others do that upon them.

JE comments:  I've never before seen a "quanty" explanation for populism, but the Molins Hypothesis gets you thinking.  Popular rage expresses itself with nativism and scapegoatism, but is monetary policy the underlying cause?  Perhaps, in simpler terms, we could say that populism is the inevitable blowback from globalization?

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  • Origins of Populism (José Ignacio Soler, Venezuela 08/20/19 5:12 AM)
    Comments from Tor Guimaraes and Jordi Molins on populism encourage me to further develop the discussion. In particular, it would be instructive to look at the possible origins of populism.

    As I already argued, the most likely source of the emergence and rise of populism involves complex multivariate factors in society. These are both internal and external and difficult to diagnose--social and economic crises, competition for markets and resources, border and immigration problems, radical ideologies, nationalism and xenophobia, etc.

    However, behind those factors, in my opinion, fundamental emotional collective feelings and reactions are the trigger for the emergence of populism. Frustration, rage, fear, hatred, vengeance, resentment:  these are powerful emotions capable of giving power to unscrupulous and ambitious populist leaders.

    There is an indisputable human tendency that most decisions are made based on emotional considerations, intuitive if you will, and only a few are based on rationality. Of course the more you are educated and well-informed, your decisions might be better based on rational considerations. This "fact" is much more dramatic when societies make a collective decision.

    As a counterargument, you could cite the "rationality" of markets, or the consumer, or maybe the stock exchange investors when deciding what and how much to buy, or invest, etc., but I am sure that many arguments and facts could be quoted to go against this apparent rationality. Modern marketing strategies, propaganda and advertising are instruments that influence people's emotions and decisions.

    In summary, people in general can be easily manipulated when their emotions are induced to specific purposes. Joseph Goebbels, the diabolic figure of Nazism, is a clear historical example and many others could be added in the list.

    JE comments: Scratch the surface of populism, and the haunting image of Nazism comes out. Does this comparison help our understanding of populism or get in the way? I don't know the answer.

    Populism and people have the same etymology.  Isn't populism as old as politics itself, going back to tribes/clans and the tendency of a charismatic figure to rise to a position of leadership?

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    • Populism vs Liberal Capitalism (Eugenio Battaglia, Italy 08/20/19 9:29 AM)
      Interesting reflections on populism from José Ignacio Soler (20 August).  However, it seems to me that Nacho is missing the main point.

      Populism or whatever you may want to call it is on the rise due only to the failure of the present liberal, extremist global capitalism masked as democracy or as an alliance of laborers and farmers (China).

      To criticize populism, it  is useless to bring up the specter of the diabolic Joseph Goebbels, as after all Nazism was a reaction to the silly persecution by the so-called democracies against the German nation from Versailles onward.

      Furthermore, it may be helpful not to indulge in the elitist concept that ignorant people easily follow populism. If this is the case, should we go back to aristocracy?

      By the way, at this moment Italy's so-called populist government is falling and the PM will resign.

      The possible solution is a left government with the 5 Stars (supposedly populist) and the Democratic Party (heirs of the Communists). There is less of a chance for new elections, as they could give a strong majority to the right parties led by the Lega.

      JE comments:  In effect, PM Conte resigned late yesterday, with a scathing parting blow against his former coalition partner Salvini.

      Returning to populism, might it best be seen as a reaction against elitism itself?  Although hardly an "everyman," Trump parlayed this sentiment into an election victory.

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    • Charismatic Leadership vs Populism (Tor Guimaraes, USA 08/22/19 4:04 AM)
      We all agree that the issues in social political economics are extremely complex for the myriad of inter-related variables. The direction of the causal relationships can also be debatable. The power of education is that we can perceive these variables and their relationships with a little more historical evidence rather than just belief and fantasy.

      John Eipper (August 20th) asked an interesting question: "Isn't populism as old as politics itself, going back to tribes/clans and the tendency of a charismatic figure to rise to a position of leadership?" In other words, what is the difference between charismatic leadership and populism? I believe that is the crux of the matter: the quality of the leader.

      Why do the followers trust the leader?  If they believe in her because she is wealthy, talks in grandiose style, plays on their sociopathic biases and fears, acts on poorly established or incorrect assumptions, etc., then we have populism. On the other hand, a charismatic leader is great if the followers trust her because she makes sense, tries to unify the whole nation instead of pitching one group against another, acts on well-established principle, delivers clear benefits to the whole nation rather than a minority, etc., then she is a great leader, not a populist. To me it is all about the quality of leadership.

      How many of us think Trump will MAGA? That is the ultimate test.

      JE comments:  One of the oldest pages in the populist playbook is someone to hate--be they oligarchs, immigrants, or religious or sexual minorities.  If all else fails, then find an external enemy by starting a war.

      Can there be populism without hate?  I cannot answer this.  Maybe another WAISer will take a stab at it (not in hatred, I trust.)

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