S5 Ep33: Causes and costs of populism

Episode Summary

Executive Summary: The episode examines populism’s causes and economic costs through two papers: Moritz Schularik argues populist rule damages institutions and reduces growth, estimating a roughly 10% GDP penalty over 10–15 years; Massimo Morelli explains why voters and politicians adopt populist “commitment” strategies when distrust rises. Both link populism to crisis-driven distrust, institutional erosion, and vicious cycles, while suggesting supranational cooperation may help counter it.

Main Topics: Historical cost of populism (Priority: 5/5): Schularik’s long-run database (from 1900 onward) finds populist leadership is associated with weaker institutions and sizable long-term losses in output and growth. What defines populism (Priority: 4/5): Populism is framed as an anti-elite political style that pits a supposedly “good people” against a corrupt elite; left and right variants differ mainly in the issues they emphasize. Supply-side theory of populism (Priority: 5/5): Morelli argues politicians choose populist rhetoric and policy when distrust makes voters prefer committed, simple promises over technocratic delegation. Institutional damage as the transmission channel (Priority: 5/5): Both speakers emphasize that populists weaken courts, press freedom, property rights, and bureaucratic checks and balances, which undermines growth and state capacity. Crisis as the trigger for populism (Priority: 4/5): Globalization, immigration, automation, and especially the 2008 financial crisis are described as trust-destroying shocks that expanded populist appeal beyond the working class. Serial and self-reinforcing populism (Priority: 5/5): Once populists win, they can weaken the institutions that constrain them, making future populist victories more likely and creating a vicious cycle. Can democracy escape populism? (Priority: 3/5): The discussion ends on cautious optimism that stronger European-level institutions and supranational governance could insulate policy from nationalist-populist pressures.

Key Arguments: Populism is not randomly assigned; it often rises in response to economic and institutional crises, so causal estimation is difficult but possible with historical and quasi-experimental methods. Populist leaders impose an estimated long-run growth penalty of about 10%, largely by eroding rule of law, judicial independence, press freedom, and property rights. Left populists tend to stress redistribution and economic grievance; right populists tend to stress cultural conflict and target minorities, but both rely on anti-elite rhetoric. Voters facing distrust may prefer “committed delegates” who make simple, credible promises over competent technocrats who delegate policy decisions. Once elected, populists often overspend, create cost overruns, and remove bureaucratic experts who could constrain them, enabling some promised policies but weakening institutions. The 2008 financial crisis is portrayed as a watershed because it spread distrust into the middle class, broadening the electoral base for populism. Populism can be serial: early populist victories weaken checks and balances, making subsequent populist leaders more likely and more effective. A potential antidote is stronger supranational cooperation, especially in Europe, because many modern problems are transnational and cannot be solved well by nationalist-populist approaches.

Data Points: Historical coverage: 1900 onward - Moritz Schularik’s database tracks populism over roughly 120 years. Estimated growth penalty: about 10% - Long-run GDP penalty associated with populist rule after 10–15 years. Time horizon for growth effect: 10–15 years - Period over which the cumulative output loss is discussed. Publications referenced: VoxEU column published 16 February 2021 - Reference to the historical-cost paper by Funke, Schularik, and Trebesch. Discussion paper number: 15405 - CEPR discussion paper for 'Populist Leaders and the Economy'. Episode context: CEPR Paris Symposium 2022 - Live recording location for the interview. Podcast library size: more than 200 episodes - Promotional note at the end of the episode.

Pivotal Quotes: "a political style that accentuates the differences between the evil elites and the good people" — Moritz Schularik: Definition of populism used to classify leaders historically. "voters will sometimes prefer what you call... committed delegates rather than a competent policy maker" — Tim Phillips: Sets up the supply-side theory that Morelli explains. "nationalism is a trap" — Massimo Morelli: Argument for supranational institutions as an alternative to populist nationalist solutions.

Implications: The episode suggests populism is not just rhetorical but economically costly and institutionally corrosive. If distrust keeps rising, democracies may face repeated populist waves unless institutions, expertise, and cross-border governance can rebuild confidence.