Feb 15, 2019

Populism Doesn’t Fight Government-Granted Privilege, It Makes It More Common

Matthew D. Mitchell Senior Research Fellow , Tad DeHaven Staff writer

We recently challenged the cross-ideological claim that economic and political elites have used free market capitalism to enrich themselves at the expense of the average American. We explained that the notion that the United States possesses a true free market economy is a myth. To the contrary, myriad government interventions have provided an opportunity for those with power and access to manipulate economic activity for their gain. A common label for this arrangement is crony capitalism. A less-popular but more-fitting label is political capitalism.  

That’s because, according to the authors, populist ideology does not threaten political capitalism–it legitimizes it.

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In 2014, our colleague Paul Dragos Aligica and then-graduate student Vlad Tarko published a paper that explored the ways in which populist ideology underpins crony/political capitalism. Written before presidential candidate Donald Trump promised to “drain the swamp” in Washington and the resurgence of radical egalitarianism on the left, Aligica and Tarko’s findings are particularly pertinent today. That’s because, according to the authors, populist ideology does not threaten political capitalism–it legitimizes it.  

While we recommend you read the paper in its entirety, the following excerpts are particularly relevant given the current strength of populism’s allure (the bold print is our emphasis):

"This ‘attitude of nihilism toward economic organization’ is ripe for the growth of populism, which rationalizes state interventions, but not from a coherent ideological perspective. As mentioned, standard ideologies come with clear cut restrictive and regulatory principles. Yet populism, lacking the ideological coherence of classical ideologies finds a formidable strength precisely in the flexibility and polymorphism allowed by its “nihilism”. Under such an ideological regime, one may offer justifications and legitimacy to any types of government interventions on the market. Yet, at the same time, the constraints to the kinds of interventions that were seen as legitimate have disappeared. A rent-seeking oligarchy or any rent-seeking group finds in populism a wonderfully malleable and effective instrument. Ideas and attitudes still matter even when they don’t form a coherent system, and populism is a case in point."

In other words, because populism is devoid of intellectual substance, it offers a convenient cover for politicians and their beneficiaries to justify a wide range of government interventions. For example, President Trump’s trade policies are predicated on a simplistic appeal to “fairness.” But underneath the fig leaf of populist sentiment, one will discover that trade protectionism actually benefits privileged special interests and harms consumers.

What defines populism and distinguishes it from other ideologies? According to Aligica and Tarko:  

"The key feature of populism is that it is a type of political legitimization that manages to circumvent the standard ideological expectations of basing one’s arguments in a coherent and unitary system of thought. Imperfect and inconsistent as they were, classical ideological frameworks were striving for consistency and prescriptive predictability. We can even say that, in a paradoxical way, such “pragmatism” is militantly anti-ideological, as having any particular ideological backing is frowned upon as evidence of “bias”. The only recognized legitimacy is the appeal to the current state of popular opinion: “Populists see themselves as true democrats, voicing popular grievances and opinions systematically ignored by governments, mainstream parties and the media” (Canovan 1999), a fact that precludes a substantial ideological formation. As Stanley (2008) put it, populism is a “thin ideology”. Populism is open to an eternal improvisation depending on what is considered the “true” voice or interest of “the people”. Ironically, although populism acts as a legitimizing cover for elite interests and rent-seeking, populists define the interests of the people in opposition to the interests of some malign elite. Acemoglu, Egorov & Sonin (2011) analyze the incentive structure created by populism at the level of the political sector, and note that we can understand departures from the median-voter model by the fact that “[w]hen voters fear that politicians may be influenced or corrupted by the rich elite, signals of integrity are valuable”. Populism is used by political actors as a tool for trying to signal their integrity."

That last sentence explains to a tee the current efforts by Democratic presidential candidates to grab the mantle of the peoples’ champion heading into the 2020 election.

What is the end result? Aligica and Tarko suggest it isn’t likely to be good:

"Dornbusch & Edwards (1992) review the earlier literature on populism and note that, in terms of economic policies, it “emphasizes growth and income redistribution and deemphasizes the risks of inflation and deficit finance, external constraints, and the reaction of economic agents to aggressive nonmarket policies” (p. 9). Acemoglu, Robinson & Torvik (2013) argue that the desire for populist redistribution determines voters to dismantle constitutional checks and balances on political power, voters effectively deciding to tolerate a certain amount of corruption in order to benefit from a certain amount of redistribution. Dornbusch & Edwards (1992) also note that populist policies unavoidably end up in failure over the long term due to their inherent macroeconomic unsoundness and unsustainability of their policies (see also Buchanan & Wagner 1977)."

In other words, populism offers voters a “free lunch.” People like free lunches, so populist rhetoric and policies are inherently appealing to the political class. The problem is, there’s no such thing as a “free lunch.” Indeed, as one of us explained in a short book, The Pathology of Privilege, government favoritism comes with tremendous costs.  

Photo credit: Drew Angerer/Getty Images

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