Martin Wolf on the economics of populism

Rob Armstrong (0:06)

Pushkin. Many more or less orthodox economists and market watchers are surprised that Donald Trump's nationalist populist policies have not stopped the US economy from growing nicely this year, especially relative to the rest of the world. And they haven't stopped US markets from screaming higher either. Today on the show, populist economics. And does it work? This is Unhedged, the markets and finance podcast from the Financial Times in Pushkin. I am Rob Armstrong coming to you from a drizzly New York City. Joining me down the line from London is Martin Wolf, the FT's chief economics commentator. Thank you for being on the show, Martin.

Martin Wolf (0:54)

It's a pleasure, of course.

Rob Armstrong (0:56)

Let's start with the most basic question, Martin. What is populism? It feels like one of those things we know when we see it, but it's not easy to define. What makes a populist a populist?

Martin Wolf (1:09)

I think it's a very good question, and it's difficult to define because it has one or two broad characteristics which all populists seem to share. But there are many, many varieties and flavors. Scholars have focused down on the idea that all populists share as it were a style of politics. They operate within democratic systems, systems where the votes of large numbers of people really count. And their appeal is to quote unquote ordinary people. And what they say is you are suffering for whatever reason, different reasons, economics, socially, whatever, because there are elites which are malevolent and are ruling against your interests, usually in a sneaky and nasty way. But they're against elites. And the populist leader says, trust me, allow me to do whatever I want on your behalf because I represent the people against these elites, and you're all going to be fine.

Rob Armstrong (2:22)

There's another term you used in your column on this topic a week or two ago, which I think is important, which is institutions. Populists take a certain stance towards the institutions that define a democracy.

Martin Wolf (2:38)

Well, I would say that these are really two sides of one coin in a moderately sophisticated system. Anything like what we are familiar with across the world today, to run a complex society requires quite an array of quite complex institutions. It's not as it was in the Middle Ages, where institutions were really very underdeveloped. One or two, there were the courts, it was the church, but really nothing like today. So, the populists can appeal to the idea that these elites that people mistrust run the institutions. They are the people whom they deal with every day who run the courts, the bureaucracy, the political system and corporations. If they're left-wing populists, they will be appealing against the latter. So the elites and the institutions are, if you like, almost two sides of one coin in the modern polity.

Rob Armstrong (3:40)

There is a side of me that says this populism, it sounds like it's doing what democracy is supposed to do. In a democracy, power flows from the people, and the point of the government is to help people, and not just people. You might say it's there to help the little man, the least advantaged. So what's the problem here? Either from a kind of broad point of view, or specifically from the point of view of economics.

Martin Wolf (4:08)

Let's start with the broad point of view, because I think you've got to the heart of what one might call the democratic dilemma. I recently wrote a book called The Crisis of Democratic Capitalism, and a lot of it was about the role of institutions. There's obviously, as it were, a naive view of democracy, which is decisions are made by the people. Everything is decided by the people. And probably the best example of that was sort of Athenian democracy, where the people were actually just the men and only the citizens. But anyway, the people all met in a council consisting of whoever turned up, and they voted on everything. They put stones in, if I remember correctly, in this jar and made their decisions in this way. Now, the problem with this is we don't live in the Athenian economy or the Athenian state. We have extraordinary large countries by historical standards. In the case of the United States, what is it, 350 million people or so? And decisions have to be made by these people. And we've decided, I think, on the whole, rightly, even in Switzerland, we use referenda a lot, it's still decided in this way, that a lot of decisions have to be delegated to institutions with expertise. Because basically, you can't have votes on everything, and really, the people can't be expected to understand, for example, the details of monetary policy.