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The Macroeconomics of Reality-TV Populism

Summary:
Cardiff Garcia has a nice piece trying to figure out what might happen to the economy under Trump, taking off from the classic Dornbusch-Edwards analysis of macroeconomic populism in Latin America. Garcia notes that surging government spending and mandated wage hikes tend to produce a temporary “sugar high”, followed by a crash. Nice idea – but I suspect highly misleading, because Trump isn’t a real populist, he just plays one on reality TV. The Dornbusch-Edwards essay focused on the examples of Allende’s Chile and Garcia’s Peru; an update would presumably look at Argentina, Venezuela, and others. But how relevant are these examples to Trump’s America? Allende, for example, was a real populist, who seriously tried to push up wages and drastically increased spending. Here’s

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Cardiff Garcia has a nice piece trying to figure out what might happen to the economy under Trump, taking off from the classic Dornbusch-Edwards analysis of macroeconomic populism in Latin America. Garcia notes that surging government spending and mandated wage hikes tend to produce a temporary “sugar high”, followed by a crash. Nice idea – but I suspect highly misleading, because Trump isn’t a real populist, he just plays one on reality TV.

The Dornbusch-Edwards essay focused on the examples of Allende’s Chile and Garcia’s Peru; an update would presumably look at Argentina, Venezuela, and others. But how relevant are these examples to Trump’s America?

Allende, for example, was a real populist, who seriously tried to push up wages and drastically increased spending. Here’s Chilean government consumption spending as a share of GDP:

The Macroeconomics of Reality-TV Populism

That’s huge; in the U.S. context it would mean boosting spending by almost $1 trillion each year.

Is Trump on course to do anything similar? He’s selected a cabinet of plutocrats, with a labor secretary bitterly opposed to minimum wage hikes. He talks about infrastructure, but the only thing that passes for a plan is a document proposing some tax credits for private investors, which wouldn’t involve much public outlay even if they did lead to new investment (as opposed to giveaways for investment that would have taken place anyway.) He does seem set to blow up the deficit, but via tax cuts for the wealthy; benefits for the poor and middle class seem set for savage cuts.

Why, then, does anyone consider him a “populist”? It’s basically all about affect, about coming across as someone who’ll stand up to snooty liberal elitists (and of course validate salt-of-the-earth, working-class racism.) Maybe some protectionism; but there’s no hint that his economic program will look anything like populism abroad.

In which case, why would we even get the “sugar high” of populisms past? A tax-cut-driven boom is possible, I guess. But there won’t be much stimulus on the spending side.

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Paul Krugman
Paul Robin Krugman (born February 28, 1953) is an American economist, Distinguished Professor of Economics at the Graduate Center of the City University of New York, and an op-ed columnist for The New York Times. In 2008, Krugman won the Nobel Memorial Prize in Economic Sciences for his contributions to New Trade Theory and New Economic Geography.

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