Barry Eichengreen on Populism and Economic Uncertainty

Barry Eichengreen on Populism and Economic Uncertainty

Recently Oxford University Press published a book by Eichengreen “The Populist Temptation. Economic Grievance and Political Reaction in the Modern Era”. He argues that economic uncertainty is the cause of the rise of populism, rather than the need for a particular identity or culture. Sometimes an interview with the author is more telling than just reading the book. In an interview in a Dutch newspaper under the heading “Populists are economic illiterate” (Arnold de Groot, NRC, 1 June, 2019), Eichengreen shows his prejudices explicitly. It is culture or economic situation – not a complex interaction between the economic and the social process. He is an economic historian. He says that he is an economist, and therefore he considers the economic factor as the decisive one. As historian he has discovered that over the last 200 years populism in the Western world has always preceded by a period of economic uncertainty. So, the lesson from our economic history is that we should implement social policies to reduce economic uncertainty.

Politics should channel some human instincts, such as xenofobia en religious intolerance. If politics fails, populists become powerful. That is a serious threat, since they deny the existence of restrictions on the size of the government budget: populists are economic illiterates! So, they aggravate economic uncertainty en discourage investments.

Many people in the United States forgot that more free trade does not work out positively for every group. A basic statement in international economics says that the losers should be compensated. Politicians should promise to organise a trickle-down effect. They must protect people – not goods or jobs – by offering workers permanent reschooling en training. We live in a period of lower rates of growth. That makes it more difficult to adjust to changing circumstances. Eichengreen shows itself as an optimist: I have studied a period of about 200 years, and time and again economic growth returned. Also problems like the climate change can be tackled – a first step is to recognize the problem, as we do now.

His way of arguing is quite problematic.

I am an economist, so economic factors are primary causes of good and evil; non-economic developments are essentially endogenous. What a pity for psychologists and sociologists , they are just appendices.

I am a historian and history shows that bad times are always followed by good times. It means that Eichengreen is right, even if it takes a hundred years of hardship for most of the population. For pessimists there is hardly any space left to make their point. History is determined by a pendulum, which never stops. I think that the current trends, such as globalization in every field, and enduring β-technological revolution makes our era unique, as all periods in the past have unique properties. This understanding is typical for the historical approach. The newspaper publishes a CV of Eichengreen, and states that he is praised as a world leader in drawing lessons from economic history – unbelievable.

I am Piet Keizer, and I am an economist. But to become a better economist, I have studied sociology, psychology and philosophy. I have discovered that not only economics, but also sociology and psychology, have their own mechanisms of adjustment. The rise of populism is one such mechanism: if different groups live in one and the same area, they are inclined to rival and to acquire dominance in that region. Others are excorcised if they do not assimilate. This is a typical sociological mechanism of adjustment. A typical psychological adjustment process is described by the ostrich-mechanism. When people are confronted with inconvenient truths, they are inclined to ignore it – acknowledgement would reduce self-respect too much. Eichengreen simply states that people forget that the trickle down-effect is not an automatism in a free market economy. But the dominant neoclassical economics has always suggested that market processes can do the job – of course, it might take a while, but in the end a free market economy will always return to equilibrium – it is even the neoclassical definition of the long run: all adjustment processes are done . In other words, the result is the best of all worlds for all people.

Eichengreen is an economist, who deliberately ignores social and psychic elements – that is an indication of irrationality. He is a historian, who ignores all the terribly bad things that happened during the processes of adjustment. Het even ignores the bad things that happened during the periods of economic growth – Germany during the thirties, for instance. Also his conclusion that the history of the past 200 years should make us optimistic. The great technological inventions – algorithms, robotization, for instance – are tools, which can be used at the benefit, but also at the cost of many people.

The Eichengreen attitude is typical for the γ-sciences – specialisation without integration. Every specialist considers its ‘own’ factors the most important ones, and the problems it gives for other areas is not their business. We put them into the backyard of our neighbours – and mitigate the relevance of it..

I am Dutch and well-known with Dutch economic history. In the year 2000 we saw the rise of Dutch populism. The economy was flourishing, the Dutch welfare state was functioning well. Nevertheless we had to face the Fortuyn revolution. Later we faced the rise of Wilders, and now we talk about the Baudet revolution. Is it caused by the economic decline? No, it may be triggered by it, but is caused by the confrontation between two very different cultures, to know modern Dutch culture versus that of a million Muslims from Morocco and Turkey. Many of them are from poor areas, and used to traditional and orthodox Islamic habits. Especially the hierarchical way of thinking makes it difficult for them to assimilate. Who is to blame is a different question: The Dutch culture is constantly changing and many Dutch do not stick to their own rules. The fact that the Dutch modern elite was irrational in its refusal to recognize the cultural clash has made a growing number of Dutch rebellious. Now economic growth has returned Eichengreen might think of a decline in populist popularity. I’m afraid it will not work out that way.



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