Macroeconomic populism is a term coined by
Rudi Dornbusch
Rüdiger Dornbusch (June 8, 1942 – July 25, 2002) was a German economist who worked in the United States for most of his career.
Early life and education
Dornbusch was born in Krefeld in present-day North Rhine-Westphalia. After completing his ...
and
Sebastian Edwards
Sebastian may refer to:
People
* Sebastian (name), including a list of persons with the name
Arts, entertainment, and media
Films and television
* ''Sebastian'' (1968 film), British spy film
* ''Sebastian'' (1995 film), Swedish drama film
...
in a 1990 paper.
The term refers to the policies by many
Latin American
Latin Americans ( es, Latinoamericanos; pt, Latino-americanos; ) are the citizens of Latin American countries (or people with cultural, ancestral or national origins in Latin America). Latin American countries and their diasporas are multi-eth ...
administrations by which
government spending
Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual o ...
and
real wages
Real wages are wages adjusted for inflation, or, equivalently, wages in terms of the amount of goods and services that can be bought. This term is used in contrast to nominal wages or unadjusted wages.
Because it has been adjusted to account f ...
increase in a non-sustainable way leading to
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
, then
stagflation and ultimately an
economic collapse
Economic collapse, also called economic meltdown, is any of a broad range of bad economic conditions, ranging from a severe, prolonged depression with high bankruptcy rates and high unemployment (such as the Great Depression of the 1930s), to a ...
that drops real wages to lower than they were before the
populist period began. The paper cites as examples
Salvador Allende in
Chile
Chile, officially the Republic of Chile, is a country in the western part of South America. It is the southernmost country in the world, and the closest to Antarctica, occupying a long and narrow strip of land between the Andes to the east a ...
(1970–1973), and
Alan García
Alan Gabriel Ludwig García Pérez (; 23 May 1949 – 17 April 2019) was a Peruvian politician who served as President of Peru
The president of Peru ( es, link=no, presidente del Perú), officially called the president of the Republic of ...
first term in
Peru
, image_flag = Flag of Peru.svg
, image_coat = Escudo nacional del Perú.svg
, other_symbol = Great Seal of the State
, other_symbol_type = Seal (emblem), National seal
, national_motto = "Fi ...
(1985–1990). In 1991, Dornbusch and Edwards edited a book titled ''The
Macroeconomics
Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole.
For example, using interest rates, taxes, and ...
of Populism in Latin America'' which analyzed more cases like
Argentina
Argentina (), officially the Argentine Republic ( es, link=no, República Argentina), is a country in the southern half of South America. Argentina covers an area of , making it the second-largest country in South America after Brazil, th ...
between 1973 and 1976,
Mexico
Mexico (Spanish: México), officially the United Mexican States, is a country in the southern portion of North America. It is bordered to the north by the United States; to the south and west by the Pacific Ocean; to the southeast by Guatema ...
between 1970 and 1982, and
Brazil
Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...
.
In 2014,
Paul Krugman
Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...
cited Argentina's policies under
Cristina Fernandez de Kirchner
Cristina is a female given name, and it is also a surname. Notable people with the name include:
Given name
*Cristina (daughter of Edward the Exile), 11th-century English princess
*Cristina (singer), Cristina Monet-Palaci (1956–2020), American s ...
and
Venezuela
Venezuela (; ), officially the Bolivarian Republic of Venezuela ( es, link=no, República Bolivariana de Venezuela), is a country on the northern coast of South America, consisting of a continental landmass and many islands and islets in th ...
as new cases of macroeconomic populism. In 2014, during a lecture he said he did not endorse the attacks on Argentina nor what it looks to him as a "somewhat out of control fiscal and monetary policy."
[November 18, 2014. TN. Palabras + Palabras -.]
Formal definition
The definition of macroeconomic populism in the original paper states as follows: "Macroeconomic populism is an approach to economics that emphasizes growth and income distribution and deemphasizes the risks of inflation and deficit finance, external constraints and the reaction of economic agents to aggressive non-market policies."
Phases
The start of a populist cycle is generally after a stabilization program. The economy has idle capacity and the budget and external balance have room left for a expansionary policy.
# Phase I includes a high increase in public spending and an increase in real wages and employment. Gross domestic product increases and there is low impact on inflation. Shortages are alleviated by imports. There is a reduction in reserves or debt default.
# Phase II includes an increase in inflation, although wages keep up. Bottlenecks lead to price and exchange controls. The budget deficit greatly increases as a result of subsidies. The economy runs into
stagflation.
# Phase III is characterized by shortages, extreme acceleration of inflation (possibly
hyperinflation), and capital flight. A decline in tax revenue combined with high inflation results in an increase in the budget deficit (
Tanzi effect). A stabilization attempt by reducing subsidies and devaluation leads to a drop in real wages. As the paper states "politics become unstable. It becomes clear that the government has lost."
# Phase IV: A new government implements orthodox policies to stabilize the economy. Once the economy is stabilized real wages will have fallen lower than before Phase I began.
Further reading
* Edwards, Sebastian. 2019.
On Latin American Populism, and Its Echoes around the World. Journal of Economic Perspectives, 33 (4): 76-99.
* Edwards, Sebastian and Rudiger Dornbusch (eds.). 1992.
'. University of Chicago Press.
References
{{Reflist
Macroeconomics
Macroeconomic policy