Macroeconomic populism is a term coined by Rudi Dornbusch 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-e ...

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 ...

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 ...

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 reduct ...

, then

stagflation In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actio ...

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 Populism refers to a range of political stances that emphasize the idea of "the people" and often juxtapose this group against " the elite". It is frequently associated with anti-establishment and anti-political sentiment. The term develop ...

period began. The paper cites as examples

Salvador Allende Salvador Guillermo Allende Gossens (, , ; 26 June 1908 – 11 September 1973) was a Chilean physician and socialist politician who served as the 28th president of Chile from 3 November 1970 until his death on 11 September 1973. He was the fir ...

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 eas ...

(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 for two non-consecutive terms from 1985 to 1990 and from 2006 to 2011. He was the second leader of the Peruvian Apri ...

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 = National seal , national_motto = "Firm and Happy f ...

(1985–1990). In 1991, Dornbusch and Edwards edited a book titled ''The Macroeconomics 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 ...

cited Argentina's policies under Cristina Fernandez de Kirchner 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

. # Phase III is characterized by shortages, extreme acceleration of inflation (possibly

hyperinflation In economics, hyperinflation is a very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase. This causes people to minimize their holdings in that currency as t ...

), 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.

References

{{Reflist Macroeconomics Macroeconomic policy

Formal definition

Phases

Further reading

References