Growing Out of Populism?

Apr 4, 2017 Kenneth Rogoff

After nine dreary years of downgrading their GDP forecasts, macroeconomic policymakers around the world are shaking their heads in disbelief. Despite a populist-propelled wave of political tumult, global growth is actually set to outperform expectations in 2017.

CAMBRIDGE – After nine dreary years of downgrading their GDP forecasts, macroeconomic policymakers around the world are shaking their heads in disbelief: Despite a populist-propelled wave of political tumult, global growth is actually set to outperform expectations in 2017.

It’s not just American exceptionalism. Although US growth is very strong, Europe has been outperforming expectations by more. There is even happy news for emerging markets, which are still bracing for US Federal Reserve interest-rate hikes but have gained a better backdrop against which to adjust.

The broad story behind the global reflation is easy enough to understand. Deep, systemic financial crises lead to deep, prolonged recessions. As Carmen Reinhart and I predicted a decade ago (and as numerous other scholars have since corroborated using our data), periods of 6-8 years of very slow growth are not at all unusual in such circumstances. True, many problems remain, including weak banks in Europe, over-leveraged local governments in China, and needlessly complicated financial regulation in the United States. Nonetheless, the seeds of a sustained period of more solid growth have been planted.

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Kenneth Rogoff

Writing for PS since 2002
214 Commentaries

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly and author of The Curse of Cash.

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0 Comments on this paragraph, 24 Comments on this article

Russ Glisker Apr 22, 2017

Will the growth benefit the people tending to vote populist or only raise upper income groups while increasing inequality?
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TRIQUI AHMED Apr 11, 2017

Il me semble que tout étudiant de 1ère année de sciences économiques fait la distinction entre la production ( donc la croissance économique) et la répartition. Si le populisme émerge à ce point risquant de tout balayer sur son chemin, c'est bien en raison de l'accroissement des inégalités économiques et sociales. La situation de l'emploi ne s'améliore pas alors que la précarisation progresse partout dans l'Europe du Sud tandis qu'en Allemagne le nombre de travailleurs pauvres augmente. Aux États Unis, des travaux de recherche montrent que l'espérance de vie des travailleurs diminue. Donner un chemin pour un travail, un salaire et une vie décente à toute la population devrait être le premier souci d'un économiste digne de ce nom, sinon l'ultra libéralisme restera l'économie barbare du XXI ème siècle. Et cette barbarie, nous savons en Europe par où elle commence et par quoi elle finit même si nous savons aussi que le pire n'est jamais certain.
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Jose araujo Apr 10, 2017

The world started growing because we stopped listening to Rogoff, not because poppulists took power.

After a decade of failed policies backed by biased studies like the ones from Alesina and R&R, politicians stopped banging the head against the wall, so its no surprise that the headeaches are going away.

Rogoff again is completly wrong and still refuses to aknowledge thats his views of the world are way off.
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Bob Bronson Apr 10, 2017

Rogoff is clueless as a business cycle forecaster. Not only did he not forecast - in advance - the last two recessions ( any before that, I doubt, but don't know) or even when they were starting.

Already U.S. first quarter GDP has been less than half the expected 2.0% and all of 2017 will be much lower than he expects.

He doesn't even fully understand the cyclical moves between the equity and bond markets.

The main problem is that he thinks he can see politically-driving forces on the business cycle, but he can't.

He should stick to what he knows, but what's that?

Bob Bronson bob@bronsons.com
Bronson Capital Markets Research
52 years in financial services, 50 advising
institutional and professional investors
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Michael Hullevad Apr 9, 2017

Our politicians have made too many experiments. The euro is a disaster! It is "underrated" in Germany by 30-40% due to efficiency and overrated in Italy by the same numbers. It will never work with the 3% budget rules imposed by the EU (and Germany).
The open arms policy regarding "asylum seekers" has failed. The problem is to correct this mistake and send migrants back. Looks like a impossible task! Quite a few voters are angry, they are called populists. Others embrace muslims that will find it very hard to assimilate due to Sharia law that +60% wants to have influence. Political islam is undemocratic, where is Turkey going?
It is quite a mess the EU has made, can they make a turn around?
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otto ruthenberg Apr 9, 2017

all democratic parties must act populist today meaning over promising blatantly. what rogoff calls populist is just those with extreme views. but the system has created just that as in today's saturated opinion landscape you must overstate and simplify a cause far beyond the rational to shift the mainstream at all. and so called populists have significantly reshaped policies towards migration, environment or security although achieving that has begun to defeat their cause.
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Joel Dubow Apr 9, 2017

OK, Prof. Rogoff, I got the message- f we had just hung in there a little longer and elected Hillary and the PC Lefties then everything would have worked out great. The problem is that I don't believe it.

Forecasts, jobs, and stocks all took off when the electorate fired the losers running the place and hired Trump. Prior to that everyone was still singing the blues. Life expectancy and standard of living were decreasing. Educational achievement was steadily declining. More people have to live with their parents then anytime since the Depression.
The post electoral protest is much more virulent than anything I've seen after an election. It is the rage of those who expected a triumphal entry into centralized rentier control of the economy and the end of checks and balances and government of the people. Sorry Professor, the future is to who can do the most for the people, and not to who can pile propaganda higher and deeper.
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jean nutson Apr 9, 2017

Certainly, the newly effected interest rate adjustment to % 1 by the board of the federal reserve in march , which among many things also imply shirking off it's risky or unprofitable assets, securities etc. which it acquired over the period aiming at mitigating the inconveniences or simply stop providing financial products at very low rates fearing increases in it's public debt ie FEDERAL RESRVE, factoring into consideration basic factors such as cost of paper for the dollar note as well as the other digital, computerized and financial services, it makes it compelling for such moves to be taken to lower costs, however the impacts both beneficial and adverse will be experienced by all economies linked to the dollar irrespective of geographic location. Real economic improvement metric such as increase in purchasing power will be hard to prove by many considering some factors such as the complex technologies involved in trade and economy exchange such as stock markets and regulations.
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Henry Cole Cole Apr 9, 2017

Interesting article, but one that misses an essential point. Why the rise in populism? I suggest that the focus on GDP growth, without regard to how globally dominant financialized system affects the average person. Nor does it address the issue of wealth inequality. Without a democratization of economic gain, things are likely to get a great deal worse.
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Andrew Cole Apr 9, 2017

Its a question of whose "populism" it is. German populism has taken the form of relentless self interest with a token fig leaf of EU federalism. 7 years freedom of movement exemption to divert mass migration, breaking the Euro and forcing out the UK by not allowing a (separate) transfer payments system and catch up write offs of loans to stabilize the common currency, a stack of successive EU legislation (e.g. insurance capital) that is so biased it is racist, control of the EU executive with racially specific patronage based decision making on who gets EU fines...its a supremacist race based hierarchy in the EU, and the label that is attached to those who reject it are "populist" is anti democratic and insulting. Such forces may will be beaten but only by ruthless application of German supremacist power. threats, revenge, bullying, coercion, you name it, as Poland, Britain, Hungary are finding out!
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Alejandro Moreno Apr 6, 2017

What was said by Nobel laureates Paul Krugman and Joseph E. Stiglitz is that the collapse and great depression of 2008 was due to the excess of financial deregulation, which in turn resulted in indebtedness of the governments of the day, being compelled to The rescue of banks, (contaminated mortgages and other disastrous activities). This indebtedness had to be paid by people paradoxically, (this in turn involved a significant decrease in aggregate demand). Actually, the term populism is a concept of political management that tries to hide the resounding failure of the neoclassicals who champion a dehumanized economy (a concept strongly promoted after the financial collapse) to discredit the basic requirements of the people and their influence on politics , And tending to cement the privilege of few over the rest, coded in the 1% concentration of almost all of the wealth. Following that thought sold in the selfish and Machiavellian order, then it is also praiseworthy and justified to speak of an exclusivist populism, that is to say of a plutocratic populism, which of course is not criticized, because it is judge and part. In contrast to orthodox or neoclassical economics is the neo-Keynesian economy that promotes a free enterprise economy with social responsibility, that is to say humanist, or pro-European, far from Russia, China, and Chicago boys.
- Jose araujo Apr 7, 2017
  
  I don't think Stuglitz ever defended those views. Krugman is a neoclassic - ashamed Austrian, but Stiglitz isn't...
  
  Stiglitz views are connected with the Euro imperfections, he has been saying this since the creation of the euro, so give him credit for that.
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Elizabeth Rust Apr 6, 2017

"After nine dreary years of downgrading their GDP forecasts, macroeconomic policymakers around the world are shaking their heads in disbelief: Despite a populist-propelled wave of political tumult, global growth is actually set to outperform expectations in 2017."

How can 2017 growth "outperform expectations" when we're only a quarter of the way into the year, and data on first quarter growth haven't been released? 2017 growth hasn't happened yet. You can only say that growth "outperforms expectations" when it happens, and turns out to be greater than consensus estimates. I suspect what Rogoff really means is that his own, personal expectations for 2017 growth are higher than consensus expectations, despite not providing any particular reason why we should agree.

Sloppy writing reveals sloppy thinking.
- B Wilds Apr 9, 2017
  
  Show me the money! Now here is a phrase that gets our attention. Years ago it was etched in our minds when used in the 1996 hit movie, Jerry Maguire. Whether it is the promise of better government or that the economy will soon improve I grow weary and more dubious every time I'm told that positive change is just around the corner.
  
  Sadly, my friends your chances of survival most likely will be greatly improved if you don't hold your breath until the promises of better times arrive. The article below states the time for more proof and fewer promises is long past due.
  
  http://brucewilds.blogspot.com/2017/04/show-me-money-i-want-proof-not-more.html
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Jeroen de Jong Apr 6, 2017

I'm chocked about your analysis that populist candidates have lost in Netherlands. I have a feeling that you really live on a different planet. Every year they are gaining popularity. You base your analysis upon expactations in media, not facts. You simply do not understand the people voting populism and the real challenges we have in modern society and the enormous impact technology has on the ability for ordinary peoples to have work that is valued. All growth now is capital growth.
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Steve Hurst Apr 5, 2017

'Nonetheless, the seeds of a sustained period of more solid growth have been planted.'

We can only hope this is the case, however...

Sorry, but the question to be answered is - Is the predicted economic growth both sufficient and sustainable enough to outpace the opposing negative ledgers in growth and cumulative effect

eg inequality, ageing demographics, decade on decade uptick trends in youth unemployment, slowing technical advantage vis a vis developing economies, welfare and healthcare expectations, population explosion, AI and robotic, climate change and water shortages, migration pressures etc etc. Otherwise its just cherry picking

Far from being a typical recovery the graph for the US is unprecedented in its extended trough and the doubling of and size of the accompanying US debt
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Jerry F. Hough Apr 4, 2017

In the US, the political problem is not GDP, but that the market tripled under Obama, while wages for the 90% declined according to the Fed. Fifteen years of war in the Middle East that has left things worst in the Mideast than they were.

Trump thus far has had a right wing domestic and foreign policy. He follows Jared in both, while Jared follows Adelman both in his foreign and domestic policy. Trump's base gives him higher approval ratings than in January. This is not stable from a 2018-2020 perspective. The question is what Trump does when his base starts dissolving and his approval ratings drop into their twenties.

One should not assume populism is dead. Unless there is a truly major crisis, the normal reaction to a radical political party is for one or both of the major parties to destroy it by stealing its message in milder form. That essentially has happened in Britain and particularly the Netherlands and France--and surely it is coming in Italy. The establishments of both US parties continue to response with nothing but hysteria, but surely this will past, especially since blacks are anti-Muslim and anti-Latino and are up for grabs.
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george jonisch Apr 4, 2017

"Though most economists still think exiting the euro would be profoundly self-destructive, a growing number have come to believe that the euro will never work for Italy, and that the sooner it leaves the better."
Can someone please specify for me in eco-poli terms, why this is true for Italy and not the others.
- Steve Hurst Apr 5, 2017
  
  george
  
  Monumental debt, massive debt rollover due shortly, incapable of reform QED Renzi quitting, stonking NPLs in the industrial North, Banks shut out of central EZ rescue (at present) due to change of EZ policy following German and French bank rescue (GR crisis), considered too big to rescue, crippling unemployment in the South (75% some locations), ageing demographics, flight of the young to other countries, cannot compete with Germany within the EZ, cannot devalue currency due to common currency etc etc. Just an opinion
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Marc Laventurier Apr 4, 2017

That's OK Ken, I don't understand what populism actually is either.
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Steve Hurst Apr 4, 2017

Kenneth, you need to become more dysfunctional to understand Europe, till then stick to the US
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