Populists Are Sometimes Right

Developing countries are often advised (or instructed) to undertake reforms recommended by "experts" who are called "technocrats" and are often backed by the IMF. Opposition to the reforms they propose is usually dismissed as "populist." Countries that fail to undertake these reforms are dismissed as craven or lacking political will, and soon suffer the consequences: higher interest rates when borrowing abroad.

But look closely at some of these "technocratic" proposals: many are more often based on ideology than economic science. Technocrats can of course reliably make an electricity plant work better. The goal is simple: to produce electricity at as low a price as possible. This is mostly a matter of engineering, not politics. Economic policies are usually not technocratic in this sense. They involve tradeoffs: some may lead to higher inflation but lower unemployment; some help investors, others workers.

Economists call policies where no one can be made better off without making someone else worse off Pareto efficient. If a single policy is better than all others for everyone , i.e., has no Pareto-efficient alternatives, it is said to be Pareto dominant . If choices among policies were purely Paretian, i.e., if no one was made worse off by choosing one policy, as against another, the choices involved would indeed be purely "technical."

But in reality, few policy choices are Paretian. Instead, some policies are better for some groups, but worse for others. Different policies benefit and hurt different groups.