Populism (updated x2)

That Robert Muldoon was a populist is in little doubt. As Roger Kerr wrote recently,

As prime minister, 'Rob' Muldoon was often described as an economic 'populist'.

He claimed to be on the side of "the ordinary bloke". Economic historian Gary Hawke described him as "an inveterate meddler, an overconfident, self-proclaimed economic manager with a demagogic streak."

Muldoon disdained the ordinary person's understanding of economics. Right up to his political demise he was claiming that the economy was "in remarkably good shape".

Standard economic reasoning was of little interest to him: he justified protectionist policies by saying he would not sacrifice efficient industries for the sake of a theory – an oxymoron if ever there was one.

When Muldoon published his book "The New Zealand Economy: A Personal View" a copy was sent to the economics journal, New Zealand Economic Papers, for review. In the 'Books Received' section of the journal the following note appeared below the entry for the book,

'Not a book which is likely to appeal to economists for, in Sir Robert's view, they are all disqualified from offering advice because they are either academic (and therefore theoretical), foreigners (irrelevant), Treasury officials (inexperienced) or Reserve Bank employees (inclined to panic). Sir Robert doesn't need economic advice because he alone possesses the experience, common sense, social concern, understanding of the New Zealand way of life and knowledge of the people which enable him to make "the judicious use of the widest range of weapons that are available"!'

I guess Roger Kerr must have been one of the "inexperienced" ones at the time.

But the days of Muldoon should make us wary of populist politicians - and their policies - in general. But it seems we are not so wary. As Kerr notes

The Muldoon government's National Superannuation scheme was a massive electoral bribe, of the kind that largely disappeared from New Zealand politics until the recent interest-free student loans and Working for Families initiatives.

This return to politics by bribe is not encouraging as far as the future of politics and economic policy in New Zealand is concerned. Again Kerr notes,

However, as the Muldoon era and many periods of Latin American history showed, a series of populist policies can eventually lead to economic ruin. Far from protecting "the ordinary bloke", they depress wages, increase taxes and ultimately make painful reform unavoidable.

But if this is so, then there is a problem. What does the "the ordinary bloke" vote for it? Why can't the "the ordinary bloke" see the likely outcome of these bribes and vote accordingly? It seems unlikely that people want depressed wages, increased taxes and painful reform. So why vote for the very policies that bring these things about?

Politicians go down the populist route for the very simple reason that it works. Why? Again the rational voter looks like a myth. Where's Bryan Caplan when you need him? Is this another example of where the greatest obstacle to good economic policy is the popular misconceptions, irrational beliefs, and personal biases held by the "ordinary bloke"? Are we seeing politicians who either share the "ordinary blokes" biases or at least pretend to being elected. This would explain bad policies winning again and again .... by popular demand. Caplan argues that democracy fails precisely because it does what voters want. He makes the case that voters suffer from four prevailing biases: they underestimate the wisdom of the market mechanism, distrust foreigners, undervalue the benefits of conserving labour, and pessimistically believe the economy is going from bad to worse. The government's decision to further restrict overseas shareholding in Auckland airport would be the latest example of politicians taking advanced of the "distrust of foreigners" bias.

Kerr argues

Good policies are sometimes like medicine – they may taste bad for a while, but they are necessary in order to get better. We need political leaders who can resist populist pressures and lead the electorate in necessary directions.

Maybe its not political leaders who can resist populist pressures that we need. It seems more likely that what we really need are voters who can resist, or overcome, such pressures.

Update: It has been pointed out to me that one way to interpret Caplan is that what he's saying is that it's remarkable that policy isn't much worse than it actually is. One thing that could explain this is that where politicians have discretion, they're apt to use it to mitigate the worst consequences of stupid voter preferences because economic retrospective voting still holds.

Update 2: As to the government taking advanced of the "distrust of foreigners" bias. This is from a NZPA report on the bid for Auckland International Airport by the Canada Pension Plan Investment Board.

But political analysts believe the ministers -- Land Information Minister David Parker and associate finance minister Clayton Cosgrove -- could reject CPP on naked political grounds because foreign ownership is unpopular and the Government trails heavily in opinion polls.