Working Paper: NBER ID: w2986
Authors: Rudiger Dornbusch; Sebastian Edwards
Abstract: 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. The purpose of our paper is to show that policy experiences in different countries and periods share common features, from the initial conditions, the motivation for policies, the argument that the country's conditions are different, to the ultimate collapse. Our purpose in setting out these experiences, those of Chile under Allende and of Peru under Garcia, is not a righteous assertion of conservative economics, but rather a warning that populist policies do ultimately fail; and when they fail it is always at a frightening cost to the very groups who were supposed to be favored. Our central thesis is that the macroeconomics of various experiences is very much the same, even if the politics differed greatly.
Keywords: macroeconomic populism; Latin America; economic policy; inflation; income distribution
JEL Codes: E61; E62; H60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| initial economic conditions (N11) | populist policies (D72) |
| populist policies (D72) | economic failure (P19) |
| populist policies (D72) | inflation (E31) |
| populist policies (D72) | budget deficits (H62) |
| inflation (E31) | economic crisis (G01) |
| budget deficits (H62) | economic crisis (G01) |
| economic failure (P19) | political instability (O17) |
| external factors (O36) | destabilization of populist programs (P39) |
| unsustainable domestic policies (H69) | economic failure (P19) |
| Chile's experience (N56) | Peru's economic program (E69) |