Lucas Jackson / Reuters A Bernie Sanders rally in Queens, April 2016.

Market Parables and the Economics of Populism

When Experts Are Wrong, People Revolt

For all their differences, populists on left and right, both in the United States and in Europe, blame mainstream parties for creating a world of crisis, inequality, and insecurity. The story differs from country to country, but in the United States, the white working class, a traditional mainstay of the Democratic Party, propelled Donald Trump to the presidency.

The mainstream center-left might well have lost voters it would have otherwise claimed because it had grown too rich for its own good, as New York Times opinion-page contributor Thomas B. Edsall and others have argued. With widespread corporate support, endorsements from the likes of former Secretary of the Treasury Hank Paulson, and a majority among the richest voters, the argument goes, Democratic nominee Hillary Clinton paid too little attention to working-class whites or socialist-leaning youth.

But ideas about the economy also shape the directions of politicians and even how the rest of us conceive of our interests. In the late nineteenth century, British faith in laissez faire helped propel a great experiment in global markets and finance across much of the world. That experiment collapsed in World War I, struggled back in the 1920s, and failed for good amid the crises and inequality of the Great Depression. The socialist left and fascist right, not so unlike today’s populists, attacked the underlying faith in laissez faire.

In the decades after World War II, an essentially pragmatic belief in governments’ ability to create a better economy underpinned confidence in the welfare state. During his 1964 campaign, Lyndon B. Johnson promised a Great Society to end poverty—and won a larger majority of the richest five percent of voters than did Clinton in 2016. After a brutally contentious fight to pass the Civil Rights Act, which was filibustered for 60 days, he also won a majority of working-class whites. Ideas about the economy shape the directions of politicians and even how the rest of us conceive of our interests.

Economic thinking shifted again amid the stagflation

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