Populism is bad for economic growth

By proposing trade barriers and tariffs, politicians promise a return to an idealised past, but successful economic policy is focused on the future.

- Allison Schrager

The degrowth movement, which had a moment a few years ago, is over - and not a moment too soon. As nations in Europe and North America face mounting debt and ageing populations, politicians are again talking about how to increase economic growth. It is their only hope.

There's only one problem: No one is advocating policies that will actually work. Doing that would require embracing change, which is the last thing any politician beholden to populism wants to do.

The best recent illustration is former US president Donald Trump's interview last week with Bloomberg News editor-in-chief John Micklethwait. Trump argued that there was no need to worry about the debt created by his spending and tax-cutting plans because economic growth would bring in more government revenue. At the centre of his plan are very large tariffs, which he argued would increase growth by encouraging more companies to produce goods in the US.

Most economists are sceptical. In general, tariffs cost consumers money and have a poor track record of boosting growth. Trump's tariffs would be no different.

Even if his tariffs managed to bring manufacturing back to the US Midwest - a big if - they would not increase growth, which comes from three sources: capital, labour and productivity.

It is tempting to look at China's growth of the last few decades, buoyed by its manufacturing industry, and conclude that America could get Chinese growth rates if the US made more things. But the Chinese economy grew so fast because it was so poor to begin with.

Only a few decades ago, it was a barely industrialised economy with a mostly unskilled labour force. Simply adding capital to its economy created many manufacturing jobs that were more productive than the ones its population previously had - agricultural work in rural areas.