Conversable Economist

Many of the world\’s development success stories in recent decades followed a broadly similar pattern. The countries became more involved with the world economy, often by exporting manufactured goods produced by low-wage workers. The rise in exports brought economic growth and income to their economics, but perhaps just as important, it also helped to foster a range of managerial, financial and technological skills. In this way, exporting was a fundamental step on the path to economic development.

The World Development Report 2020, subtitled \”Trading for Development in the Age of Global Value Chains,\” asks whether that step is still available for countries trying to develop their economies.

International trade expanded rapidly after 1990, powered by the rise of global value chains (GVCs). This expansion enabled an unprecedented convergence: poor countries grew faster and began to catch up with richer countries. Poverty fell sharply. These gains were driven by the fragmentation of production across countries and the growth of connections between firms. Parts and components began crisscrossing the globe as firms looked for efficiencies wherever they could find them. Productivity and incomes rose in countries that became integral to GVCs—Bangladesh, China, and Vietnam, among others. The steepest declines in poverty occurred in precisely those countries.

Today, however, it can no longer be taken for granted that trade will remain a force for prosperity. Since the global financial crisis of 2008, the growth of trade has been sluggish, and the expansion of GVCs has slowed. The last decade has seen nothing like the transformative events of the 1990s—the integration of China and Eastern Europe into the global economy and major trade agreements such as the Uruguay Round and the North American Free Trade Agreement (NAFTA).

At the same time, two potentially serious threats have emerged to the successful model of labor-intensive, trade-led growth. First, the arrival of labor-saving technologies such as automation and 3D printing could draw production closer to the consumer and reduce the demand for labor at home and abroad. Second, trade conflict among large countries could lead to a retrenchment or a segmentation
of GVCs.

What does all this mean for developing countries seeking to link to GVCs, acquire new technologies,and grow? Is there still a path to development through GVCs?

World Bank reports often have a certain kind of can-do spirit. When you ask \”is there still a path to development?\” the answer is pretty much always an appropriate qualified \”yes.\” Thus, a substantial amount of the report offers useful evidence that developing countries (or regions of countries) which have become part of global value chains have indeed experienced substantial benefits. Moreover, the report argues that development countries which pursue domestic economic reforms and open trade, along with social and environmental protections,  can still benefit. There is the expected call for more and better-designed international trade agreements.Here, I want to focus on the theme  \”Technological Change\” and trade as discussed in Chapter 6 of the report.

Information and communications technology is making it much easier to coordinate production chains and suppliers across countries.

Here\’s an uncomfortable set of facts about federal clean water policy in the United States: 1) People care about it a lot; 2) Over the years, total spending on clean water has been high; 3) Water quality has improved; and 4) The estimated benefits of clean water regulation in the US seem relatively low and in many cases even negative. My discussion here will draw on an essay by David A. Keiser and Joseph S. Shapiro, \”US Water Pollution Regulation over the Past Half Century: Burning Waters to Crystal Springs?\” Journal of Economic Perspectives, Fall 2019, 33:4, pp.  51-75.

Keiser and Shapiro offer some evidence from Gallup polls that clean water is traditionally near the top of environmental concerns.

The amount spent on clean water legislation has been substantial. They write:

Over the period 1970 to 2014, we calculate total spending of $2.83 trillion to clean up surface water pollution, $1.99 trillion to provide clean drinking water, and $2.11 trillion to clean up air pollution (all converted to 2017 dollars). Total spending to clean up water pollution exceeded total spending to clean up air pollution by 70 to 130 percent. … Since 1970, the United States has spent approximately $4.8 trillion (in 2017 dollars) to clean up surface water pollution and provide clean drinking water, or over $400 annually for every American. In the average year, this accounts for 0.8 percent of GDP, making clean water arguably the most expensive environmental investment in US history. For comparison, the average American spends $60 annually on bottled water … 

The quality of water has improved. For example, the share of wastewater and industrial discharge being treated has risen.One common measure is whether the water is \”fishable,\” and the share of water \”not fishable\” has been declining.

But here\’s a kicker: the benefit-cost ratios for cleaning up water, especially surface water, don\’t look as good as the ratios for cleaning up air pollution. The first column looks at benefit-cost analyses for cleaning up surface water, typically under the Clean Water Act, which supported sewage treatment plants and regulates facilities discharging waste from a \”fixed source,\” like a pipe, into navigable waters. The second column looks at benefit-cost ratios for rules about cleaning up drinking water, typically under the Safe Drinking Water Act, which sets and enforces drinking water standard and also has a say in cleaning up groundwater.

The perhaps startling pattern is that the benefit-cost ratios for surface water rules are typically less than one, meaning that benefits are below costs. For drinking water, the benefit-cost ratios on average exceed one, but it\’s still true that 20% of the rules have a benefit-cost ratio below one. Rules about air pollution have much better benefit-cost ratios.

So what\’s going on here? Here are some thoughts:

1) The rules listed here are often about additions to the earlier rules. Thus, it\’s possible that earlier rules about protecting surface water and drinking water had better benefit-cost ratios, but now that some of the worse problems have been addressed, the benefit-cost ratios for additional rules are lower.

2) For surface water rules, in particular, the \”benefits\” in these studies rarely involve human health. Reducing illness and saving lives in humans is where the big benefits are. If the benefits are measured as improved recreational opportunities on certain lakes and rivers, the numbers are going to be much lower. In addition, it seems that a number of the studies of benefits of cleaner surface water don\’t take into account improvements in property values or work conditions from being close to cleaner water.  Benefits like biodiversity from cleaner water may also be underestimated. As Keiser and Shapiro write: \”Most existing benefits of surface water quality are believed to come from recreation, but available data on recreation are often geographically limited (for example, one county, state, or lake) and often come from a single cross section. Hence, our subjective perception is that underestimation of benefits is more likely a concern for surface water quality regulation than for other regulations.\”

3) A wide range of evidence has shown that market-based environment regulation–like using cap-and-trade arrangements or pollution taxes–can be a much cheaper way to achieve a given amount of environmental cleanup. However, it\’s often harder to figure out how to use a system of, say, tradeable pollution permits to clean up surface water. As a result, the costs in these benefit-cost calculations may be higher than necessary. However, use of these more flexible tools in surface water clean-up is rising: for example, there is a Chesapeake Bay Watershed Nutrient Credit Exchange and a
Minnesota River Basin Trading market. For a discussion from a few years ago about these issues, a good starting point is Karen Fisher-Vanden and Sheila Olmstead. 2013. \”Moving Pollution Trading from Air to Water: Potential, Problems, and Prognosis.\” Journal of Economic Perspectives, 27 (1): 147-72.

4) Even taking the possibilities that reducing water pollution has greater benefits than currently estimated,  and potentially might have lower costs, a general uneasiness that the benefit-cost ratios are lower than other forms of environmental protection remains.

There are some big issues about water pollution on the horizon. For example the original clean water laws back in the early 1970s pretty much skipped over agriculture, but in many parts of the country agricultural runoff is the single biggest surface water pollution problem.

There\’s also a big dispute going on over what is meant in the Clean Water Act by the phrase \”Waters of the United States.\” It\’s clear that this includes rivers and lakes. But what about wetlands, headwater areas that drain into rivers and lakes, or streams that come and go seasonally? As the authors write:

Another challenge involves the language of the Clean Water Act protecting “Waters of the United States,” which has led to legal debates over how this term applies to roughly half of US waters, primarily composed of wetlands, headwaters, and intermittent streams. Two Supreme Court decisions held that the Clean Water Act does not protect most of these waters (Rapanos v. United States, 547 US 715 [2006]; Solid Waste Agency of Northern Cook County (SWANCC) v. US Army Corps of Engineers, 531 US 159 [2001]). In 2015, the Obama administration issued the Waters of the United States Rule, which sought to reinstate these protections. However, in 2017, President Trump issued an executive order to rescind or revise this rule. The net benefits of these regulations have also become controversial …

Keiser and Shapiro also point out that there is a LOT more economics research about air quality than water quality, perhaps in part because the Environmental Protection Agency collects and makes available copious data on air pollution, while data on water pollution is collected more sporadically and divided up in many places. They point out a number of ways in which data related to water pollution is becoming more complete and available. But matching up the very local steps to reduce water pollution with the very local effects of water pollution, and then tracing water pollution through the natural hydrogeography, remains in many ways a work in progress.

The armistice marking the end of World War I was signed on November 11, 1918. A year later–and 100 years ago today–the first Armistice Day celebrations were held at Buckingham Palace. The US Congress passed a resolution commemorating Armistice Day in 1926, and it became a national holiday in 1938. In 1954, after World War II, its name was changed to Veteran\’s Day in the United States.

But as you may have noticed when attending an event where veterans are encouraged to stand and be recognized for their service, the share of \”prime-age\” men (a term economists use to describe those in main working years from ages 25-54) who served as veterans has been in sharp decline.

Coile, Courtney C. Coile and Mark G. Duggan raise this issue in passing in a Spring 2019 essay in the Journal of Economic Perspectives (\”When Labor\’s Lost: Health, Family Life, Incarceration, and Education in a Time of Declining Economic Opportunity for Low-Skilled Men,\” 33:2, 191-210). They write:

[W]e call attention to perhaps the most significant change among prime-age men in recent decades. In 1980, fully 45 percent of prime-age men reported in the Bureau of Labor Statistics’ monthly Current Population Survey said that they had previously served in the military. This number steadily declined during the next 36 years and stood at just 10 percent by 2016 in this same survey.

Of course, a major reason for this shift is because of the end of the military draft in 1973, a change in which the arguments and projections of economists about how an all-volunteer military force could function played a substantial role (for a background essay, see John T. Warner and Beth J. Asch, \”The Record and Prospects of the All-Volunteer Military in the United States,\” Journal of Economic Perspectives, Spring 2001, 15:2,  pp. 169-192).

What do we know about the effects of this dramatic social change? Coile and Duggan write:

Much of the economics literature has examined the effect of military service by using plausibly exogenous variation in the likelihood of service driven by one’s draft lottery number (Angrist 1990). This research has tended to find quite modest long-term effects of military service on employment, earnings, and health status (for example, Angrist, Chen, and Frandsen 2010; Angrist, Chen, and Song 2011). However, these studies are unable to capture the peer effects or general equilibrium effects of military service. Recent research has suggested substantial gains to cognitive and noncognitive skills stemming from military service (Spiro, Stetterson, and Aldwin 2015) and associated benefits such as the GI bill. Overall, we see a strong need for further work to investigate how changing economic opportunities, declines in military service, and other factors are contributing to or cushioning the problems of low-skilled prime-age men.

This shift away from shared military experience is a large and probably understudied social shift. Many of those who served in the armed forces, and survived, have lasting personal ties both to those they knew and to others who shared the experience.

My suspicion is that the effects of military service in later life are probably quite different between the days of the draft and the all-volunteer force. For example, during the draft pay could be relatively low and there was not much reason for the armed forces to invest in the human capital of new soldiers, most of whom would be out of military service in a few years. With the all-volunteer force, pay had to be somewhat higher and the armed forces had to focus on training and incentives for retention. When big US companies need a new CEO, they can do a job search outside their own firm. But when the armed forces needs a new general or admiral, they have to promote from within.

There are occasional proposals for a national service requirement, proposals which in their rhetoric sometimes piggyback on the strong positive feelings many of us have about veterans. But I\’m old enough to have grown up in the aftermath of the Vietnam-era military draft, and it would be a dramatic understatement to say that the draft was unpopular.  My own cynical observation about national service proposals is that it\’s a case of middle-aged and elderly people voting on which young adults are eligible for exceptions and loopholes, and how the others will be required to spend a couple of years of their lives in low-cost labor. In an odd way, I\’d be marginally more sympathetic to a national service proposal requiring, say, that everyone between the ages of 30 and 50 needs to take two years out of their life for full-time, low-wage labor. After all, wouldn\’t these ages be potentially an even more productive time to \”foster unity\” and \”build bridges\” and \”bring people together,\” and all the other claims made for a national service requirement? Or perhaps members of Congress could require that they personally each spend one month out of every two years in a full-time, away-from-home national service requirement.

This figure shows the US reliance on imports for various minerals, from the US Geological Survey. I\’m fully aware that minerals are not equally distributed around the world, and I\’m a pro-trade guy, so I won\’t lose sleep tonight about these numbers. But during waking hours, I will wonder about whether the supplies from other countries are reasonably steady and reliable. I\’ll also wonder about whether global pollution is worse because US firms are importing minerals from countries with substantially lower environmental standards than the United States.

Imagine, just for the sake of argument, that you are open-minded about the question of whether the weed-killer Roundup (long produced by Monsanto, which was recently acquired by Bayer AG) causes cancer. You want to make a decision based on scientific evidence. However, you aren\’t a scientist yourself, and you don\’t feel competent at trying to read scientific studies.

Geoffrey Kabat asks \”Who’s Afraid of Roundup?\” in the Fall 2019 issue of Issues in Science and Technology. More broadly, he uses the controversy over Roundup as a way to ask about the role of science in decision-making.

When it comes to Roundup and its active ingredient glyphosate, the Environmental Protection Agency has continually said that \”there are no risks to public health when glyphosate is used in accordance with its current label and that glyphosate is not a carcinogen.\” As Kabat points out:

The US Environmental Protection Agency’s recent assessment is only the latest in a succession of reports from national regulatory agencies, as well as international bodies, that support the safety of glyphosate. These include Health Canada, the European Food Safety Authority (EFSA), the European Chemicals Agency, Germany’s Federal Institute for Risk Assessment, and the Food and Agriculture Organization of the United Nations, as well as health and regulatory agencies of France, Australia, New Zealand, Japan, and Brazil.

But just when you find yourself deeply relieve that the experts have reached a consensus, you ind that one agency disagrees. In 2015, International Agency for Research on Cancer listed glyphosate is a “probable carcinogen.” There are lots of reasons to be dubious about the IARC decision, and to believe the consensus of all the other agencies around the world, and Kabat runs through quite a list. Here are a few of his points:

• Unlike the other health-and-safety agencies, the IARC ignores the size of the dose. Thus, for example, when IARC evaluated 500 agents and chemicals while ignoring the size of the dose, it found that 499 of them were possible carcinogens. Other agencies take the dose into account.
• The IARC evaluation looked only at certain parts of some studies of how glyphosate affected rodents. Reanalysis of the same studies found that the \”IARC Working Group that conducted the assessment selected a few positive results in one sex and used an inappropriate statistical test to declare some tumor increases significant.\”
• There is a major study funded by the National Cancer Institute looking at 54,000 pesticide applicators in Iowa and North Carolina. \” Indeed, when the results for glyphosate and cancer incidence  … were finally published in the Journal of the National Cancer Institute, in 2018, the paper reported no significant increases …\” 
• A key scientist for the IARC process both led the way in designating glyphosate as a substance to be studied and in writing the IARC report. Then two weeks after the report came out, this scientist \”signed a lucrative contract to act as a litigation consultant with a law firm—Lundy, Lundy, Soileau, and South—engaged in bringing lawsuits against Monsanto for Roundup exposure.\”

In a bigger picture sense, the actual science over Roundup and glyphosate becomes almost irrelevant  to the public disputes. The scientific question of whether glyphosate is a carcinogen is treated as identical to the question of whether one is anti-pesticide, anti-genetic modification, and anti-Big Agriculture.

The result is  what the head of the European Food Safety Authority called \”the Facebook age of science.\” As background, the European agencies are well-known for their willingness to invoke the \”precautionary principle\”–basically, if we aren\’t sure and it might cause a problem, we should prohibit it. In this spirit, a group of almost 100 scientists wrote to EFSA to complain about their decision allowing glyphosate. Here\’s how Bernhard Url, the head of EFSA, responded:

You have a scientific assessment, you put it on Facebook, and you count how many people ‘like’ it. For [EFSA], this is no way forward. We produce a scientific opinion, we stand for it, but we cannot take into account whether it will be liked or not. … People that have not contributed to the work, that have not seen the evidence most likely, that have not had the time to go into the detail, that are not in the process, have signed a letter of support [for a ban on glyphosate]. Sorry to say that, for me, with this you leave the domain of science, you enter into the domain of lobbying and campaigning. And this is not the way EFSA goes.

Roundup is of course just one product, but the issue of how science will be used in public policy is of course much broader. For example, if a lawsuit alleges that Roundup causes cancer, the truth of that accusation presumably matters. As Kabat points out, it \”should come as no surprise that the same factors that are at work here are at work in many other areas, whether electromagnetic fields, cell phone `radiation,\’ so-called endocrine disrupting chemicals, numerous aspects of diet, cosmetic talc, GMOs, vaccines, nuclear power, or climate change.\”

In my own contentious way, I find it especially interesting when people make strong appeals to a  scientific consensus in one area, but then dismiss it in other areas. For example, those who  believe that action should be taken to reduce greenhouse gas emissions sometimes accuse their opponents of denying \”the science.\” But on occasion, it then turns out that those who wrap themselves in the mantle of \”the science\” when it comes to climate change turn out to oppose vaccinations or Roundup. The idea of whether to build the Keystone XL oil pipeline across Canada and into the United States went through multiple environmental reviews during the Obama administration, each one finding it would not have a negative effect. For those protesting the pipeline, like for those writing group letters to the European regulators about glyphosate, the \”science\” was only acceptable if it supported their prior beliefs.

One of my favorite examples about the \”science\” and popular beliefs involves the irradiation of food. For a quick overview, Tara McHugh describes \”Realizing the Benefits of Food Irradiation\” in the September 2019 issue of Food Technology Magazine. As she notes, the Food and Drug Administration recently approved irradiation for fresh fruits and vegetables, and it had already been approved for a range of other food products. McHugh writes:

The global food irradiation market was valued at $200 million in 2017 and was projected by Coherent Market Insights to grow at a 4.9% combined annual growth rate from 2018 to 2026. This projects the market size to rise to $284 million by 2026. This high growth rate was envisioned due to increased consumer acceptance since the U.S. Food and Drug Administration (FDA) approved phytosanitary treatment of fresh fruits and vegetables by irradiation. The food irradiation market in Asia is also growing very rapidly owing to approval of government agencies in India and other countries. Presently over 40 countries have approved applications to irradiate over 40 different foods. More than half a million tons of food is irradiated around the globe each year. About a third of the spices and seasonings used in the United States are irradiated.

One of the classic questions in economics is about what determines what is inside or outside a company: that is, why do companies buy some inputs or higher some workers from outside their firm through market transactions, but hire other workers to produce certain inputs inside the firm? Economists will recognize this as the central question posed by Roland Coase (Nobel \’91) in his famous 1937 essay, \”The Nature of the Firm\” (Economica, November 1937, pp. 386-405). Coase points out that economic activity within firms is coordinated by conscious administrative action, while economic activity between firms is coordinated by supply and demand. In one passatge that always makes me smile, Coase writes (footnotes omitted):

As D. H. Robertson points out, we find \”islands of conscious power in this ocean of unconscious co-operation like lumps of butter coagulating in a pail of buttermilk.” But in view of the fact that it is usually argued that co-ordination will be done by the price mechanism, why is such organisation necessary? Why are there these “islands of conscious power”? Outside the firm, price movements direct production, which is co-ordinated through a series of exchange transactions on the market. Within a firm, these market transactions are eliminated and in place of the complicated market structure with exchange transactions is substituted the entrepreneur-co-ordinator, who directs production. It is clear that these are alternative methods of co-ordinating production.

The line between what activities are coordinate more effectively by administrative action inside a firm and what is coordinated more effectively by market actions between firms shifts over time, and across different types of firms. One current example is the number of firms that sell manufactured goods but are \”factoryless\”–that is, they don\’t own or manage the factory in which their goods are produced. Diane Coyle and David Nguyen offer some recent examples in \”\”No plant, no problem? Factoryless manufacturing and economic measurement\” (ESCoE Discussion Paper 2019-15 September 2019). In a short overview of that paper, they write:

Did you know that Mercedes does not actually produce its heavy-duty G-Class? To be fair, it does keep design, development and marketing of the SUV in-house, but the vehicle is entirely built in the factory of Magna Steyr, a contract manufacturer based in Graz, Austria. In the same plant one will also find entire production lines for the Jaguar I-Pace and E-Pace, as well as BMW’s Series 5.

Coyle and Nguyen are focused on the question of how to measure \”output\” of an economy if design, development, and marketing are in one place, but the physical production intimately inked to design development and marketing is in another. For a previous discussion of factoryless manufacturing, in the US economy, see \”Factoryless Goods Producing Firms\” (May 16, 2015).

\”Populism\” is remarkably slippery to define, but many people claim to know it when they see it–and to worry about its resurgence. Here, I\’ll offer some thoughts about the current populist moment. I\’ve spent some time thinking about this lately because the Journal of Economic Perspectives, where I work as Managing Editor, published a four-paper \”Symposium on Modern Populism\” in the Fall 2019 issue. The papers are:

• \”On Latin American Populism, and Its Echoes around the World,\” by Sebastian Edwards
• \”Informational Autocrats,\” by by Sergei Guriev and Daniel Treisman
• \”The Surge of Economic Nationalism in Western Europe,\” by Italo Colantone and Piero Stanig
• \”Economic Insecurity and the Causes of Populism, Reconsidered,\” by Yotam Margalit

Also, the Centre for Economic Policy Research in London has started a Research and Policy Network on Populism, and recently published four short and readable essays on the topic at its VoxEU website:

•  \”Moderator’s introduction to the Vox debate on populism,\” by Sergei Guriev 
• \”The two faces of populism,\” by Barry Eichengreen 
• \”The rise of populism,\” by Guido Tabellini 
• \”Many forms of populism, by Dani Rodrik 

Defining Populism? 

Definitions of \”populism\” are sometimes very broad. For example, the Merriam-Webster definition is that it refers to a party \”claiming to represent ordinary people.\”  This has an element of truth, but it\’s difficult to think of a successful political party which would not make such a claim! Other definitions focus on a party that wants to redistribute to the poor. Again, this has an element of truth, but it seems overly broad.

The politicians who are commonly referred to as populists do claim to represent the ordinary people and the poor, but they also have an us-vs.-them edge. It\’s not just wanting to  help the poor, but also a broader narrative that ordinary people are being ill-treated by identifiable villains. Sometimes the designated villains are economic, like big corporations and the rich. Sometimes the designated villains have a foreign tinge, like those who allow imports of foreign products or a surge of immigrants. Populism typically involves both an economic claim that ordinary people are being left behind or mistreated, and also a broader political/cultural dimension that elites don\’t understand and are taking advantage.

Part of what makes \”populism\” hard to define is that it is often used as a criticism. The implication is that populists aren\’t just people who would advocate higher taxes on the rich or on corporations, but people who would demonize or practice confiscatory policies toward those groups. Populists wouldn\’t just argue for lower imports or enhanced border controls, but would describe these changes in terms of gross unfairness, plotted by the few against the many.

In short, the concern is that populists aren\’t technical analysts, arguing over the costs and benefits of shifting some policy parameters to help ordinary people or the poor. Instead, populists are whipping up surges of emotion to gain political power, while making political and social divisions worse and making policy promises that either can\’t be kept and won\’t work. Once populist emotions are fully roused, the polity may become disdainful of boring and irrelevant ideas like constraints on executive power, or an independent judiciary, media, and central bank. As the populist policy prescriptions inevitably fail, it may just feed the fire of populism further–by supposedly showing that the enemies of the ordinary people are even stronger than suspected, and must be countered with even more strong-handed interventions by a charismatic and authoritarian leader.

Economic Manifestations of Populism

For economists, perhaps the classic view of \”populism\” is based on a common pattern in Latin America, described in work by Rudiger Dornbusch and Sebastian Edwards back in the 1990s. They argued that populist regimes used a variety of policies–protectionism, agrarian reforms, controls and regulations, and the nationalization of large companies–but they argue that perhaps defining theme was a strong rise government spending.

At first, this rise in spending of often stimulated the economy, and in some cases a populist leader also had good economic luck –like an oil-exporting economy experiencing a rise in the price of oil. At this stage, there was often a lot of preening about how the populist prescription worked. There are often price controls to assure that everything remains affordable, and inflows of imported products as well. But as government budget deficits climb, the inflow of imports increases trade deficits, and the price controls and regulations and nationalizations start to choke off economic flexibility, problems start arising: shortages of goods and black markets, wages not keeping up with soaring inflation, macroeconomic problems repaying debt. Of course, a populist leader can use all these problems  to claim that even more extreme policies are needed, but economics is not a subject that greatly respects one\’s wishes. Eventually there is a crash and a clean-up.

Venezuela, or perhaps Greece, offer some recent examples of this kind of populism. But when talking about economic roots of modern populism, most commenters have in mind something less extreme. They are talking about communities that suffered economically during the Great Recession, or that suffered from the China import shock of the early 2000s, or that feel that their jobs and local cultural patterns are threatened by a surge of immigrants. As a result, the argument goes, they are motivated to vote for leaders who certainly aren\’t the same as classic  Latin American populists like Juan Peron in Argentina or Hugo Chavez in Venezuela, but for politicians and causes that seem to have a populist tinge: for Brexit in the UK, or the Alternative für Deutschland in Germany, the Sweden Democrats in Sweden, or for Donald Trump in the United States. The JEP essay by Italo Colantone and Piero Stanig goes through the connections from economic disruptions to support for populist parties in the context of European countries.

Cultural Manifestations of Populism

The economic roots of populism clearly have some explanatory power, but one can raise legitimate questions about whether they are the core driving force of modern populism.

For example, Yotam Margalit in his JEP essay points out that a number of studies focus on, say, how many votes for Brexit or President Trump and be traced to communities that were most severely hit by the China import shock or the Great Recession. One can often make a case that these economic events shifted  few percentage points of the vote, and so in a close election, they may have tipped the balance. But as Margalit notes, saying that a negative economic event changed voting patterns by a few percentage points doesn\’t explain the entire rest of the vote. When explaining support for populism, it seems important to consider not just the economic factors that affected 2-3% of the vote and tipped the balance in an election, but also the other 48-49% of the vote which did not depend on those economic factors. From this viewpoint, economic factor matter, but they are far from the entire story.

Concern over immigration is clearly a major issue uniting many modern populist parties. But it\’s not obvious that the economic consequences of immigration are the real issue here. It turns out that anti-immigration sentiment is often stronger in areas that have experienced negative economic shocks –whether or not those area have actually experiences more immigration. It also turns out that in public opinion surveys about immigration, anti-immigration sentiment is often much stronger if the questions specifically ask about immigrants who don\’t speak the language of the new country or who come from countries with different cultural or religious contexts. Margalit describes an alternative to a view that emphasizes economic causes as the roots of populism:

On this view, long-term structural social developments— increased access to higher education, growing ethnic diversity, urbanization, more equal gender roles—have led to greater acceptance of diverse lifestyles, religions, and cultures. These changes, and the perceived displacement of traditional social values, have caused a sense of resentment among segments of the population in the West, particularly among white men, older people, conservatives, and those with less formal qualifications. Increased exposure to foreign influences that comes with globalization, and even more so the effects of waves of immigration, has exacerbated the sense of a cultural and demographic threat. As a result, formerly predominant majorities have felt their social standing erode and have become increasingly receptive to populist charges against a disconnected, cosmopolitan elite that has turned its back on them. They have also bought into the populist nostalgia for a “golden age” of cultural homogeneity, traditional values, and a strong national identity. Hard economic times undermine the perceived competence of the economic and political elites and thus help fuel the populist distrust in them. Yet by this account, adverse economic change is a contributing factor and possibly a trigger. However, is not the root cause of widespread populist support.

Is Modern Populism Left or Right?  

In a US context, my sense is that populism has some appeal on all sides of the political spectrum, albeit in different ways.

For example, President Trump sounds populist notes with his \”Drain the Swamp,\” \”Fake News,\” and \”Build the Wall\” rhetoric. He seeks to build an image of himself as working on behalf of the ordinary people, who have not had their interests protected by international trade agreements and a lack of border enforcement. Populist leaders often seek to borrow and spend to stimulate the economy, and believe that the central bank should subordinate itself to this agenda. Trump follows these paterns. Populists often try to expand executive power, and take whatever actions they can by fiat, while lashing out at other institutions like Congress and the media. Trump has a PhD in lashing out.

But it seems clear that many Democratic politicians are offering appeals with a populist tone, too.  For example, the rhetoric from Senators Warren and Sanders about protecting the ordinary people from the predations of capitalism, corporate management, Wall Street, and the global economy often has a Trumpian tone. If populism is defined in part by politicians who promise dramatically higher spending, Warren and Sanders fit the bill. If populism is about expanding executive power, President Obama was the one who memorably stated \”I\’ve got a pen, and I\’ve got a phone,\” meaning that he would advance his policy agenda without working through Congress or the court system. Just as Trump has use executive authority to undo a number of the Obama administration pen-and-phone directives, Warren, Sanders, Biden, and others are promising to use executive power reinstate them and to add others of their own. When Democrats suggest packing the Supreme Court, ending the electoral college, and monitoring or limiting what political commentary will be allowed online or in advertisements, they are pushing back on  some of the established institutional constraints on power.

Of course, none of this is to say that leading Democratic candidates are \”just like\” President Trump. (No prominent American politician in my lifetime, of any party, is \”just like\” Trump.) For example, it seems plausible to argue that the Democrats are more likely to enunciate their views in the language of  economic populism, while Republicans are more likely to enunciate their views in the language of cultural populism. But there is some overlap here, and my point is that some deeper elements of the populist stance attract public support across party lines.

Is Modern Populism a Sign of a New Political Divide? 

For much of my lifetime, it has been common to characterize the main US political divide as labor vs. capital, or workers vs. corporations. But the divisions of modern populism don\’t quite work in this way. Colantone and Stanig describe the shift in this way:

[T]he recent political shifts may reflect a structural realignment of social groups and parties along new political dividing lines, which might be here to stay. In the half century after World War II, the politics of advanced western European democracies were structured to a large extent by a conflict between labor and owners of capital, and took the form of choices between more reliance on markets and deeper state intervention in the context of European economic and political integration. In the coming years, political conflict might capture a fundamental contraposition between winners and losers of structural changes in the economy, and may be centered mainly on a cosmopolitan versus nationalist conflict. The result could well be a credible restructuring of current traditional parties or the emergence of new parties that might assemble social constituencies in favor of inclusive globalization and technological progress. As such changes occur, the representation of vulnerable segments of society is not bound to be a prerogative of economic nationalist and radical-right forces. The challenge for believers in liberal policies is how to popularize a version of embedded liberalism that will be responsive to the current challenges of slow growth and structural economic shifts. 

Catherine L. Kling and Fran Sussman have \”A Conversation with Maureen Cropper\” in the
Annual Review of Resource Economics (October 2019, 11, pp. 1-18). As they write in the introduction: Maureen has made important contributions to several areas of environmental economics, including nonmarket valuation and the evaluation of environmental programs. She has also conducted pioneering studies on household transportation use and associated externalities.\” There also is a short (~ a dozen paragraphs) overview of some of Cropper\’s best-known work.

I had not know that Cropper identified as a monetary economist when she was headed for graduate school. Here is her description of her early path to environmental economics:

My first formal introduction to economics was in college. I entered Bryn Mawr College in 1966. I had great professors at Bryn Mawr: Philip W. Bell, Morton Baratz, and Richard DuBoff. I learned microeconomics by reading James Meade\’s A Geometry of International Trade—that\’s how we were taught microeconomics by Philip Bell. It was really a very good grounding in economics. I got married as I graduated from college to Stephen Cropper (hence my last name), and I went to Cornell University because Stephen was admitted to the Cornell Law School. I was admitted to the Department of Economics at Cornell.

Frankly, my interests at the time were really in monetary economics, so I took several courses at the Cornell Business School, including courses in portfolio theory. My dissertation was on bank portfolio selection with stochastic deposit flows. My dissertation advisor was S.C. Tsiang. Henry Wan and T.C. Liu were also on my committee. Henry was a fantastic mentor and advisor. I would write a chapter of my dissertation and put it in his mailbox; the next day he would have it covered with comments. He was just an amazing advisor and very, very engaged. At this time, I was not doing anything in environmental economics. In fact, my first job offer was from the NYU Business School.

The reason I went into environmental economics is that I met Russ Porter in graduate school. Russ later became the father of my children. We decided that we would go on the job market together and looked for a place that would hire two economists. We wound up at the University of California, Riverside, which at the time was the birthplace of the Journal of Environmental Economics and Management (JEEM). I was on the job market in 1973, just when this journal was launched. Ralph d\’Arge was the chair of the department then. Tom Crocker also taught there, and Bill Schulze and Jim Wilen were students in the department.

It was going to UC Riverside that really caused me to switch fields and go into environmental economics. It was a very important decision, although I must say it was made partly for personal reasons. It\’s had a huge impact on my life.

In the interview and overview, it quickly becomes apparent that Cropper has worked on an unsummarizably wide array of topics. Examples include stated preference studies to estimate the value of a statistical life, which became the basis for estimates used by the OECD and in Canada.  Another study, became the basis for EPA regulations that estimated the value of avoiding a case of chronic bronchitis through air pollution regulations. Cropper worked on whether or not to ban certain pesticides under the Federal Insecticide, Fungicide, and Rodenticide Act, what methods to use in cleaning up Superfund sites, and whether to ban  certain uses of asbestos in under the Toxic Substances Control Act (TSCA). She worked how to use trading allowances to reduce sulfur dioxide (SO2) emissions under the Acid Rain Program.

Cropper worked on many issues involving air pollution in India. She worked on models of estimating household location choices in Baltimore and in Mumbai. The studies in Mumbai became the basis for looking at other policies: slum relocation or converting buses to compressed natural gas. She has estimated how the shapes of cities affect demand for travel, and studied cross-country data on relationships from growth to traffic fatalities.  The interview touches on these topics and more. Here\’s a description of one such study from Cropper:

When I first got to the World Bank I realized that, in India, there hadn\’t been any state-of-the-art studies on the impact of air pollution on mortality. This was around 1995, the time when important cohort studies by Arden Pope and Douglas Dockery were coming out in the United States.

There is also literature looking at the impact of acute exposures to air pollution—daily time-series studies of the impact of air pollution on mortality. With the support of the Bank, I was able to get information in Delhi from air quality monitors—four years of daily data, although monitoring was not done every day. I was also able to obtain data on deaths by cause and age. I worked with Nathalie Simon and Anna Alberini to carry out a daily time-series study of the impact of air pollution on mortality. …

We had a hard time getting the study published in an epidemiological journal because economists write up their results differently than epidemiologists. But we did document significant effects of particulate matter on mortality. And, it was important to do something early on and convince people in India that this sort of work could be done. (There have been many subsequent studies.) It is also interesting that the results we obtained in Delhi were similar to results obtained in other time-series studies in the United States.

When those at the EPA or the World Bank or the National Academy of Sciences were setting up an advisory committee or a consensus panel to produce a report or an evaluation, Cropper\’s name was perpetually on the short list. Her memory of one such experience gives a sense of why she has been in such high demand:

I learned so much in my time serving on the EPA Science Advisory Board. I actually began there in the 1990s when the retrospective analysis of the Clean Air Act—the first Section 812 study—was being written. Dick Schmalensee was the head of that committee. I actually chaired the review of the first prospective 812 study of the benefits and costs of the 1990 Clean Air Act Amendments.

I also preceded you, Cathy, as the head of the Environmental Economics Advisory Committee at EPA. I learned a lot being on these EPA committees. In terms of the 812 studies, you\’ve got a subcommittee that\’s dealing with the health impacts: epidemiologists and toxicologists. You have air quality modelers and people who are exposure measurement experts. And of course, you also have economists. It\’s a fantastic opportunity to be exposed to all parts of the analysis. If you are concerned about air pollution policy, which is what I\’ve worked on the most, you need to get the perspective of all of these different disciplines. 

_________________

Symposium on Fiftieth Anniversary of the Clean Air and Water Acts

\”What Do Economists Have to Say about the Clean Air Act 50 Years after the Establishment of the Environmental Protection Agency?\” by Janet Currie and Reed Walker