Sunday, June 18, 2017

(Big Government) populist movements of Latin America had often generated a disastrous boom-bust cycle

See Trump Is Offering Populism, Minus the Free Candy by Neil Irwin of the NY Times. Excerpt:
"The “let them have candy” approach isn’t necessarily sound policy. In a 1991 economics paper, Rudiger Dornbusch of M.I.T. and Sebastian Edwards of U.C.L.A. showed how the populist movements of Latin America had often generated a disastrous boom-bust cycle.

“Again and again, and in country after country, policy makers have embraced economic programs that rely heavily on the use of expansive fiscal and credit policies and overvalued currency to accelerate growth and redistribute income,” wrote Mr. Dornbusch and Mr. Edwards in “The Macroeconomics of Populism in Latin America.” “After a short period of economic growth and recovery, bottlenecks develop provoking unsustainable macroeconomic pressures that, at the end, result in the plummeting of real wages and severe balance of payment difficulties. The final outcome of these experiments has generally been galloping inflation, crisis and the collapse of the economic system.”"
Here is a link to the Dornbusch and Edwards paper.

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