Which Political Party Would Use Populism As a Force for Positive Change in America

Luigi Zingales is worried that populist anger might fall into the hands of evil Democrats rather than Republicans who would, of course, use this strong populist force for good:

Pro-Market Populism Is GOP’s Out, by Luigi Zingales, Commentary, investors.com: …[T]he financial crisis has created significant discontent. In a survey taken last December, 60% of Americans declared themselves “angry” or “very angry” about the economic situation.

If Republicans ignore this popular anger, as the party establishment did last autumn, they leave a powerful and potentially disruptive force in the hands of Democrats. The Democrats could channel popular anger into protectionism, 90% tax rates and onerous new market constraints.

In Republican hands, populism could become a strong force for positive change.

And Republicans would do this by adopting Democratic ideas:

The Republican Party has to move from a pro-business strategy that defends the interests of existing companies to a pro- market strategy that fosters open competition and freedom of entry.

While the two agendas sometimes coincide, they are often at odds. Established firms are threatened by competition and frequently use their political muscle to restrict new entries into their industry, strengthening their positions but putting their customers at a disadvantage.

Reducing market power through regulation and is something Democrats have long advocated, but Republicans have argued that the market takes care of this itself, there’s no need for government to intervene. So how would Republicans solve the problem in, say, the financial industry?

A pro-market strategy aims to encourage the best conditions for doing business, for everyone. Large banks benefit from trading derivatives (such as credit default swaps) over the counter, rather than in an organized exchange. … For this reason, they oppose moving such trades to organized exchanges, where transactions would be conducted with greater transparency, liquidity and collateralization — and so with greater financial stability. This is where a pro-market party needs the courage to take on the financial industry on behalf of everyone else.

Again, that sounds like what Democrats have been saying, that these markets need to be regulated.

What else is involved in this pro-market strategy that will save the Republican party?

A pro-market strategy rejects subsidies because they’re a waste of taxpayers’ money and because they prop up inefficient firms, delaying the entry of new and more efficient competitors.

And a pro-market approach holds companies financially accountable for their mistakes — an essential policy if free markets are to produce sound decisions.

A pro-market party will fight tirelessly against letting firms become so big that they cannot be allowed to fail, since such firms may take risks that ordinary companies would never dream of.

I can imagine a few people on the left supporting some types of subsidies, but generally I don’t think you’ll get much disagreement here either. The accountability thing sounds like a jab at government intervention to save the bank (as does the first point), but take a look at the latest proposal from Democrats that attempts to put the cost of bailouts on the companies themselves while still protecting the economy (as opposed to just letting it melt down). But go on…

A pro-market party should favor a robust safety net — for people, not companies. Of course, this safety net should be run on market principles as much as possible. Unemployment insurance should retain incentives for people to look for work, and the health-insurance industry should be opened up to competition. But defenders of markets cannot ignore the importance of providing such security for citizens.

The details would differ a bit, e.g. the health insurance competition part certainly differs from a Medicare for all structure many Democrats endorse (but not all), but the general idea of a “robust safety net” for people seems consistent with Democratic ideas, less so with Republican principles.

Besides robust safety nests, what else is on the long-time concern of Republican’s list?

They also cannot ignore the nation’s growing income inequality and the widespread loss of confidence that the future will be better than the past. The knee-jerk Democratic reaction is to give these poorer citizens entitlements disguised as rights.

The Republican response should focus on providing opportunities. Parents should have access to good schools for their kids, regardless of their financial means or where they live. The best way to deliver on that promise is through a voucher system.

Entitlements disguised as rights? Such as?  The general idea that some kids are disadvantaged by the education they receive has been a mainstay within the Democratic party for a long time, and quite a few Democrats endorse vouchers as part of the solution (even breaking up teacher’s unions in some cases).

And concern over inequality? From Republicans? Generally Republicans argue that inequality isn’t really increasing or as bad as you think (the attack the data when you don’t like the answer approach), or that it’s necessary to fuel the engine of capitalism.

What’s next on the list of Democratic ideas disguised as Republican concerns?

Students should have better access to loans to finance their education because everyone gains from a better-educated work force. The unemployed should have access to retraining, which can also be designed through a voucher system.

Student loans, help with finding new employment? Yet again, strong Democratic ideas. The only thing new is to toss in a voucher system, but that’s a debate about how best to reach the goal, not what the goal is (and again, vouchers aren’t automatically rejected by all Democrats). I suppose you’ll want to adopt health care as a Republican idea as well?

Health care should be available in the marketplace. The current system, in which only employers get a tax deduction for health insurance, reduces labor mobility and increases the cost of becoming unemployed.

What is the goal here? If it’s to make health care affordable and available to everyone, simple saying it ought to be “in the marketplace” is far from enough. The incompleteness of the proposal makes this hard to evaluate (but given the proposals so far, you have to think the work “vouchers” would be involved in the solution).


The U.S. has been the inspiration for all who believe in freedom, both political and economic. Its identity, however, is predicated on maintaining a political consensus that supports market values.

Growing income inequality, the financial crisis and the perceived unfairness of the market system are undermining this consensus. If Republicans don’t stand up for markets, who will?

If standing up for markets means — running down the list above in order — reducing market power, regulating financial markets, eliminating subsidies, breaking up too big to fail firms, providing a robust safety net, overcoming income inequality, fixing schools, increasing the availability of student loans, providing retraining, and providing health care, then the answer is Democrats.

About Mark Thoma 243 Articles

Affiliation: University of Oregon

Mark Thoma is a member of the Economics Department at the University of Oregon. He joined the UO faculty in 1987 and served as head of the Economics Department for five years. His research examines the effects that changes in monetary policy have on inflation, output, unemployment, interest rates and other macroeconomic variables with a focus on asymmetries in the response of these variables to policy changes, and on changes in the relationship between policy and the economy over time. He has also conducted research in other areas such as the relationship between the political party in power, and macroeconomic outcomes and using macroeconomic tools to predict transportation flows. He received his doctorate from Washington State University.

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