Question

Describe a typical cycle of economic populism? why does it often leave its supporters worse off than before the cycle began

Answer 1

Economic populism cycle in short is a economic cycle created by government in which public spending increases which leads to an increase in real wages i.e your wages increase faster than prices/inflation.This leads to an increase in support for the government as standards of living increases.For eg: Trump bans Chinese goods and forces Americans to buy only American goods which are more expensive.Trump decides to print more money and send it directly to the Americans to purchase the expensive American Goods

This leads to more production, more jobs and higher wages which move faster than the increase in prices caused due to ban in chinese goods.

But this is not sustainable as bottlenecks and increase in fiscal deficit leads to an increases in inflation.What is different about this inflation is ,the prices rise faster than the wages and it leads to a reduction in jobs and thus a collapse in wages i.e stagflation.In this case because of low American population /labour USA cant produce enough products as China which could at low wages because of their high skilled population.This leads to an increase in prices of Iphones,Mac Burgers, GM cars but which is faster than the increase in prices.So people cant buy leading to less production and loss of jobs.This simultaneous increase in prices and fall in wages/jobs is called stagflation.

From stagflation it turns into hyperinflation( a very fast increase in prices ), a collapse in the value of currency as foreigners take their capital/dollars out of the country.Government revenues drop as people are not earning much as before.

Government tries to rectify the situation by reducing the subsidies or printing less money and sending it to people and devaluation of the currency(in this case dollars) to increase exports so that jobs increases but this leads to an even worse situation where real wages drop. Due to which the present government would lose power.

The new government would come with a completely new program for example allowing chinese goods to enter USA and stop printing money to change the situation which leads to real wages fall even below than before.