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by Douglas J. Peebles, Eric Winograd, Fixed Income AllianceBernstein
Summary
⢠Oftentimes, populist expectations lean a little bit more left in the political spectrum.
⢠But we've seen it both left and right in many different countries, both developed and emerging.
⢠Restrictive trade policy is a classic response to populism. So is restrictive immigration policy.
Transcript:
DOUG PEEBLES: Itâs sort of hard to exactly define populism. Oftentimes, populist expectations lean a little bit more left in the political spectrum. But weâve seen it both left and right in many different countries, both developed and emerging.
ERIC WINOGRAD: Yeah. You know we use populism as sort of a catchall for political movements that arise when a segment of the population doesnât feel itâs represented by the establishment, if you will.
DOUG PEEBLES: Thatâs right.
ERIC WINOGRAD: And youâre exactly correct that it can be left wing or right wing. Just to cite a few recent examples: Brazil recently elected what we would think of as a right-wingâŚ
DOUG PEEBLES: Right.
ERIC WINOGRAD: ...populist candidate. Mexico recently elected a left-wing populist candidate. Itâs present in the developed world. Brexit is a live example of that. The protests in France, the Italian election. Some from the left, some from the right, but the unifying common theme is one in which people donât care enough about the existing order to try to preserve it, and in many cases, are interested in seeing it upended.
Here in the United States, many of the voters who voted for President Trump did so for that reason. Whether his policies were populist or not, the impetus to vote for him, in many cases, was driven by that populism. And we think thatâs a durable trend. Right? We donât see income inequality narrowing, we donât see wealth inequality narrowing, and until those things happen, populism is likely to keep the traction that it has right now and to remain something we have to think about as investors.
DOUG PEEBLES: Whatâs your general take on this whole trade phenomenon and, you know, I think if you go back many, many years and look at the growth of trade, itâs been enormous and successful in the eyes of many economists.
ERIC WINOGRAD: So, I think youâre right. The global economy and the vast majority of the global population have benefited greatly from the increase in trade over the course, really, of the past fifteen years or so. But, that prosperity hasnât been allocated equally.
DOUG PEEBLES: Thatâs right.
ERIC WINOGRAD: There are necessarily frictions here and much as, in aggregate, the economy has won as a result of increasing free trade, there are, without question, segments of populations around the world that have lost.
DOUG PEEBLES: Right.
ERIC WINOGRAD: Restrictive trade policy is a classic response to populism. So is restrictive immigration policy. Right? You raise the drawbridge, as you will, [to] try to take care of your own. And again, when we look forward at the growth outlook, a retreat from pre-tradeâeven if it isnât a complete retreatâis something that reduces the upside growth potential of the world economy in aggregate. We would grow faster if we moved toward freer trade rather than toward less free trade. Freer trade is more efficient.
DOUG PEEBLES: When we look at this notion of populism and drawbridge, wouldnât we think that might be inflationary inâŚ
ERIC WINOGRAD: Yeah.
DOUG PEEBLES: âŚin aggregate?
ERIC WINOGRAD: Itâs a good pointâbecause in contrast to the things like debt dynamics and demographic trends, I think that populism points toward higher inflation over time rather than slower inflation over time.
Because it does literally increase the price of imported goods if you put trade barriers on them. And itâs really interesting, again over the span of history, that both left- and right-wing populist movements tend to correlate with higher inflation. We donât want to look at this and say oh, you know, weâre in a populist moment, inflation is going to go to the moon. What I think we would say is, well, we have this inflationary pressure coming from populism that may, in some cases, offset the disinflationary pressure coming from demographics, and over time, will pull the price level up higher than itâŚ
DOUG PEEBLES: Than it otherwise would have.
ERIC WINOGRAD: ...needed to be.
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The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.
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