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02 27 2019 | by Victor Xing | Economics

Common catalyst for progressive and conservative populism

Rise of progressive populism

State and local officials in New York were caught by surprise as Amazon scuttled its NYC HQ2 proposal upon fierce opposition from progressive political activists including Representative Alexandria Ocasio-Cortez. This marked a new milestone of Ocasio-Cortez’s meteoric rise following a similar upset which unseated Representative Joe Crowley, a ten-term Democratic establishment king-maker who didn’t see it coming.

As analysts rushed to portray Ocasio-Cortez as “a gift that keeps on giving” to benefit the GOP political agenda, one should recall the same characterization was used by then-House Minority Leader Pelosi to describe then-candidate Trump in the run-up to the 2016 election. It was a belief widely held by the establishment that a strategy to focus on the “fringe” would be doomed to failure, thus any populist candidates would benefit their establishment opponents. However, the “center” of politics has steadily diminished with the shrinking of the middle class, for divergent prosperity from the past decades was demarcated by zip codes:


Ocasio-Cortez and Trump share an ability to connect with alienated voters facing stagnant wage growth and dimming prospect of social mobility. In her campaign video, Ocasio-Cortez took aim at the political establishment:

“After 20 years of the same representation, we have to ask: “Who has New York been changing for?” Everyday gets harder for working families like mine to get by. The rent gets higher, healthcare covers less, and out income stays the same. It’s clear that these changes haven’t been for us, and we deserve a champion. It’s time to fight for a New York that working families can afford.”

The battle plan to defeat Joe Crowley was successfully deployed against Amazon. Activists highlighted costs such as traffic congestion and higher rent would be more pronounced to low-to-middle income workers, while the same costs would be offset by new arrivals’ higher compensation; tax incentives also became a focal point despite economists argued that existing residents would enjoy pass-through benefits from the newly created 25,000 to 40,000 jobs with average wage upward of $150,000 per year.

Across the nation, debt-laden urban workers who struggle to keep up with rent, as well as distressed households in left-behind communities are becoming less responsive to trickle-down incentives and more receptive to talking-points by the progressive Left or the conservative Right, be it “tax the elite” or “build the wall.” Economic hardship are known to generate groundswells of support for populist insurgents, but establishment politicians downplayed the economic drivers of discontent, a move which reinforced anti-establishment politicians’ rallying cry that “the elites are out of touch.”

In light of recent developments, former RBI Governor Raghuram Rajan elaborated his views on the rise of populist politicians in his book “The Third Pillar:”

“Alienated individuals, bereft of the hope that comes from being grounded in a healthy community, become prey to demagogues on both the extreme Right and Left, who cater to their worst prejudices. Populist politicians strike a receptive chord when they blame the upper-middle-class elite and establishment parties.”

The aforementioned dynamics coupled rising populism with growing inequality, and one important driver of inequality is expansionary (and highly distributional) monetary policy.

Following the 2008 Financial Crisis, policy measures designed to combat disinflationary risks fueled rapid asset price appreciation, which quickly outpaced real wage growth; at the same time, asset owners thrived at the expense of renters, while borrowers enjoyed low rates that penalized savers. This laid the foundation of a decade of growth driven by capital-markets, and companies such as Amazon were major recipients of low-cost funding via non-bank (investor) financing.

Policy-induced inequality

In his 2018 working paper “Monetary Policy in the Grip of a Pincer Movement,” Bank for International Settlements’ Claudio Borio highlighted globalization-induced asymmetrical policy response to low inflation. As long as inflation remained muted and stable, there would be little incentive for central banks to tighten policy during financial booms; conversely, there would be strong incentive to respond “aggressively and persistently” to fight the bust and starve off any deflation threat; these asymmetrical responses and persistent decline in real interest rates contributing to the formation of a “debt trap:”


It is also worth noting that such policy biases are not costless, with Boston Fed President Rosengren acknowledged “there are distributional effects that occur with monetary policy.” Some of these effects include the rise of zombie firms sustained by low rates, and less productive entities crowd out investment in and employment at more productive firms. Other impacts include misallocation of resources toward usual destinations of hot money such as real estate. Recent research on monetary policies’ sensitivity to equity valuations further supports a narrative of policy-driven wealth distribution.

Under this premise, past two decades’ relentless march toward globalization suppressed price pressure and induced global central banks to maintain a dovish bias, which accelerated distributional effects and widened the wealth gap. As inequality worsened, elevated social discontent fanned grassroots support for anti-establishment political insurgents (from both Left and Right). This is the common catalyst behind the rise of Donald Trump, Brexit, Italy’s populist ruling coalition, “Yellow Vests,” as well as local support behind Ocasio-Cortez’s campaign against Amazon in NYC.



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Rajan, R. (2019). The Third Pillar: How Markets and the State Leave the Community Behind. New York: Penguin Random House LLC.

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