Zsolt Gál Argentina on the Danube – Populist Economic Policy as the Biggest Enemy of Sustainable Economic Growth.

Economic policies encouraging growth, employment and the rising of living standard through fiscal expansion have been proved to be not only completely ineffective, but also destructive in the small, open economies of Central and Eastern Europe. This kind of policy is not able to substantially increase economic growth or employment in the short term either, but, at the same time, it leads to serious (micro- and macroeconomic, internal and external) imbalances sharply lifting the indebtedness. If the political elite do not intervene with austerity and stabilization measures, it will bring the economy to the verge of collapse. Despite the ineffective and harmful nature of these policies, they are quite popular in the region. The question is why. A possible answer: economic populism (a government policy which in run for short-term political profits, i.e. popularity, is ready to sacrifice the long-term economic interests of the country, like the balanced and sustainable growth of GDP and living standards). Populism is used because it is popular, it can ensure vast political benefits for the parties and their leaders. Hence, democracies are failing (adopting bad economic policies) because the elected politicians do exactly the same what the majority of the voters want. The voter’s demand for populist policies could be explained by two hypothesizes: (1) Voters are rational in the sense that they follow their own selfish interests. Considering that the majority of the electorate is made up of state financed individuals (their earnings are coming from public budgets), it is natural that they will vote in favour of rising state expenditure which leads to fiscal expansion. (2) The voters are irrational in the sense that their economic beliefs, opinions and conceptions are seriously biased compared with the findings of mainstream economics. However they’re voting according to these misconceptions, popular myths and irrational beliefs electing populist leaders who promise them what they want to hear. Since no significant change is to be expected in the proportion of market financed and state financed people, neither in the behaviour and the value system of the voters, populism will enjoy a widespread support in the future as well. The region must prepare for a long-term Don Quixote style tilting with windmills against economic populism.