Let the deficits be damned, we need growth. Let money supply constraints be damned, we need growth. Let's use not-market policies to achieve redistribution and growth. The appeal to voters is that benefits can be given without costs or economic consequences. What current politician running for higher office in the US thinks otherwise? This economic populism is causing increased uncertainty for any longer-term investments. When will there be a payback on capital invested today?
Not believing in constraints may work for a time, but there will be an eventual cost and a price will have to be paid. The price will be imposed not immediately on the majority but first on business owners, but as the costs further increase it will be borne by all.
Economists always need to define terms. Two leading economists, Edwards and Dornbusch, actually have a good definition of economic populism, a government that does not belief budget deficits are or should be a constraint on growth. (See "Populism and the economic laws of not following budget constraints" for more details.) A governments without constraints can provide resources to the many without worry.
Why worry about this now? Budget deficits are growing even with economic growth. Monetary policy is viewed an unlimited pump for new credit. Government intervention through regulation is an active means to change the flow of capital and labor. We are seeing this with global monetary policy, credit expansion, and trade policy, yet the marginal effect on growth seems diminished. We are not being doomsayers but accept that economic populism is not sustainable in the long-run. This is why investors have to worry about left-tail risk now.
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