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Hello, Free Lunchers — I’m Joel Suss, FT data journalist and stand-in for Martin and Tej this week.
I normally cover central banks, and this is a newsletter on global economics — both subjects that are very much in thrall to populist politics right now. Look no further than the incessant, escalating campaign by President Donald Trump to dominate the Federal Reserve, his explicit aim being that the US central bank should prioritise government debt management.
So I want to consider the populist moment we are in. I’ll look at what history tells us about economic growth under populism, and what countries not yet under its thumb must focus on to stem the rising tide.
Because the tide is rising. According to a comprehensive accounting of populist government leaders dating back to 1900, around one-quarter of countries (out of a stable sample of 60) are now led by either right-wing or left-wing populists.
The authors use a standard and broad definition of populism — a political style that is centred on the “people” versus the “establishment” or “elite”. Of course, definitions vary across research, thus so does the final tally. But the upwards trend is consistent and clear across competing methodologies.
Populist parties are also of course snapping at the heels of government in many other countries, such as the UK, Germany and France. “Establishment” leaders are positively freaked out, driving them to adapt their policies and rhetoric — consider Labour Prime Minister Sir Keir Starmer’s tough talk on immigration, including saying the UK risks becoming an “island of strangers”. Even when populists are not in office, they can wield considerable power.
Now, what of the economic consequences? Free Lunch on Sunday prides itself on contrarian takes, but alas on this topic the evidence is as you might expect: populism makes for truly bad economics.
The aforementioned study, published in the American Economic Review in 2023 by a trio of economists at the Kiel Institute, analyses how economies are impacted by populists in power. It finds that after 15 years of populist leadership, real per capita GDP declines by more than 10 per cent compared with a reasonable, non-populist counterfactual.
Importantly, it doesn’t matter whether left- or right-wing, in Europe or South America — populist-led economies suffer across the board.
Why does populism cause so much damage? Trade protectionism, unsustainable fiscal debt and the erosion of judicial independence, among other reasons.Well, that’s check, check and check for the US under Trump in 2025.
Economic costs do not tend to cause voters to turf out populism either. Instead, populist leaders are significantly more likely to have two or more spells in office, and typically stay on longer than their non-populist peers (eight years versus four, on average). Populism also tends to be serial, the authors note: once a country has had a spell, it’s more likely to have another.
Therefore, the likelihood of further populist entrenchment in the US seems high, considering these patterns alone. Given Trump’s early proclivity for pushing the boundaries of executive power — for example, sending soldiers into Los Angeles and Washington — and his frequent musings about running for office in 2028, the chances may be higher still.
For mainstream leaders, the question of how to stem the rising tide is existential. And there may not be much time. Nigel Farage’s Reform UK, for example, has been leading in the polls since April.
There are myriad explanations for the rise in populism that translate into policy prescriptions.
First: don’t do austerity. A prominent 2019 study showed austerity-induced reforms that began under the UK’s coalition government very likely caused Brexit (or, at least, an individual’s exposure to 2010s-era welfare reforms strongly correlated with leave-voting patterns of behaviour).
Second: avoid financial crises. The relative change in unemployment within a UK region pre- and post-2008 was a strong predictor of its support for Brexit.
One explanation of modern populism tells a story of local economic decline and “left behind” places. Indeed, my own analysis finds that in the US a strong predictor of the Trump swing between 2020 and 2024 was the relative weakness of real income growth since 2020. Cities with slower growth saw greater swings to Trump. (On the other hand, I find no association between the Trump swing and inflation — which was widely touted as a key factor in election postmortems.)
Economic geographer Andrés Rodríguez-Pose has argued that “place-sensitive” policies can reverse what he calls the “psychology of decline”. In short, these are measures tailored to subnational areas, such as targeted investments in local communities.
A recent study found European Regional Development Fund disbursements reduced the vote share of right-wing populist parties substantially. Another study on Italian municipalities shows a similar result: greater funds led to a big fall in populism.
But place-based policies also face inherent difficulties. “Every local context requires a different solution,” says economist Thiemo Fetzer. Centralised governments tend to be bad at assessing regions’ particular needs.
Policymakers looking to stop populism must also learn from former US president Joe Biden’s mistakes. His signature spending bills saw substantially more money flowing to disaffected Republican areas, but these projects were perhaps not communicated well nor visible enough.
That would be the final flank of an anti-populist playbook: communication. Communication is under-appreciated and underemployed as a tool among mainstream politicians, much as it is central to the populists. Strong messaging from a charismatic and persuasive moderate could disrupt the populist siren song.
Food for thought
Understanding inflation dynamics is the key criteria for being a central banker. This recent research paper develops a new technique for identifying inflation turning points — and it finds one such turning point occurring in February 2025, as tariff adjustments were kicking off in the US.
Free Lunch on Sunday is edited by Harvey Nriapia
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