Responsible Populism

By Simon Johnson

“Populism” is a loaded term in modern American politics. On the one hand, it conveys the idea that someone represents (or claims to represent) the broad mass of society against a privileged elite. This is a theme that plays well on the right as well as the left – although they sometimes have different ideas about who is in that troublesome “elite.”

At the same time, populism is often used in a pejorative way – as a putdown, implying “the people” want irresponsible things that would undermine the fabric of society or the smooth functioning of the economy.

In Latin America, for example, there is a long tradition of populists falling into bed with a corrupt political elite, and the results invariably include irresponsible macroeconomic policies and various kinds of financial disaster (see “The Macroeconomics of Populism in Latin America,” edited by Rudiger Dornbush and Sebastian Edwards).

In North America, however, the populist tradition has proved much more constructive. More than 100 years ago, hot-button issues included direct election of senators and a federal income tax. None of these demands seem irresponsible today, and achieving those goals through constitutional amendments in the run-up to 1914 in no way jeopardized American prosperity.

But there is still an undercurrent of resistance in Washington to policy ideas with widespread popular support. For example, when President Obama said to leading bankers in March 2009, “My administration is the only thing between you and the pitchforks,” he was suggesting that people favoring a resolution process for large financial institutions – closing them down in an orderly fashion – were akin to some kind of a peasants’ revolt.

According to Mr. Obama’s framing of the issues, the administration sided with large banks that were in trouble at the beginning of his administration – and bailed them out repeatedly and on generous terms – because this was the responsible thing to do.

This was a mistake, with lasting consequences for the American economy, because it further entrenched the power of these banks and the people who ran them into the ground. It also changed our politics. On financial regulation, anti-elite ideas have broad appeal and represent the responsible course of action – and they should draw support from across the political spectrum. Populism and irresponsibility are not, in fact, synonyms. When any elite gets out of control and makes egregious financial mistakes, which happens in many societies, the choice is either to rein them in or provide them with unlimited state backing. You can imagine which course is preferred by that powerful elite and, not surprisingly, the “capture the state” approach is often what leads to the most trouble – including irresponsible macroeconomic policies, worsening inequality and further rounds of traumatic crisis.

In their new book, “Why Nations Fail: The Origins of Power, Prosperity and Poverty,” Daron Acemoglu and James Robinson suggest that most economic and political collapse is caused by overly powerful elites – which bring on a wide variety of pathologies.

In early 2009, the people who wanted to arrange the orderly liquidation of failed banks in the United States included Sheila Bair, the entirely reasonable and middle-of-the-road head of the Federal Deposit Insurance Corporation. Ms. Bair was also an outspoken advocate of higher capital requirements and meaningful financial reform more broadly.

According to the definitive account published recently by Jesse Eisinger of ProPublica, she was opposed and largely thwarted not just by top political appointees (e.g., at the Treasury) but also by the Federal Reserve.

Ms. Bair is a Republican; at one point she worked for Senator Bob Dole of Kansas. But she draws broad bipartisan support for standing up to the banks and consistently proposing a more responsible course of action than that preferred by the banking elite. I have heard sensible people on both sides of the political aisle suggesting that she would make a very fine Treasury Secretary, and I agree with that assessment.

Elizabeth Warren is another prominent public figure who stands for reasonable constraints on egregious bad behavior by powerful financial interest groups. Ms. Warren was chairwoman of the Congressional Oversight Panel for the Troubled Asset Relief Program, or TARP, and in that capacity she drew broad bipartisan support for her even-handed assessments.

When she helped set up the Consumer Financial Protection Bureau, Ms. Warren stood primarily for greater transparency in financial transactions, making it easier for people to understand what they are getting themselves into. Many responsible businesses supported exactly that approach.

This week, Ms. Warren and three other former officials from the oversight panel criticized the way in which the government has helped A.I.G. through nontransparent tax breaks – details of which have only now become public.

As Ms. Warren put it, “When the government bailed out A.I.G., it should not have allowed the failed insurance giant to duck taxes for years to come.” She was joined in her condemnation of the administration by Damon Silvers, a Democrat, and J. Mark McWatters and Kenneth Troske, who are Republicans.

Ms. Warren is running for the Senate in Massachusetts and seems likely to be picked as the Democratic nominee. Her opponent, Senator Scott Brown, opposed every dimension of financial reform. I do not recall his support for or even interest in any attempt – by the left or the right (and I’ve worked with both) – to make banking safer. The issues do not even appear in the policy section of his Web site.

To be clear, Mr. Brown eventually voted for the Dodd-Frank financial reform legislation in 2010, but only in return for the watering down of meaningful changes, “including helping strip out a proposed $19 billion bank tax and weakening a proposal to stop commercial banks from holding large interests in hedge funds and private equity funds.” He now draws considerable financial support from Wall Street, where some executives seem willing to do whatever it takes to prevent the election of Elizabeth Warren.

Mr. Brown presents himself as bipartisan – presumably as a way to garner favor with Massachusetts voters. “I’m not a ‘rock thrower’” is his line – which is very close to saying “I do not have a pitchfork.”

But the people throwing rocks at our economy are not reasonable reformers like Ms. Bair and Ms. Warren. Important parts of our financial elite, particularly the people who ran large financial institutions, went out of control in the run-up to 2008. Powerful bankers wreaked havoc with our economy, destroyed millions of jobs and directly caused a huge increase in the national debt. These people and their successors are now poised to get out of control again.

Two stories in the news on Wednesday speak to the continuing dangers surrounding an unreformed financial sector.  The very public resignation of Greg Smith from Goldman Sachs illuminated an insider’s view of Wall Street culture and suggested that it has not changed much, if at all, in the past few years.

Even under the most favorable interpretation, the bank stress tests run by the Fed found that some banks are still struggling.   I agree with Anat Admati — these stress tests were not tough enough, again raising questions about whether the degree of “regulatory capture” has also changed since the crisis.

The politicians to fear are those like Scott Brown, who refuse to stand up to Wall Street.


25 thoughts on “Responsible Populism

  1. It is not difficult to understand why Simon Johnson is wrong on so many levels – it is a combination of being an undereducated academic and pushing a new book at the same time. A very well timed book that is intended to generate maximum sales in an election year

    If Populism is a loaded term, so is lobbying. After all, other undereducated colleagues of Simon like Admati use the opportunity to make comments on the Volker rule to highlight shoddy, unrelated research – her only response to the idiotic sections of the Volker rule was that the highly flawed Volker rule should be implemented because upcoming Basel 3 rules are flawed.

    Such populism has to be unwound by a serious lobbying. Lobbying is also a term also used in a pejorative way but is extremely important for a democracy to undo counterproductive populism.

    This fear mongering that “taxpayers bear the consequences of serious losses at banks “ is getting more ludicrous as time passes. As we now know, MF Global’s bankruptcy was not taxpayer backed….the only people who suffered were shareholders and clients…which is not a good thing btw but that is what happens with bankruptcy of any other firm.

    Today Simon Johnson reached a new low by suggesting that a resignation letter by a mid level disgruntled employee at Goldman Sachs is representative of how the entire firm operates. Such a letter could have been written by a manager at McDonalds, a receptionist at a doctor’s clinic or a greyhound bus driver – and is more an indication of the desperation and falling standards at the New York Times. A similar letter written by a greyhound bus driver would receive zero attention only because it is not Goldman Sachs. Pathetic on so many levels simon.

    Academic Elites like Simon, Admati and Acemoglu will do anything to sell another book.

    Populism is good! Yeah Right! So is lobbying, lying, abusing drugs and adultery – all vices have a “higher goal”!! Ha Ha. What a joke.

  2. so i take it that desi girls expertise comes from being overeducated and underpublished.

  3. «Important parts of our financial elite, particularly the people who ran large financial institutions, went out of control in the run-up to 2008. Powerful bankers wreaked havoc with our economy, destroyed millions of jobs and directly caused a huge increase in the national debt.»

    While I agree with that, it is only a partial story: by far and away the biggest responsibility falls on voters, that propertied minority of citizens who have enthusiastically endorsed asset bubble after bubble, because they expected to get a cut of the loot just like the bankers.

    The real American Populism has been that of the past 30 years of promises that higher asset prices and lower wages would make voters RICH, retiring in luxury in their McMansions while their inferiors (Chinese factory workers, illegal immigrant service workers, working and underclass nobodies) worker hard to give them the lifestyle voters felt entitled to.

    My usual quote from great Real American thought leader Norquist:
    «The 1930s rhetoric was bash business — only a handful of bankers thought that meant them.
    Now if you say we’re going to smash the big corporations, 60-plus percent of voters say “That’s my retirement you’re messing with. I don’t appreciate that”.
    And the Democrats have spent 50 years explaining that Republicans will pollute the earth and kill baby seals to get market caps higher.
    And in 2002, voters said, “We’re sorry about the seals and everything but we really got to get the stock market up.

    That’s the real populism which has won many elections.

    Some related quotes from “The Great Crash 1929” by J.K.Galbraith:
    page 32: «One thing in the twenties should have been visible even to Coolidge. It concerned the American people of whose character he had spoken so well.

    Along with the sterling qualities he praised, there also displaying an inordinate desire to get rich quickly with a minimum of physical effort.»

    page 68: «For now, free at last from all threat of government reaction or retribution, the market sailed off into the wild blue yonder. Especially after 1 June all hesitation disappeared.

    Never before or since have so many become so wondrously, so effortlessly, and so quickly rich.

    Perhaps Messrs Hoover and Mellon and the Federal Reserve were right in keeping their hands off. Perhaps it was worth being poor for a long time to be so rich for just a little while.»

    page 25: «Just as Republican orators for a generation after Appomattox made use of the bloody shirt, so for a generation Democrats have been warning that to elect Republicans is to invite another disaster like that of 1929. The defeat of the Democratic candidate in 1952 was widely attributed to the unfortunate appearance at the polls of too many youths who knew only by hearsay of the horrors of those days. It would be good to know whether, indeed, we shall some day have another 1929.»

  4. Desi Girl’s reply to Mr. Johnson’s article is not substantive. Her claim is that Mr. Johnson is uneducated and only trying to sell books. Oh yeah sure, it’s a complete accident that Mr. Johnson is professor at MIT. And think of those vast profits Mr. Johnson will amass from the sale of his book, enough to retire to a new home in the Bahamas, no doubt. Desi’s proclamation that lobbies are a good counterweight to populism verges on substantive discussion, but she then offers zero detail to support her views. What to make of Desi? Plainly, she is here only to make ad hominem attacks against Mr. Johnson. And to Desi herself: no more defecation in this forum, please.

  5. «proclamation that lobbies are a good counterweight to populism»

    Even if they were, they are an excessive counterweight if reserved (as they are) to represent only upper class interests.

    Because they upper class already nominate candidates, and define policies. Parliamentary democracy means that the upper classes factions present define themselves publicly, and the middle and lower classes can by way of elections veto the faction that they most object to.

    Lobbying is not a counter to the power of populism, because one or the other upper class factions are always in power, not populism.

    Lobbying is more about neutering the veto power of the middle and lower classes.

  6. @Desi,
    It’s hard to tell what your points are through the fog of ad hominem, so correct me if I get them wrong. There seem to be 3:

    1. “Good lobbying can thwart bad populism.”
    This is a great point and I don’t think Mr. Johnson would disagree. An example: voters try to enact a popular but discriminatory ordinance, ACLU uses lobbying to fight back.

    2. “Suggesting that taxpayers will bear the brunt of another financial catastrophe is mere fear-mongering.”
    Here, our opinions differ. This blog’s primary purpose is to show that the systemic problems that caused the first meltdown have not been fixed, and the government is still in a position of having to bail out the banks, should they fail. Admittedly, reminding people of this may cause fear, but fear is a great motivator in solving problems.

    3. “A letter from a mid level disgrutled employee shows nothing about how the internal culture has changed (or not) since the bailouts.”
    It’s true that the letter itself means little. However, it’s simply one piece of evidence in a growing pile that shows a lack of any humility, responsibility, or willingness to change at Goldman Sachs.

  7. This is a response, one or two years after the fact, to my charge that Prof. Johnson himself was using populist tactics in writing the blog and cross-posting at Huffpo and other places? Essentially saying: “populism is not a dirty word”?

    Again, he’s not doing this stuff because he’s a nice guy (he may be, but that’s not why he’s doing this). He’s a propagandist, a very well and carefully positioned one. He may very well be an intelligence operative: do we have any idea what he was doing in Russia in the early 90’s at Brunswick/UBS? Was Brunswick really an MI6 front? Do we have any idea how much time he dedicates to the “international entrepenurship” program at MIT, or what he does there? Is it just a cover? Or is the program itself a method of wielding influence with offshore corporations?

    Populism in and of itself can be good, bad, or neutral, but wolf-people wearing woolen populist clothing, one suspects, is generally not a good thing. (Speaking of which… the coin finally dropped… Elizabeth Warren *is* the grandmother from Little Red Riding Hood.)

    The problem here is the disjunction between reality and appearances. If this is all part of a big plan to enhance global control, and we end up with a benevolent dictator or council of elders, well, maybe it will have been worth all the smoke and mirrors, but looking back at the last few hundred years, the people who wield the greatest influence tend to be sociopaths who consider themselves superior to the rest of humanity, or rather, consider themselves human and the the rest of us they think of as animals. To this day German aristocracy (possibly others as well) think of themselves as being “born,” while we “whelp”.

  8. (Sorry, last little bit)

    Peter Boone is listed as one of the authors of the blog, but it doesn’t look like he’s ever contributed anything by himself — it’s always coauthored with Prof. Johnson. Per his online bios he was also at Brunswick in Moscow, early 90’s, during the privatisations. Now he’s said to be affiliated with something called Salute Capital Management, “with offices in London and Moscow (though on the website there is no Moscow address, only London and the Cayman Islands). Both Boone and Johnson are said to be/have been involved with Africa, through the NBER and another NGO. What is that all about? Russia, Africa… Peter Peterson Institute, British foreign intelligence (I think it was spook-world connections to Boone that got me thinking about the spy business. You might want to have that scrubbed if it’s still out there. No lack of those people at the Peterson Institute though)

  9. It is easy to tell who elitists are, Herr Johnson. They are the ones that bank the wars and get rich on bloodshed. You know, blood for oil. Life is cheap. “BRENT AT $126 As ISRAEL SECURITY CABINET VOTES 8 To 6 TO ATTACK IRAN”

  10. Since everyone really knows, MATHEMATICALLY, that the toxic derivatives swirling around the *matrix* can never be repaid, all we have now is a rapid and savage congolese-like extraction of the centuries of the fruit of labor by all the 15 *entities* who claim they hold *debt* that needs to be repaid! Cosmic insanity right there – money not *perceived* to be a man-made symbolic currency to keep life-maintenance flowing in sovereign nations/cultures, but a *debt* owned to – well, whom, exactly?

    Yup, not going to end well. Looks like the SAVAGE extraction will, inevitably, trigger an equal and opposite reaction which, btw, probably has already started….

  11. @ Annie
    “not going to end well”

    We, the enlightened, don’t imagine for one nanosecond that the Bill of Rights is being raped to protect against “terrorists.” The “terrorists” are “we the people,” Americans, the enemies of the totalitarian police state.

    “We Are This Far From A Turnkey Totalitarian State” – Big Brother Goes Live September 2013″

  12. Tom Freidman has proven clueless on public policy for a very long time, most notably his continued insistence that staying the course ( path of disaster) in Iraq made the most sense.

    After 1.455 million dead Iraqis, and trillions wasted, one need not look further into what a truly muddle-headed individual this neocon shill is.

    Next time he promotes war, he should begin with proclaiming his own loved one will be there fighting on the front lines. Absent this, I wish he’d blow away for good, the big windbag of lies.

  13. @ Kwak or Simon, please delete, after a week in hospital, I’m a wee bit wobbly and selected the incorrect post to publicize my reply. Thanks.

  14. @Anonymous – stupidity is enless, ain’t it?

    GIGO – garbage in, garbage out – this erecting of temples to megalomaniacs afflicted with the minutia-control madness of *geniuses* diagnosed with obsessive compulsive disorder is supposed to short circuit the TRUTH that every human being has the RIGHT to make their lives less miserable through honest work? Really? A COMPUTER watching your every move is going to bring a SANE and NORMAL person to give up living with dignity?

    The easiest thing in the world is to LIE on the internet. Everybody is lying more and more – and paying for their daily minutia with CASH. Wait, can the computer tell you are lying? Anomolies like *losing* 1 billion in a Ponzi scheme doesn’t show up but a decision to order vanilla instead of chocolate will alert Homeland Insecurity?

    god i can’t TOLERATE the computer geeks anymore – what retards….

    Plus, one passing wave of an unknown intergalactic energy burst and bye bye satellite data – scrambled and shredded in the thin *air*….

  15. @ Desi Girl – Doing Gods Work: Is that truly “Gods” as in plural of God (singular) … like Greek mythology? If so, shouldn’t it be Gods’ Work? If not, you likely mean it to be God’s (as in Jehovah) work, right? Just wondering. It really isn’t clear. Either you’re doing God’s work, or you’re performing the work of the Gods, hence “Gods’ work” is what you’re really trying to say. It would seem your education suffers somewhat. Clear writing is a sign of clear thought developed and cultivated by a good education. Your writing and thought process are terribly muddled. Fogged would be an apt description.

    This little gem in your screed illustrates the point nicely: “This fear mongering that “taxpayers bear the consequences of serious losses at banks “ is getting more ludicrous as time passes. As we now know, MF Global’s bankruptcy was not taxpayer backed….the only people who suffered were shareholders and clients…which is not a good thing btw but that is what happens with bankruptcy of any other firm.”

    Unless you were totally high these past few years, which might explain the foggy aspect to your writing and thought process, and living in a cave you surely must know AIG, GS, MS and a host of commercial banks were saved from certain death by the Fed and the U.S. Treasury following the destruction they wrought on the global financial system and markets. The Fed and Treasury are extensions of the U.S. government, which can only obligate taxpayers to perform on the debts they incur and the liabilities they assume in the name of preserving the financial system.

    Pathetic on so many levels, desi girl doing whatever.

  16. Popular vote: the original form of “populism”.

    I mean really, if “populism” is so evil, why don’t we just throw out the popular vote and let the best dictator win?

  17. @markets – some housing stock left to foreclose on thanks to massive unemployment of scientists over 50, ALL health care (fine if you don’t buy for profit health insurance from Private owners), and the biggy – SS fund (Chinese got their dibs on that one) – left to raid – they already have the working poor’s tax $$$ as it is taken out of the paycheck…

    Why are you surprised that a bankster girl doesn’t know her boss is a welfare queen recipient of tax payer $$$…??!!

    “….banks got bailed out, we got sold out…”

  18. Responsible “specialists” are the real problem, not any watered down version of an undefined spectrum pool of what can easily be rendered as “popularism” by those who pretend (in spite of the historical evidence) that the “professionals” are all working in the greater good.
    “Popularism” is just another manipulated term of exclusionary principles that monopolize authority in the media. Opinion and real history are like water and oil:
    The Money Masters [Full Documentary]

  19. “Responsible” Popularism has more than a ring of truth to it:
    The Secret of Oz – Winner, Best Docu of 2010 v.1.09.11

  20. “Responsible” definition of terms…is what is popular (common sense) the same as the political-linguistic “categorization” (constructivist rhetoric…) as “populism” ?
    “Populism can be defined as an ideology,[1][2][3][4] political philosophy,[5][6][7] or type of discourse.[3][6] Generally, a common theme compares “the people” against “the elite”, and urges social and political system changes. It can also be defined as a rhetorical style employed by members of various political or social movements (a form of mobilization that is essentially devoid of theory).”

  21. more:
    “…Academic and scholarly definitions of populism vary widely and the term is often employed in loose, inconsistent and undefined ways to denote appeals to ‘the people’, ‘demagogy’ and ‘catch-all’ politics or as a receptacle for new types of parties whose classification is unclear. A factor held to diminish the value of ‘populism’ in some societies is that, as Margaret Canovan notes in her 1981 study Populism, unlike labels such as ‘conservative’ or ‘socialist’, the meanings of which have been ‘chiefly dictated by their adherents’, contemporary populists rarely call themselves ‘populists’ and usually reject the term when it is applied to them by others.[12]…

    There are many manipulations and interpolations of this term that serve a variety of vested interests and ideologies….please take a moment and review the full summary @

    by Ellen Hodgson Brown, J.D.
    chapter 1
    “The economic allusions in Baum’s tale were first observed in 1964 by a schoolteacher named Henry Littlefield, who called the story “a parable on Populism,” referring to the People’s Party movement challenging the banking monopoly in the late nineteenth century.1 Other analysts later picked up the theme. Economist Hugh Rockoff, writing in the Journal of Political Economy in 1990, called the story a “monetary allegory.”2 Professor Tim Ziaukas, writing in 1998, stated:

    “The Wizard of Oz” . . . was written at a time when American society was consumed by the debate over the “financial question,”…”

    “… the real-life folk heroes who inspired its plot may have had the answer to the financial crisis facing the country today!”

  23. @Markets…you may still be high….
    don’t you know that the tax payer has been paid back at a PROFIT!!
    No bank is ever going to be be bailed out anytime in the future.
    Simon, Admati and their cronies know that the only way to sell more books is more fear mongering.

    BTW…your other messiah William Black is simply a liar and you have been brainwashed. Don’t worry, the soviets brainwashed an entire nation. Simon and Black are succeding in brainwashing a few americans like yourself.

Comments are closed.