“POPULISM” AND CENTRAL BANKS © Leo Haviland, July 12, 2016

“Big boss man, can’t you hear me when I call?” “Big Boss Man” (Al Smith and Luther Dixon), performed by Elvis Presley, the Grateful Dead, and others



The United Kingdom’s recent shocking referendum vote to leave the European Union not only sparked ferocious marketplace fluctuations. It did not merely underscore ongoing and widespread unease regarding mediocre economic growth and insufficient inflation in many nations inside and outside of Europe.

Brexit also highlighted previously existing and growing fears among many global economic and political elites (“the establishment”) and their disciples about increasing “populism” and its potential consequences. These worries extend beyond the troubles of the European Union and the Eurozone and nervousness regarding their fracturing or break-up. The British departure outcome probably inflamed populist ambitions in other countries. In any case, substantial divisiveness and partisan fervor are not confined to Europe or the United States. See “America: a House Divided” (12/7/15).

The “establishment”, like “populism”, is diverse rather than monolithic. Even among the advanced OECD nations such as the United States and those seeking to emulate them, it is not the same everywhere. Mainstream political parties and their economic agendas are not precisely identical, even though such different groups (such as Democrats and Republicans) can belong to the same establishment. What is an establishment (or populist or other anti-establishment) view can change over time.

Different cultures of course will have leaders, but their particular “establishment” ideologies may be significantly and perhaps dramatically different. The current Chinese establishment’s guiding faith in part overlaps with (resembles) but nevertheless is not identical to the creed prevailing in the United States establishment. Or, compare a primitive rural culture and that of a modern Western industrial nation.

However, as a rough and admittedly simplified guideline, one can summarize the ruling Western economic ideology of the post-World War Two period. It is a “capitalism” that in principle generally adores free (open) markets for goods and services, free trade, and free movement of capital, as well as (subject to immigration concerns) fairly free movement of people. Such economic goals (and political and social gospels related to them) are labeled and valued as good and desirable by the so-called establishment. Often they are honored as being rational, reasonable, intelligent, sensible, and prudent. In the post-World War Two span, these good outcomes have intertwined with globalization, which the elites (power structure), likewise generally (on balance) bless. Therefore these authorities view populism, at least to the extent it endangers such good capitalism and the related “structure (arrangement) of things”, as generally bad (or less good; inferior).


The establishment responded to the British outcome with passionate rhetoric. The dangers of supposedly overly left-wing or right-wing movements, or excessively nationalistic or protectionist ones, or fringe or radical groups must be handled somehow, right? Or so such currently empowered elites advise audiences.

Leading central banks and regulators such as the European Central Bank, Federal Reserve Board, Bank of England, and International Monetary Fund of course stress their devotion to their assorted mandates. Indeed their noble quest to secure praiseworthy aims such as stable prices (sufficient inflation), maximum employment, and economic growth are on behalf of “all of us”. Yet such loosely-defined legislative directives in practice provide these economic high priests wide scope for their interpretation.

In practice, central bankers, even if widely-revered, generally reflect the key economic and political doctrines and ambitions of traditional (current establishment) leaders. And “populism”, though one cannot define it scientifically, though its historical and current international appearance is not everywhere the same, still can “shake the existing economic and political situation and its institutional structures up a lot”. And such resulting uncertainty and disruption (and especially big changes) on balance would be bad (or at least not very good), right? So the Brexit vote was a bad (undesirable and unfortunate) outcome. Populist pressure, especially if it involved challenging the independence of central banks, might even make it more difficult for central bankers to achieve their beloved mandates. Leading central banks nowadays consequently want to preserve the basic structure and trends of the post-World War Two world “order”, to preclude revolutionary or even mildly substantial changes in it.

Therefore, the British “Leave” vote and its aftermath probably will encourage various leading central banks such as the Fed, ECB, Bank of England, and their allies to battle even more fiercely than before against populist menaces. Continued sluggish growth (or a recession), rising unemployment, or a renewed sovereign or private sector debt crisis (whether in Europe or around the globe), would inflame populist ardor, particularly given anger over widespread economic inequality. The central banks therefore likely will sustain existing highly accommodative policies such as yield repression and money printing for longer than previously anticipated, perhaps expanding them “if necessary”.

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Populism and Central Banks (7-12-16)