Demagogues and the Economic Fragility of Democracies
Dan Bernhardt, Stefan Krasa, Mehdi Shadmehr
American Economic Review · 2022 · Volume 112 · Issue 10
Abstract
We investigate the susceptibility of democracies to demagogues, studying tensions between representatives who guard voters' long-run interests and demagogues who cater to voters' short-run desires. Parties propose consumption and investment. Voters base choices on current-period consumption and valence shocks. Younger/poorer economies and economically disadvantaged voters are attracted to the demagogue's disinvestment policies, forcing farsighted representatives to mimic them. This electoral competition can destroy democracy: if capital falls below a critical level, a death spiral ensues with capital stocks falling thereafter. We identify when economic development mitigates this risk and characterize how the death-spiral risk declines as capital grows large.
Keywords
Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior, Macroeconomics: Consumption, Saving, Wealth, Investment, Capital, Intangible Capital, Capacity, Business Fluctuations, Cycles
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