The passage given below is followed by a set of questions. Choose the most appropriate answer to each question.
Populists abhor restraints on the political executive. Since they claim to represent “the people” writ large, they regard limits on their exercise of power as necessarily undermining the popular will. Such constraints can only serve the “enemies of the people” – minorities and foreigners or financial elites. This is a dangerous approach to politics, because it allows a majority to ride roughshod over the rights of minorities. Without separation of powers, an independent judiciary, or free media – which all populist autocrats, from Vladimir Putin and Recep Tayyip Erdoğan to Viktor Orbán and Donald Trump detest – democracy degenerates into the tyranny of whoever happens to be in power.
Periodic elections under populist rule become a smokescreen. In the absence of the rule of law and basic civil liberties, populist regimes can prolong their rule by manipulating the media and the judiciary at will. Populists’ aversion to institutional restraints extends to the economy, where exercising full control “in the people’s interest” implies that no obstacles should be placed in their way by autonomous regulatory agencies, independent central banks, or global trade rules. Start with why restraints on economic policy may be desirable in the first place. Economists tend to have a soft spot for such restraints, because policymaking that is fully responsive to the push and pull of domestic politics can generate highly inefficient outcomes. In particular, economic policy is often subject to the problem of what economists call time-inconsistency: short-term interests frequently undermine the pursuit of policies that are far more desirable in the long term.
A canonical example is discretionary monetary policy. Politicians who have the power to print money at will may generate “surprise inflation” to boost output and employment in the short run – say, before an election. But this backfires, because firms and households adjust their inflation expectations. In the end, discretionary monetary policy results only in higher inflation without yielding any output or employment gains. The solution is an independent central bank, insulated from politics, operating solely on its mandate to maintain price stability.Another example is official treatment of foreign investors. Once a foreign firm makes its investment, it essentially becomes captive to the host government’s whims. Promises that were made to attract the firm are easily forgotten, replaced by policies that squeeze it to the benefit of the national budget or domestic companies. But there are other scenarios as well, in which the consequences of restraints on economic policy may be less salutary. In particular, restraints may be instituted by special interests or elites themselves, to cement permanent control over policymaking. In such cases, delegation to autonomous agencies or signing on to global rules does not serve society, but only a narrow caste of “insiders.”
Part of today’s populist backlash is rooted in the belief, not entirely unjustified, that this scenario describes much economic policymaking in recent decades. Multinational corporations and investors have increasingly shaped the agenda of international trade negotiations, resulting in global regimes that disproportionately benefit capital at the expense of labor. Stringent patent rules and international investor tribunals are prime examples. So is the capture of autonomous agencies by the industries they are supposed to regulate. Banks and other financial institutions have been especially successful at getting their way and instituting rules that give them free rein. Independent central banks played a critical role in bringing inflation down in the 1980s and 1990s. But in the current low-inflation environment, their exclusive focus on price stability imparts a deflationary bias to economic policy and is in tension with employment generation and growth.
Such “liberal technocracy” may be at its apogee in the European Union, where economic rules and regulations are designed at considerable remove from democratic deliberation at the national level. And in virtually every member state, this political gap – the EU’s so-called democratic deficit – has given rise to populist, Euro skeptical political parties. In such cases, relaxing the constraints on economic policy and returning policymaking autonomy to elected governments may well be desirable. We should constantly be wary of populism that stifles political pluralism and undermines liberal democratic norms. Political populism is a menace to be avoided at all costs. Economic populism, by contrast, is occasionally necessary. Indeed, at such times, it may be the only way to forestall its much more dangerous political cousin.
In the context of the passage, which of the following has been identified as being more dangerous than economic populism?
|Disproportionate control of corporations|
|Majoritarian identity-based politics|
The central idea of this passage is that:
|Populists abhor institutional restraints where they oppose obstacles placed in their way by autonomous regulatory agencies, independent central banks, and global trade rules.|
|Populists abhor restraints on the political executive, which is a dangerous approach to politics as it ends in the marginalization or persecution of minorities.|
|Populists’ aversion to institutional restraints extends to the economy; while populism in the political domain is almost always harmful, economic populism can sometimes be justified.|
|Economists tend to support restraints on the executive as discretionary monetary policy as it almost always leads to economic populism for electoral gains.|
All these are advanced as reasons to justify the restraints on economic policy EXCEPT:
|Stringent patent rules and international investor tribunals.|
|Short term interests may undermine the pursuit of policies more desirable in the long term.|
|Creation of “surprise inflation” to boost output and employment in the short term for immediate electoral gains.|
|Introduction of protectionist policies.|
Why does the passage refer to minorities, foreigners and financial elites as ‘enemies of the people’?
|As an ironical reference to populists’ view that restraints on the populist leader are contrary to popular will.|
|To point out that they are an elite or special interest group that asserts excessive power not commensurate with their numbers.|
|In disapproval of the populist leader riding roughshod over the rights of the minorities, foreigners and the financial elites.|
|To highlight that minorities, foreigners or financial elites should have no political relevance in a true democracy.|
With respect to “discretionary monetary policy”, the writer is of the view that …
|Such policies will be isolated from the pull and push of domestic policies and their consequent ill-effects.|
|It always backfires and creates higher inflation without yielding any output or employment gains.|
|An independent central bank operating on its own mandate can solve the ill- effects of such policies.|
|It undermines short term interests in pursuit of policies that are desirable in the long term.|
It can be inferred from the passage that the “liberal technocracy” is a reference to:
|central banks in the European Union whose regulations bordered on the undemocratic.|
|independent central banks that were instrumental in bringing inflation down in the 1980s and 1990s.|
|the Euroskeptical political parties that relax the constraints on economic policy and return policy making to elected governments.|
|banks and other financial institutions that have been successful in instituting rules that give them a free rein.|