Polarised politics in the wake of an economical downturn echo throughout modern history ...

Brad DeLong has a good pointer today on his blog.

Sebastian Doerr, José-Luis Peydró, and Hans-Joachim Voth: Failing Banks and Hitler's Path to power: "Polarised politics in the wake of financial crises echo throughout modern history, but evidence of a causal link between economic downturns and populism is limited. This column shows that financial crisis-induced misery boosted far right-wing voting in interwar Germany. In towns and cities where many firms were exposed to failing banks, Nazi votes surged. In particular, places exposed to the one bank led by a Jewish chairman registered particularly strong increases of support–scapegoating Jews was easier with seemingly damning evidence of their negative influence...

Despite low unemployment and a still booming economy Germany faces an upswing in right-wing voters. The immigration policy plays a major role (just replace 'Jews' with 'African/Muslim immigrants' and you have a similar scenario) as well as an increase in old-age poverty. Paltry interest on savings is not helping either. Inflation is picking up and way beyond the reported number. The whole Eurozone is in economical decline, as Draghi just days ago noted. A disastrous EU (non-)policy on how to deal with the influx of people coming via the Mediterranean Sea. Incidentally, Germany's former big bank Deutsche Bank is in serious crises. There is no danger it may fall as it would without a sliver of a doubt be bailed out by the government. Still, there are some good points for thought in

How failing banks paved Hitler's path to power: Financial crisis and right-wing extremism in Germany, 1931-33

Can financial crises fan the flames of fanaticism? The Great Recession of 2007-08 not only wrought havoc on employment and output, but its aftermath has seen the rise of populism across the Western world, from Sweden to Spain and from Germany to the US. Many cross-country studies claim that there is a direct link from financial crisis to right-wing populist movements (Mian et al. 2014, Algan et al. 2017, Eichengreen 2018). The Financial Times led its ‘10 years after’ editorial on the crisis of 2008 with the headline “populism is the true legacy of the financial crisis”.¹And yet, cross-country evidence is often inconclusive, and hard evidence of a causal link running from financial shocks to political catastrophe has been difficult to come by.  

 In a new study, we provide such evidence for the canonical case of Germany during the 1930s (Doerr et al. 2019). The country saw one of the worst depressions on record, with output contracting by more than a quarter, and sky-rocketing unemployment. Germany’s slump was aggravated by a severe banking crisis in the summer of 1931, which helped turn an ordinary recession into the Great Depression (Figure 1). The crisis was triggered by the collapse of Danatbank, one of Germany’s four big universal banks. ...

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Greater economic collapse was one important mechanism that links the banking crisis to Nazi voting. While unemployment did not affect Nazi votes, income declines driven by exposure to Danatbank and Dresdner Bank (DD) strongly increased support for the Nazi party (NSDAP) – a one standard deviation decline in income caused by DD was associated with a 4.3% rise in Nazi support (while the average change in NSDAP vote share from 1930 to 1933 was 22%). In contrast, a one standard deviation change in income (not predicted by DD exposure) increased Nazi votes by only 1.1%. 

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The Weimar Republic – Germany’s first experiment with democracy – did not only fail because an ageing and increasingly senile President signed over power to Adolf Hitler (Evans 2004). To be able to make a credible bid for power, millions and millions of voters had to support the Nazi party’s agenda. While few scholars believe that the Nazis’ meteoric rise to power would have been possible without the Great Depression, strong links between economics and radical voting during Germany’s slump has so far proven elusive (Falter 1991, Evans 2004, King et al. 2008). Our research establishes such a link, showing how misery spelled radicalised voting.

Full post here. 

The Sweden Democrats, a radical-right populist party in Sweden, and its recent success

Economic Losers and Political Winners: Sweden’s Radical Right

Ernesto Dal Bó, Frederico Finan, Olle Folke, Torsten Persson, and Johanna Rickne

Abstract

We study the rise of the Sweden Democrats, a radical-right party that rose from negligible size in 2002 to Sweden’s third largest party in 2014. We use comprehensive data to study both its politicians (supply side) and voters (demand side). All political candidates for the party can be identi…ed in register data, which also lets us aggregate individual social and economic conditions in municipalities or voting districts and relate them to the party’s vote share. We take a starting point in two key economic events: (i) a series of policy reforms in 2006-2011 that signi…cantly widened the disposable- income gap between “insiders”and “outsiders”in the labor market, and (ii) the …nancial-crisis recession that doubled the job-loss risk for “vulnerable”vs “secure”insiders. On the supply side, the Sweden Democrats over-represent both losing groups relative to the population, whereas all other parties under-represent them, results which also hold when we disaggregate across time, subgroups, and municipalities. On the demand side, the local increase in the insider-outsider income gap, as well as the share of vulnerable insiders, are systematically associated with larger electoral gains for the Sweden Democrats. These …ndings can be given a citizen-candidate interpretation: economic losers (as we demonstrate) decrease their trust in established parties and institutions. As a result, some economic losers became Sweden-Democrat candidates, and many more supported the party electorally to obtain greater descriptive representation. This way, Swedish politics became potentially more inclusive. But the politicians elected for the Sweden Democrats score lower on expertise, moral values, and social trust –as do their voters which made local political selection less valence oriented.


Final Remarks

We study the Sweden Democrats, a radical-right populist party in Sweden, and its recent success. On the demand side of politics, we mostly expand earlier research on how occupations and job losses may help shape populist votes (Rydgren and Arzheimer 2018, Autor, et al. 2016, Dehdari 2018), by identifying groups of losers from two main economic events during the period when the electoral support for the Sweden Democrats expanded. Our most novel result here is that the local consequences of an important set of national policy reforms are a main correlate of local populist votes. We also show that the rise of the Sweden Democrats took place as the trust of voters in government diverged depending on their economic status. More importantly, our paper is the …rst to systematically analyze the supply side of a major
populist party, using individual-level data for the locally elected representatives of the growing Sweden Democrats. We exploit the same subgroup disaggregation as in the demand-side analysis and show that the Sweden Democrats over-represent the losing groups, while other parties under-represent them. Together, these …ndings rhyme with what we have called a citizen-candidate interpretation,
namely that the disgruntled groups not only support the Sweden Democrats electorally, but also join their ranks as members and run as political candidates. Our interpretation is that in the wake of economic grievances and diminished trust, political platforms lose credibility. And in the spirit of citizen-candidate models, proposals are credible when entering candidates share socioeconomic traits with voters, and thus appear committed to representing them faithfully. In sum, the economic shocks and the trust de…cit create both a supply and a demand for descriptive representation. We have also seen that elected local Sweden-Democrat politicians differ from local politicians of other parties in a number of other dimensions. In particular, they score lower on a number of personal traits and attitudes that many would consider valence variables in politics. In one sense, the Sweden Democrats thus appear to ful…ll a traditional role of new parties in democracies, namely to provide representation to some previously under-represented groups (at the same time, they offer less representation to other social groups, like women and non-OECD immigrants). In another sense, the new populist party appears to threaten the positive selection on ability in Sweden’s local democracy that we have recently documented elsewhere (Dal Bó et al. 2017).