New York and Cairo: Triumphs of Demagoguery

Both New York’s new mayor, Bill de Blasio, and Egypt’s government put populism before sane economic policy.

View of the Empire State Building in Manhattan, New York, June 20, 2008
View of the Empire State Building in Manhattan, New York, June 20, 2008 (Rich Greene)

One of the fundamental qualities of a statesman is that of probity. Most oaths of office include the term for a very important reason: because popular support is but one of the standards for governance. Indeed, the public is fickle and its capricious whims can be easily verified by the recurring opinion polls which show that the masses’ defining characteristic is that they are inconstant.

Nowadays, many a democracy have been corrupted by populism and statesmen everywhere bow to public pressure when they should not. Instead of doing what they know is best, they rule cosmetically and simply do that which is popular.

Professor Abdallah Schleifer’s op-ed for Al Arabiya is apparently oblivious to this state of affairs and actually endorses it which is deeply regrettable.

Schleifer sees the election of left-wing Bill de Blasio as New York’s mayor, as analogous to the downfall of both the Muslim Brotherhood government and the Hosni Mubarak regime in Egypt. In his view, both administrations were neoliberal and their budget policies of constraint enraged the population into rightfully driving them out of office.

It is easy for politicians to make promises and only be responsible for them in the short term. When the long-term is overlooked, responsibility, strategy and, most importantly, probity, go out the window.

There are two fundamental factors that characterize the Egyptian economy and which no government can ignore: explosive demographics and the Western economic crisis. The first stretches to the limit the solvency of the government’s social programs; the second stretches to the limit the solvency of the government’s revenues — which have been in a spiraling downfall since 2008 due to losses in tourism revenues and diminishing foreign direct investment from the West.

An Egyptian government that ignores both is an irresponsible one in that it prefers to remain indifferent to exploding expenditure commitments in social programs for an ever increasing population as well as a shrinking economy. The logic is the same as any household’s: when there is less money available and the family grows, expenses have to be cut. This is not neoliberalism. This is sound accounting.

This was also what was done not far from Egypt’s shores in the south of Europe. Austerity programs for Greece, Portugal and Spain were precisely the remedy for years of fiscal mismanagement and, at least in the case of the former two, demagoguery.

In a mix of neo-Keynesianism and simple populism, centrist and leftist leaders in Athens and Lisbon won elections through lavish promises of expensive social spending programs while their economies stagnated. Rather than saving for a rainy day and being honest about the impossibility of expanding social spending further, Greek and Portuguese leaders chose to borrow heavily and pass the hot potato of paying the debt to future leaders — and, ultimately, to the next generation.

These “Keynesian” policies resulted only in aggravated recessions. Adding insult to injury, not only was growth not jumpstarted by the increased spending but the credibility of these states in the international debt markets stopped any lending completely — which, in turn, prevented any credit from being available to families and businesses in the recovery period.

In Southern Europe, too, leftists were hailed as heroes for standing up to fiscally responsible “neoliberal” governments only to see populist policies drive these countries to the verge of bankruptcy and forcing a rescue from the European Union and the International Monetary Fund which effectively eroded their sovereignty.

It were the austerity measures these bodies recommended that enabled the countries in the periphery of the eurozone to revive growth. In all the mentioned economies, exports are now up, debt interest rates down, unemployment is reversing its upward trend and household savings are growing for the first time in many years. Ireland was recently able to do away completely with international financial stewardship.

Conversely, Bill de Blasio and the new government in Cairo have committed to expand social spending regardless of how well the economy fares. How wise is this?

Texas governor Rick Perry was recently mocked for running radio publicity in New York state, trying to sway investors into putting their money to work in his state instead. Texas, unlike New York and many neighboring states, is far more economically open and fiscally welcoming than the socially conscious Easterners. Indeed, when one looks at the track record of fiscally expansive policies in the United States, the scenario is quite bleak: the state of Michigan went completely bankrupt after decades of Democratic governments, California has come close and turned Republican to balance its budget and New York had to elect a billionaire Wall Street fat cat to balance its own.

On the other hand, Texas and Utah, traditionally Republican states, are among the best to do business in and have steered away from recession. California, Michigan and New York are on the bottom half of that ranking. A New Yorker should be more concerned about making sure some social safety net is available in years to come than creating an expansive one that ultimately drives public finances into a whole and condemns social programs entirely.

Instead, Bill de Blasio is the very definition of a populist candidate. He makes promises he cannot be sure to keep. How sustainable is a budget expansion in a city which already has some of the highest public-sector wages in the United States? He gathers votes using identity politics, parading his mixed ethnicity family as if they were the ones being elected into office, or as if their minority skin color was a relevant factor to begin with. He promises to lax crime fighting measures because they target minorities. One wonders what will happen to the crime statistics and whether minorities will be better off since they are also the main targets of criminals…

What of Egypt? If the Arab nation is now hardly able to sustain preexisting social programs, is committing to new ones without the sustainable tax revenue to back them up a sensible policy? Surely not. What is worse is that unlike Europe, Egypt will be using its dependency of foreign funds not to smooth budget cuts and tax hikes but to actually avoid confronting reality. What happens when aid from nearby Arab Gulf states runs out? If pseudo-Keynesian policies failed and worsened the situation in Europe, why would they work in Egypt?

Professor Schleifer resents that Egypt’s “income gap” had grown through the Mubarak and Morsi years but this piece of data is irrelevant in and of itself. According to the IMF, incomes in Egypt were rising just prior to the crisis. Mubarak’s privatizations and trade diversification thus seem quite reasonable. Schleifer ignores that the factors that began to afflict Egypt during the Mubarak and Morsi governments are still there: the demographic explosion has gone nowhere, nor has the Western economic crisis. Logically, if either of these governments had had Gulf funds made available to them, they, too, could have done better.

The main lesson, though, is that in the long term, the Egyptian economy would always do better with “neoliberal” policies than with populist ones. Egyptians should always prefer a statesman that tells them the truth over one that sweeps it under a rug. They should follow the example of fellow Arabs that opened their economies, notably Jordan and Morocco, instead of going down the Venezuelan model — the one which the Nasser years most resemble.