Deep Dive with Shawn C. Fettig

After America E9: Strongmen, Weak Economies - How Authoritarianism Tanks Economies

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Can democracy deliver the economic stability and growth we need, or do strongman tactics offer a more effective solution? In this episode, we dissect the economic impacts of contrasting political systems, drawing on the U.S. responses to COVID-19 under both Trump and Biden.

We discuss the historical economic performances of authoritarian states like the Soviet Union and modern-day China, while also confronting the grim realities of poverty in a democratic America, and its implications for democracy in the United States. By comparing the resilience of minority communities to the disillusionment among low-income whites, we delve into how social structures and economic policies shape societal well-being and commitment to democracy.

Lastly, we address the broader implications of wealth inequality and financial instability, drawing troubling parallels with ancient Rome. Highlighting the risks of economic crises fueling authoritarianism, we examine today's U.S. context as a potential breeding ground for similar trends. From the dangers of Project 2025 to the essential role of democracy in securing long-term prosperity, this episode is a must-listen for anyone concerned about the future of the American economy and its global impact.

Guests: Drs. James Robinson, Carol Graham, Peter Kramer, Edward Watts, and Monika Nalepa

Credits:
Infados - Kevin MacLeod
Dark Tales: Music by Rahul Bhardwaj from Pixabay

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Shawn:

Donald Trump's economic response to COVID-19 combined rapid fiscal stimulus with a laissez-faire approach to public health. In March 2020, his administration supported the $2.2 trillion CARES Act, providing direct payments, expanded unemployment benefits and loans to small businesses through the Paycheck Protection Program. However, trump's push to quickly reopen the economy despite rising COVID-19 cases led to inconsistent public health measures, prolonging the pandemic's economic impact. While the initial stimulus offered a short-term boost, the lack of a coordinated national strategy contributed to deeper disruptions, including high unemployment and widespread business closures. In contrast, joe Biden's approach was more comprehensive and sustained. Upon taking office, he prioritized controlling the virus with widespread vaccination and consistent public health messaging, restoring confidence in the economy. In March 2021, biden signed the $1.9 trillion American Rescue Plan, extending unemployment benefits, providing additional direct payments and allocating funds for vaccine distribution and public health. His plan also supported state and local governments, preventing layoffs and maintaining essential services. Biden's policies facilitated a more robust recovery by focusing on public health and targeted economic aid, reducing unemployment and spurring growth. His investment in public health infrastructure and support for struggling sectors created a foundation for sustainable recovery, contrasting with the uneven results of Trump's initial response. These approaches reflect each president's tendencies Trump's focus on re-election and keeping the economy open, even at the cost of public health, versus Biden's emphasis on virus containment and diversified government support. This contrast raises concerns about the potential consequences of an economy driven by authoritarian policymaking, where uninformed, self-interested policies could dominate. So what happens to the economy domestically and globally if authoritarian policymaking were to replace our American democracy? Welcome to After America. I'm your host, s C Fettig. Find, follow and like. Deep Dive with S C Fettig on your favorite podcast platform and on YouTube, and check back every Sunday through September for new episodes of After America as we examine the precarious state of American democracy, how we got here and where we might be headed. The clock is ticking. Democracy is at a crossroads and the time to act is now.

Shawn:

The American economy is a cornerstone of the global economic system, exerting significant influence across international markets. As the largest economy in the world, the United States drives global trade, investment and financial flows. Its economic policies, interest rates and market trends often set the tone for global financial markets. The US dollar serves as the world's primary reserve currency, facilitating international trade and investment. Many countries peg their currencies to the dollar and global commodities like oil are priced in dollars, underscoring its central role. American companies are global leaders in various industries, including technology, finance and manufacturing. Their operations and decisions have far-reaching effects, from supply chains to consumer markets. Additionally, us financial institutions play a critical role in global finance, with American banks, investment firms and insurance companies being key players in global capital markets. Economic shifts in the US, whether through policy changes, market dynamics or economic downturns, can trigger ripple effects worldwide. This interconnectedness makes the stability and growth of the American economy vital to the health of the global economy. Consequently, any economic challenges or disruptions within the US have the potential to influence global economic stability, trade and growth trajectories.

Shawn:

The fact that the United States is a democracy is critical here. Democracy reinforces an economy by fostering stability, promoting transparency and encouraging innovation and encouraging innovation. Democratic systems are built on the principles of accountability, rule of law and the protection of individual rights, all of which contribute to a predictable and stable environment for economic activity. This stability is crucial for attracting investment, both domestic and foreign, as businesses and investors are more likely to commit resources in a country where the legal and political framework is reliable and predictable. On this episode of After America, we are going to examine the economic performance of authoritarian and democratic regimes, how they differ and what could happen to the domestic and global economies if democracy fails in the United States. The difference between democracy and authoritarianism is most evident when we consider liberty and freedom. Democracies prioritize these values, while authoritarian regimes systematically undermine them. However, the economic implications of these political systems are often more complex. A key question is whether economic output, outcomes and policies differ significantly between democracies and authoritarian states. Contemporary examples highlight the negative economic performance associated with authoritarianism.

Shawn:

Russia under Vladimir Putin has experienced severe economic consequences due to its shift toward authoritarianism and its investment in war. Since coming to power, putin has consolidated control over Russia's political and economic systems, sidelining opposition and empowering a network of loyal oligarchs who dominate key industries. The annexation of Crimea in 2014 and the full-scale invasion of Ukraine in 2022 triggered significant international sanctions against Russia, and these sanctions have isolated the Russian economy from global markets, restricted access to capital and led to a decline in foreign investment. While Russia's natural resource wealth, particularly in oil and gas, has provided some resilience, the long-term economic outlook is bleak. The concentration of economic power in the hands of a few, combined with widespread corruption, has stifled innovation and productivity. Russia's economy remains heavily dependent on energy exports, making it vulnerable to fluctuations in global energy prices and further sanctions. In an authoritarian regime like Russia's, economic decisions are often driven by political considerations rather than economic efficiency, leading to suboptimal outcomes and long-term decline.

Shawn:

Venezuela's transition from democracy to authoritarianism under Hugo Chavez is another example. Chavez initially maintained democratic institutions while pursuing a populist and socialist agenda, nationalizing key industries and funding social programs with oil revenues. However, as Chavez and later Nicolas Maduro consolidated power, the economy deteriorated due to increased state control, reduced private investment and significant corruption. When global oil prices collapsed in the mid-2010s, venezuela's oil-dependent economy plunged into a deep recession, leading to hyperinflation, widespread shortages and a humanitarian crisis. The authoritarian government's crackdown on dissent and erosion of democratic institutions further exacerbated the economic collapse. Today, russia and Venezuela exemplify how a transition from democracy to authoritarianism can devastate an economy.

Shawn:

But it's also true that some economies under authoritarian rule have thrived, at least for a time. The German economy was in bad shape when the Nazi party assumed authoritarian control, and they promptly invested in military spending, which increased from 2% of GDP in 1933 to 23% by 1939, and reduced unemployment from about 6 million to essentially zero. And then there's China, which has experienced extraordinary growth since 1990. At that time, china's GDP was approximately $360 billion. By 2023, china's GDP had surged to over $18 trillion, making it the second largest economy in the world, behind only the United States. This growth represents an increase of nearly 50 times over the three-decade period. Dr James Robinson, professor of global conflict studies at the University of Chicago and co-author of why Nations Fail and the Narrow Corridor, explains this.

Dr. Robinson:

You know, when I was a student, you know, 40 years ago in London, it wasn't China, it was the Soviet Union. In fact, you know, people laugh when you say this nowadays, but actually 40 years ago economics textbooks were full of how, what a great economic success story the Soviet Union was. And in fact in some sense it's true. You know, if you, between 1926, when they introduced the first five year plan, and the mid 1970s, for 50 years the Soviet Union industrialized. You know, it grew very rapidly. It put the first dog and man into space. You know, the economic development of the Soviet Union fooled the CIA. It fooled generations of economists. It fooled generations of economists. It fooled, you know, the Soviets own leadership. You know Khrushchev. What did Khrushchev say? We will bury you, you know.

Dr. Robinson:

So I think of course there's lots of differences between China and what went on in the Soviet Union. But I think that example gives you a kind of a moment to pause and say, oh gosh, we got that totally and utterly wrong. Could we be getting China totally and utterly wrong? And I think the answer is yes, you know. I think what we point out, you know in what I point out in my book why Nations Fail is actually. There's many examples in history of you know what we call extractive growth. You know where you can have economic growth for quite long periods of time you know 50 years in the case of the Soviet Union without really having what it takes to build a prosperous, innovative economy. You know how is China growing by borrowing technology from the rest of the world, by, you know, employing millions of people at very low wages to build labor-intensive things and export. It's taking advantage of the world economy in a way that the Soviet Union didn't do, and that's a big plus.

Shawn:

And we can't ignore the fact that there are also plenty of examples of economic disaster under democratic rule as well. Under democratic rule as well, the Great Depression lasting a decade from 1929 to 1939, impacting global markets, began with the Wall Street crash in the United States, and the global impacts of the Great Recession from about 2005 to 2012 began with the bursting of the housing bubble, again in the United States, and there are millions of Americans living in extreme poverty in the United States today. There are millions of Americans living in extreme poverty in the United States today. Dr Carol Graham, senior Fellow of Economic Studies at the Brookings Institute and author of numerous books, including Happiness for All Unequal Lives and Hopes in Pursuit of the American Dream, describes this.

Dr. Graham:

First of all, our extreme poverty is as bad as developing country poverty. I don't know if you've read Catherine Eden and Luke Schaeffer's work on living in America. You know less than a dollar a day and their new book, the Injustice of Place. It's pretty damning and you know if you've ever been in bad parts of Baltimore or Missouri. It's OK. There are brick structures instead of favelas and prefab housing in warm places. So part of what I'm trying to explain is just how depressing it is and how hard it is to be poor in a very rich land and in a land that stigmatizes the poor land, and in a land that stigmatizes the poor. Right, we're the only rich country in the world. That makes it virtually impossible to just get you know consistent safety net support if you're in need, even the way the programs are administered. So you know people on Medicare 80% of them don't know they're on a government program because it's administered very nicely.

Dr. Graham:

Once you turn 65, you're eligible, you sign up. Bingo, right. Social security, same thing. You get a check once you retire. You don't think much about it when they're, except that they take it. You know a chunk out of your wages, but there's no stigma attached to being on social security but, oh my God, and even earned income. Tax credit is the one program that is non-stigmatizing because it hinges on work. But if you're unable to work, if you're the single mother of three children and one of your kids gets sick, that health shock just puts you in a kind of vicious cycle you can't get out of. Or even a sick kid means, you know, you can't put your kids in daycare, so you can't go to your crappy job at McDonald's and you get fired after a week.

Dr. Graham:

What I've found in the US is, for example, that Hispanics and Blacks are much more hopeful and optimistic than low income whites who have fallen into bad times. And that's because minorities have always had what I call communities of empathy. They never thought the system was perfect and just and fair. They didn't have privilege access to the good jobs. They knew people who had fallen behind and as a community you supported them.

Dr. Graham:

You didn't, you know, look at them and say, oh, they're poor because it's their fault, versus, you know, say, low-income whites who are in problems because the jobs have gone away or because of addiction, problems that came with, you know, while they were working in those jobs and there were pill mills where they lived, or communities fall apart. You know the whole story of what has sort of happened to the white working class, but their narrative has always been you know, you don't need the government, you work hard, you get ahead. If you're poor it's because you're lazy and it's your fault. And so now there's no narrative, right? They believe the American dream I don't want to say myth, but it is kind of a myth of you work hard, you get ahead, and you know it's the Opportunity Society and all this stuff. And yet they've fallen behind.

Shawn:

Nonetheless, economists generally consider democracies to be better for the health of economies, both for domestic economic policies and performance, as well as global. While authoritarian regimes can occasionally achieve short-term economic gains, the long-term consequences often include economic inefficiencies, social instability and diminished global influence. At the heart of a thriving economy lies economic freedom, a cornerstone of democratic systems. Democracies tend to promote market efficiency by protecting property rights, ensuring that individuals and businesses can operate with minimal interference. This environment fosters competition, innovation and entrepreneurship, driving economic growth.

Shawn:

In contrast, authoritarian regimes often stifle economic freedom, either through direct control of key industries or by limiting individual entrepreneurial activities. This lack of freedom hinders innovation and creativity, which are essential for the development of new technologies and industries. The free flow of ideas, a hallmark of democratic societies, is crucial for innovation. Open societies encourage the exchange of diverse perspectives, leading to technological advancements and better business practices. Authoritarian regimes, however, often suppress free speech and control intellectual property, creating an environment where innovation is stifled and, over time, this suppression leads to economic stagnation as economies fail to adapt to new challenges and opportunities. Here's Dr Robinson again explaining this.

Dr. Robinson:

You know you can't have a sustainable, creative, innovative society with a totalitarian dictatorship like in China. You know they're much more worried about political control than they are economic development. If they can manage the two things, as they've been doing it for 40 years, fine. As soon as they can't, they will emphasize political control and then economic growth will stop. People talk about China. I say, okay, what's the Chinese model? What is the Chinese model? The Chinese model is you use the power of the central state to kind of adopt and borrow technology from overseas, keep wages low, export like crazy to everyone coming from.

Dr. Robinson:

You know, in the world economy today, sure, they're trying very hard to innovate in artificial. You know AI and all sorts of things. Yeah, the Soviet Union was very good in some domains. You know the Soviet Union was very good in some kind of weapons. You know, in the space race or whatever, you put a lot of pressure and a lot of resources in some dimensions. You know you can do well, but does that create a kind of innovative, dynamic economy in a sustained way? I think the evidence suggests no. It's not going to happen.

Shawn:

The rule of law is another fundamental principle that makes democracy more conducive to economic growth than authoritarianism.

Shawn:

Democracies typically uphold the rule of law, ensuring that contracts are enforced, property rights are protected and businesses can operate within a stable and predictable legal framework. This legal certainty encourages both domestic and foreign investment, as investors are more confident that their assets and profits will be safeguarded will be safeguarded. Conversely, authoritarian regimes often lack robust legal systems, leading to arbitrary enforcement of laws and a high risk of expropriation. This unpredictability deters investment and undermines economic development. Additionally, democracies generally have mechanisms to combat corruption, such as independent judiciaries, free press and civil society organizations. These institutions help to reduce corruption, which is often rampant in authoritarian regimes and detrimental to economic progress.

Shawn:

Transparency and accountability are critical factors that distinguish democratic governance from authoritarian rule. In democracies, governments are accountable to the public through regular elections and adherence to the rule of law. This accountability ensures that economic policies serve the broader public interest rather than the narrow interests of a ruling elite. Authoritarian regimes, on the other hand, often pursue policies that benefit the elite at the expense of the general population, leading to economic distortions and inefficiencies. Democracies also promote transparency in decision-making, allowing for public scrutiny and debate. This openness reduces the likelihood of policy mistakes and corruption, leading to more effective and sustainable economic policies and economic resilience. In authoritarian regimes, where decision-making is often opaque and centralized, economic policies are driven by personal or political motives rather than sound economic principles. This can result in misguided policies that harm the economy in the long run. Dr Robinson explains.

Dr. Robinson:

I think you know what you see in authoritarian regimes are there's typically some sort of coalition that's benefiting from this. You know that's true in Hungary, it's true in Venezuela, you know, it's true in Zimbabwe, kind of wherever you look. It's true in China, you know, and the system gets rigged in their favor. You know in Venezuela it would be. You know public sector jobs. You know people get public sector jobs if you're part of the party. You know if you're a businessman, if you're associated with the party, you get government contracts, you know. So people start getting jobs who are not competent. You know they're not qualified. The provision of public services deteriorates, you know contracting becomes a huge source of corruption. You know.

Dr. Robinson:

I don't know about the details of, I know much more about Venezuela and Zimbabwe than I do about Hungary, but I'm sure that's going on in Hungary. You know Orban is stuffing the state with his cronies. You know his business people. So that undermines the efficiency of the public sector in terms of kind of regulating the society and providing public goods and you know to erodes the capacity of the state. You know you create a private sector which is dependent on favors of the state, so that undermines kind of basically everything the state does. I think that's a syndrome which you see typically in authoritarian countries. That's what you saw in Russia, you know, as Putin kind of consolidated his control over the place. You know so that that's you know. Does that make sense as a mechanism via which, you know, policy deteriorates and economic performance deteriorates? No accountability. You know policy deteriorates and economic performance deteriorates, there's no accountability. You know so once you lose democracy, you lose mechanisms of accountability. That's going to stop that.

Shawn:

Social stability is a prerequisite for economic growth, and democracies are generally better at maintaining stability than our authoritarian regimes. Democracies provide institutional mechanisms for the peaceful resolution of conflicts, such as free and fair elections, legal processes and dialogue between diverse groups. These mechanisms reduce the risk of social unrest and violent conflicts, which are more common in authoritarian regimes, where dissent is often suppressed. Additionally, democracies tend to foster a stable and cohesive society by promoting inclusive policies that address the needs of various social groups, which provides a favorable environment for investment and development. This inclusivity prevents the kind of social fragmentation that often occurs under authoritarianism, where policies may disproportionately favor certain groups, leading to tensions and instability. Dr Peter Kramer, renowned psychiatrist and author of numerous books, including the Groundbreaking Listening to Prozac and, more recently, Death of the Great man, discusses this.

Dr. Kramer:

So if you think about Russia under Putin, yes, it's true that Moscow is booming and that you can probably get a good meal in a good hotel room there and that the subway stations, as Tucker Carlson said, have art in them, but neighbors are turning on their neighbors. People can't speak freely, people are sent off to Siberia to die. So that's a very direct dystopia based on the requirements of dictatorship, that even before you get there, before everyone is spying on everyone else and people's emails are all monitored and texts and so on, the country can just fall apart. That there's something about being a flawed model democracy, with sincere efforts on the part of those in governments to have a working judicial system and a working form of legislative government governance that you know when you lose that, even before you become effectively a police and prison state, you can enter a period of social disintegration that is impoverishing for everyone.

Shawn:

Sustainable economic growth is more likely to occur in democratic societies. By responding to the needs and preferences of a broad electorate, democratic governments are incentivized to invest in public goods like education, health care and infrastructure, which are essential for long-term economic development. Authoritarian regimes tend to focus on short-term gains that bolster their power but fail to address the underlying needs of the economy. Democracies are also less likely to pursue extreme economic policies that can lead to long-term instability or collapse. The checks and balances inherent in democratic systems help to prevent the implementation of reckless or ideologically driven policies. Authoritarian regimes lacking these checks pursue populist or radical policies that have disastrous economic consequences, as seen in places like Venezuela. Investing in human capital is crucial for economic growth, and democracies are more likely to prioritize this investment. In democratic societies, education, healthcare and social services are key priorities for voters, and governments are incentivized to allocate resources to these areas. A well-educated and healthy workforce is essential for innovation, productivity and economic growth. Democracies also tend to offer greater social mobility, allowing individuals to achieve economic success based on merit and effort, and this encourages people to invest in their own education and skills, contributing to a more dynamic and prosperous economy. Authoritarian regimes often limit social mobility and may fail to adequately invest in human capital, leading to economic stagnation and social inequality On the global stage. Democracies contribute to a more stable and prosperous economic environment. Democratic countries are generally more open to global trade and investment, fostering an integrated global economy. They adhere to international norms and agreements, creating a predictable and cooperative international economic environment. It Authoritarian regimes, on the other hand, are often more prone to pursuing isolationist or aggressive foreign policies, leading to sanctions, trade barriers and reduced access to global markets.

Shawn:

This not only harms their domestic economies, but also creates instability in the global economy. Democracies also wield significant soft power, which they use to influence global economic policies and norms. Through participation in international organizations and adherence to global standards, democratic countries help to maintain a stable global economic system. Authoritarian regimes often lack the legitimacy and trust needed to effectively participate in and shape global economic governance. None of this is to say that democracies are immune from bad economic policies. In fact, bad economic policies and the results of them, including sustained and growing wealth gaps, as well as extreme income and wealth inequality, can themselves be catalysts for the dismantling of democracy, can themselves be catalysts for the dismantling of democracy. This is Dr Edward Watts, professor of history at the University of California, san Diego, and author of Mortal Republic, how Rome Fell into Tyranny, explaining how this contributed to the fall of Rome and also how some of the same conditions exist in the United States today.

Dr. Watts:

Wealth inequality is something that automatically cuts into that, because when wealth inequality emerges rapidly, there's a real sense that it's not good for society, but there's also a real sense among the people who have gotten wealthy that they got their wealth lawfully and society has no right to take their property from them. And so what happens in Rome is, I think, something that we could perhaps understand in the United States. Rome, in the aftermath of the Second Punic War, emerges from a relatively backwards economic setting and footing to become very rapidly a world-class economy, and this starts because of transfers, like physical transfers of wealth from the people that they defeated in battle in the third century. If you win a war, you get reparations, and Rome got significant amounts of reparations. It realized that these reparations were going to stop at a certain point. The treaties that ended these wars only mandated that these states in Asia Minor and in North Africa pay reparations for a certain period of time, and after that, if the Romans didn't find a way to make up that revenue, they would have a very serious financial problem. And so what the Roman Republic did, that most other ancient states didn't do, was it empowered private businesses to generate wealth in new areas in a fashion that provided predictable amounts of resources up front to the Roman state. So to explain that a little bit better, the peace treaties that the Romans signed after the end of the Second Punic War and after the end of their war against the Seleucids in Asia Minor provided a fixed sum of money each year.

Dr. Watts:

What the Republic realized is they couldn't budget on the basis of unpredictable amounts of money that came in from, say, like taxes or mining. They wanted to budget again using predictable sums of money, like they were getting from these treaties, and so they put out for bid the collection of taxes and the operation of things like mines and state industries, so that the government didn't actually run those operations. Private contractors ran those operations and the contractors would pay up front for the operation cost. The republic would get a fixed sum that was predictable each year and then the contractors would go off to whatever contract they got and try to make more money than they had bid for the Roman state. And within about 20 years Roman bankers began to realize that you could predict more or less the profits that a businessman would make by bidding on the tax contract for, say, sicily, and because you could predict this, you could extend credit to those individuals and then you could sell those credit instruments as something with a predictable return on the investment. We, of course, saw that in the United States with the subprime mortgage crisis, where you take large tranches of debt and then you resell it over and over again and, in essence, you're sort of creating money.

Dr. Watts:

But it's money that exists not in a physical form, it exists in a financial system and, just like in the United States, when you create a financial system like that, where a lot of the wealth is devoid from actually producing anything, you know it's all about engaging in financial transactions. People can get wealthy very, very fast because the money is, in a sense, non-tangible it just exists on balance sheets. It's also something that, in Rome as in the United States, makes people very, very uncomfortable. You know, if it's 1950 and there's a guy in your town who's rich because he owns a factory, because that factory makes really good cars, you understand why that person is rich. If it's 2010, and there's somebody who's a financier who doesn't own anything, that makes much of anything that you can see, but has, you know, a yacht and a beach house and a Ferrari, you don't really understand that and it doesn't look right to you, and in Rome, as in the United States, the wealth inequality that's generated by this rapidly emerging financial system creates a situation where there begins to be a discontent about why it is that these people are getting so wealthy, and how could it be right that these people, who don't actually seem to be doing all that much, are getting so much more money than other Romans had around them and any Roman had in previous generations. And so what happens, starting in about the 140s BC, is Roman citizens begin saying look, there seems to be an imbalance between what's legally permitted to these people who are getting wealthy and what's good for everybody.

Dr. Watts:

Most Romans were more or less sort of treading water, but there was a super elite group that was becoming fantastically wealthy very, very quickly, and so most Roman citizens wanted the Republic to do something to fix this.

Dr. Watts:

And so most Roman citizens wanted the Republic to do something to fix this. You know, to regulate this better, but the problem is that the people who were getting rich were getting rich legally, and so the consensus about what was lawful and the consensus about what was good breaks down, and this leads to increasing frustration among regular Romans with a political system that doesn't seem like it's doing what it should, and so this led to increasing frustration that, over the course of a generation, moved from people being kind of upset to people being really upset, to people backing candidates who were willing to shake things up, and this ultimately led to an injection of political violence. Because citizens were so frustrated with a political system that didn't seem like it was reacting, they became willing to engage in acts of intimidation and threatening behavior to try to jolt the system to do what it otherwise wouldn't do.

Shawn:

Economic hardship and disillusionment with democratic governance create fertile ground for populist and authoritarian leaders who promise to restore order, revive the economy and address the grievances of the populace. Economic performance is a crucial pillar of democratic legitimacy. Citizens in democratic countries generally expect their governments to provide economic stability, growth and opportunities for upward mobility. When economies perform well, democratic institutions are reinforced and citizens tend to be satisfied with their political system. However, when democracies fail to deliver economic prosperity due to factors such as recession, unemployment, inflation or rising inequality, public trust in democratic institutions can erode. Poor economic performance can lead to widespread dissatisfaction, especially when it's perceived that the government is unable or unwilling to address the underlying issues. This dissatisfaction often manifests as disillusionment with democratic processes, particularly when citizens feel that political leaders are more focused on partisan conflicts than on solving economic problems. As economic conditions deteriorate, people begin to question the effectiveness of democracy itself, making them more susceptible to the allure of authoritarian alternatives.

Shawn:

Economic inequality is another significant factor that can contribute to democratic backsliding. While inequality exists in both democratic and authoritarian regimes, its effects in democracies can be particularly destabilizing. High levels of inequality can create a sense of injustice and resentment among large segments of the population, particularly if they believe that the political and economic systems are rigged in favor of the wealthy and the powerful. In democratic societies where the ideal is one of equality before the wealthy and the powerful, in democratic societies where the ideal is one of equality before the law and equal opportunities for all, growing inequality can undermine the perceived fairness of the system. When economic policies disproportionately benefit the elite or fail to address the needs of the broader population, citizens may lose faith in the ability of democracy to deliver on its promises of fairness and social mobility. This loss of faith can lead to political polarization, with citizens gravitating towards extreme political movements that promise radical change. Dr Graham describes the form this is taking in the United States today.

Dr. Graham:

I think our approach to social welfare benefits and that we're the hardworking society is bad for poor people but it's also bad for our collective identity as a country. I mean, people don't, they don't identify that the poor people are part of their society because they live in a different world and they, you know they get very different kinds of support and education and health care. It's all kind of part of as I think about you know manifestations of it, like civil society becoming increasingly divided. I don't think it's our electoral system. I don't think it's our electoral system. I think it's the identity.

Dr. Graham:

That really doesn't do good in the long run, but in a way, you see where it comes from, because we're so divided. Another manifestation of that is our mental health crisis and the kind of scourge of loneliness, anxiety and depression among youth, which is not COVID driven. It started 12 years before. So there's something else going on and I don't think our divisions and political kind of absolute paralysis and, you know, really vociferous divisions are lost on young people entering the labor force, entering, you know, being able to vote the first time.

Shawn:

So you know, it all seems to it comes together. Economic crises such as financial collapses, hyperinflation or severe recessions can accelerate democratic backsliding and the rise of authoritarianism. In times of crisis, citizens may become desperate for strong leadership that can quickly restore stability and address their immediate needs. Authoritarian leaders often present themselves as the solution offering decisive action, national unity and a break from the perceived inefficiency of democratic governance. Populist leaders typically position themselves as champions of the people against a corrupt or ineffectual elite. They offer simple solutions to complex problems, promising to restore economic stability, protect jobs and reverse declining living standards. And populist leaders with an authoritarian tendency gain significant support by tapping into the fears and frustration of the population. They often use rhetoric that blames economic woes on external enemies, such as immigrants, global trade or foreign governments, or on internal scapegoats, such as political elites, minorities or the media. By doing this, they create a narrative that justifies the concentration of power in their hands, perceived as decisive and strong, as necessary to defend the nation and restore economic order.

Dr. Kramer:

Here's Dr Kramer again. People do have to favor or admire this hyper-masculine, decisive personality style, putin's personality style, let's say, or Hitler's or Mussolini's or Stalin's that the people have to think the world's gone bad and we need to be guided by a strong hand, so that if you had someone with autocratic tendencies but Adlai Stevenson's personality or, you know, woody Allen's personality, I don't think that would work. I don't think people want to be pulled into line by someone who is ambivalent, self-doubting and deeply thoughtful and so on. They wanna be led by a strong hand. So I think those things really go together. Anyway, in our historical experience they go together.

Dr. Kramer:

I think the aspect of this problem that's commented on the novel largely comes through the leader's consort or wife, who is horrified by the state of her husband's leadership, but also by the state of the country, and wonders how we let things come to this pass, that we really had to desert working people in a certain way or leave them few alternatives for him to rise to power. So she's not willing to put all the blame on her husband, although she thinks his rule has to end. She thinks that there's some blame has to be put on the shoulders of the country more generally, that we can't leave behind. You know such a large cohort of people, you know, or they'll want, this kind of autocratic leadership. You know I think that's a standard analysis of the rise of Trump that with manufacturing abroad, with fentanyl and deaths of despair, with whole communities, you know, if you see the sort of documentaries about West Virginia and the drug crisis, this kind of thing, you know whole communities really disorganized. That is the kind of vacuum of leadership that gives rise to autocracy.

Shawn:

Once in power, populist authoritarian leaders gradually erode democratic checks and balances, curtail press freedoms, undermine the judiciary and weaken civil liberties, all under the guise of protecting the nation from perceived threats. This erosion of democratic institutions can lead to a slide towards authoritarianism, where political power becomes increasingly centralized and dissent is suppressed. Weakened institutions combined with a dissatisfied, hopeless populace can be a very dangerous mix, and one that authoritarians can exploit. Dr Monika Nalepa, professor of political science at the University of Chicago and scholar of post-communist Europe, discusses this.

Dr. Nalepa:

Weak institutions is one, and by weak institutions I almost always mean majoritarian institutions. So, basically, removing layers of veto players or checks on just sheer majority rule, share majority rule. And the reason that that's a warning sign is because it just allows populists to come to power very easily. So, for instance, if we were to allow Supreme Court justices to be elected by majority rule, just think about what that would lead to. So that's on the side of institutions, but then there's also, I think, an important ingredient on the side of voters, and that's political apathy.

Dr. Nalepa:

So and this might be my Eastern European background, right, where you know, like I was coming of age at a time when democracy was sorry, when authoritarian rule was being overthrown by grassroots movements, but the reason those grassroots movements flourished was because there was enormous political participation and interest in political participation among large groups of society. I think that you know political apathy and the sort of you know what we see in Russia right now, right, so the fact that so many individual citizens are doing nothing, even though they disagree with Putin's rule, but they feel helpless and they feel like, well, whatever they do is not going to make a difference, so they might as well just go along with it, and I think that those two things together are necessary to safeguard against authoritarian backsliding. Just one of them won't work. So political participation, for instance, can also lead to the situation that occurred in Nazi Germany. That was also a civil issue, society movement, actually Nazi movement, but it was combined with the Constitution.

Shawn:

The Great Depression of the 1930s is one example, which led to the rise of authoritarian regimes in several countries, including Germany and Italy. In these cases, economic collapse fueled public disillusionment, with democratic institutions paving the way for leaders who promise to restore national pride and economic prosperity through authoritarian means. And while authoritarian regimes may initially deliver on promises of economic stability, often through centralized control and state intervention —remember, the economy in Nazi Germany was all gangbusters until it wasn't—, these gains are typically short-lived and come at a high cost. Economic vulnerabilities both contribute to and result from democratic backsliding and the rise of authoritarianism. In the current US context, several factors are already in play that could potentially destabilize democracy. The US economy has experienced significant turbulence, particularly during and after the COVID-19 pandemic. The sharp market downturn in early 2020, with the S&P 500 dropping over 30% in weeks, caused widespread uncertainty. This downturn led to a broader economic decline, characterized by hyperinflation, reduced spending power and a chilled housing market. The uneven recovery has been further exacerbated by political uncertainties, such as the debates over stimulus packages. The Republican Party, particularly under Donald Trump, has weaponized brinksmanship, repeatedly, bringing the economy and democracy to the cliff's edge for unrelated policy gains. Us economic performance has also impacted domestic policy and international trade. The trade war initiated under Trump, marked by tariffs on Chinese goods, aimed to protect American industries, but resulted in retaliatory measures disrupting global supply chains and creating uncertainty for American businesses. These economic pressures have deepened political divisions. Economic challenges have also worsened income inequality, often due to political decisions. The 2017 Tax Cuts and Jobs Act, which lowered corporate taxes and benefited high-income earners, has widened economic disparities. Inflation has further harmed low-income groups, fueling frustration and contributing to social and political tensions. This growing disparity has driven support for Trump, who offers simple, divisive solutions, targeting immigrants, people of color, women and queer folks as scapegoats for economic woes. These conditions create a volatile environment.

Shawn:

The convergence of economic, political and social factors in the US today bears some resemblance to the circumstances in Weimar, germany, which preceded the collapse of democracy and the rise of authoritarianism. If democratic erosion continues in the United States, it could profoundly impact the domestic economy and citizens' lives. A shift toward authoritarianism could result in a significant decline in foreign investment, as political instability deters investors seeking stable environments. Governance becoming erratic might lead to foreign companies withdrawing investments, weakening economic growth and exacerbating fiscal challenges. Economic inequality could worsen, with policies favoring the wealthy and neglecting the middle and lower classes, further marginalizing disadvantaged groups and reducing social mobility. Economic sanctions from democratic nations could also become a reality, targeting specific industries or the broader economy, disrupting trade and limiting access to international markets.

Shawn:

For ordinary Americans, a shift towards authoritarianism would likely mean diminished economic opportunities. The cost of living could rise due to tariffs, sanctions and or economic isolation, making everyday products more expensive. Declining investment and slower economic growth could lead to wage stagnation, reduced unemployment prospects and greater socioeconomic divides. Social safety nets and public services might also be threatened, as authoritarian regimes often cut funding for social programs to consolidate power, reducing access to essential services like health care, education and unemployment benefits. Dr Graham describes how this undercuts the well-being of citizens and why it matters.

Dr. Graham:

Well-being, simply, it's not happiness, it's flourishing, it's the ability to lead a good life, and that means healthy, right? That means having health care. It means having a job that rewards you fairly. It doesn't have to crappy job, it's great if you have a good job. I mean, and if you look at the mortality gap between people with and without a BA, part of that has to do with the quality of the life they lead, right? No spare time, no benefits or very bad benefits, crappy access to health care.

Dr. Graham:

I talk a lot and I used to think a lot about it. You know, the economists think of the opportunity costs of the poorest time being low because their wages are low, and that's complete bullshit. They spend more time working than rich people. They have much less time off. They have children too and they care about them. You know, if they're working two jobs and their kids are in daycare, what do you think?

Dr. Graham:

Um, so I think that's a huge issue, but I think the kind of the idea that it's government's role to make people happy is kind of george orwellian. I totally disagree with that. The idea behind well-being and well-being initiatives and well-being metrics and policy is that you need to have, in the same way that you care about economic growth and progress, cures to diseases, all these things that governments have a role in supporting, not making. In other words, you know government is to support innovation and research and all this other stuff, but it's not about making people happy. Governments should not be in that business, nor should people expect that governments are. That's a recipe, that one. It's a recipe for big disaster because they don't know enough about what they're doing. People need to, you know, become happy themselves, and they can't make themselves happy either. People need to, you know, become happy themselves, and they can't make themselves happy either. They need to be able to lead lives that are productive, are meaningful. Half our population, roughly, is in anomie. Right? They just crappy jobs, not going anywhere, crappy lives, bad health, high levels of addiction. That's the opposite of happiness, that's despair.

Dr. Graham:

Basic thing we know about, like north korea and china and these other places, and in, you know, all the worldwide research, is that having freedom to choose in your life is one of the most important things to well-being everywhere around the world, and those societies don't have that. So there's no freedom to think, there's no freedom to choose. They're living in repression. They say they're happy because they're scared not to. So I think that's very different from saying that government should be making people happy, right? I think if governments want people to be happy, they shouldn't repress them as a starting point. That's not the only thing, but I do think there is a big role and COVID showed it in spades for thinking about government policy beyond the traditional realms.

Dr. Graham:

Right that you can say you have a booming economy, like we said in 2019, when, before COVID, booming stock markets record lows of unemployment, well, why were 25% of prime wage males out of the labor force permanently? Something's wrong. That's a mismatch. They're not reported in the unemployment rate if they haven't been looking for a job for six months, right? So a huge amount of the population just isn't counted in the unemployment rate. They fall out of the denominator. They haven't looked for a job in six months. Why aren't they? Because they've given up. So why have they given up?

Dr. Graham:

We don't fully know, but I mean, that's that's a. That's an indicator. That's the kind of indicator we should be paying attention to, in addition to our normal. You know GNP metrics and everything else, and you know, we know, there are things that GNP doesn't measure or capture. A lot of them can be captured by well-being indicators like the well-being costs of poor environmental quality. What are the big drivers of job satisfaction? Well, they're not money. They're having autonomy and being respected at work.

Dr. Graham:

Money matters, yes, but it's not the only thing, and so there are all sorts of things you know. If you value, try and place relative values on kind of the main things health, education, income, social relationships Well, it turns out that income, yes, income matters, definitely not, you know, let's toss out GDP or toss out economic growth, but it turns out good health matters more, turns out social relationships are like the most important thing in people's lives and that people who are hopeful and have hope for the future tend to have strong social relationships, either in the family or outside the family. It tends to be the out of the family. Ones tend to be more important. Social capital, you know, measured in lots of different ways. A lot of the metrics that John Halliwell has been using forever it's in the World Happiness Report always comes out really strong. So does trust in others, which is linked to social capital. So all those things matter as much as economic progress and we should be measuring them and tracking them.

Shawn:

This scenario, gradual democratic erosion represents the best case situation. The outlook could be far worse if democracy completely collapses in the United States. Complete authoritarian rule would likely trigger a sharp decline in US GDP and economic growth. Authoritarian regimes typically impose rigid controls, disrupting market stability, eroding investor confidence and hindering economic expansion. Major US industries, such as technology and finance, might respond by relocating or downsizing operations, further depressing US industries such as technology and finance might respond by relocating or downsizing operations, further depressing US economic growth. A long-term recession or even depression could follow, with sustained high unemployment and economic stagnation. The global economic impact of a US shift to authoritarianism would be significant, disrupting international markets and causing broader economic slowdowns. Domestically, economic policies under authoritarian rule would likely prioritize the ruling elite over citizens' needs, leading to reduced investments in public services and increased economic insecurity for ordinary Americans.

Shawn:

Donald Trump's proposed economic policies, both during his presidency and in his current political platform, have significant implications for the US economy. These policies, if enacted, could potentially lead to negative economic consequences, especially if Trump, along with the Republican Party, continues to embrace authoritarianism and authoritarian policymaking. Trump's economic proposals center on tax cuts, deregulation and trade protectionism. His administration's major tax reforms, the Tax Cuts and Jobs Act of 2017, aimed to stimulate economic growth through substantial cuts in corporate and individual income taxes, and it did provide short-term boosts to economic activity and corporate profits, but it also disproportionately benefited the wealthy and increased the federal deficit, potentially leading to long-term economic instability. Trump's deregulation agenda seeks to reduce government oversight across various industries, particularly in environmental and financial sectors. While this approach intends to encourage business growth, it raises concerns about potential negative impacts on public health, safety and financial stability. Additionally, his trade policies, including tariffs on Chinese goods and withdrawal from international trade agreements, intended to protect American industries but led to retaliatory tariffs and disruptions in global supply chains, harming American consumers and businesses reliant on global trade.

Shawn:

Project 2025, a strategic initiative proposed by the Heritage Foundation, a conservative think tank, and aligned with Trump's vision, is designed to advance similar economic goals. It emphasizes tax cuts, deregulation, stringent immigration policy and reshaping federal agencies to favor conservative economic principles. These policies, though, could negatively impact the economy in several ways. Continued tax cuts, especially for high-income earners and corporations, would exacerbate income inequality and increase the national debt. Additional deregulation would undermine financial stability and environmental protections, leading to long-term costs, and stringent immigration policies would reduce the labor force and inhibit economic growth, affecting industries that rely on immigrant workers, leading to lower supply and higher costs. Trump's proposed economic policies and the objectives of Project 2025 carry risks of increasing inequality, worsening fiscal deficits and disrupting both domestic and global economic stability. This would further weaken democracy in the United States, as Trump and his allies increasingly rely on authoritarian responses, and the circle would continue, isolating the United States from its global partners and chipping away at the economic bedrock of the country. Check back next week for another episode of After America.

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Shawn C. Fettig

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