The Economics of Extremism

Radical ideologies, thinkers and politicians are on the rise across the globe, a glance at the headlines is all we need for proof of this statement. Across the developing and developed world, speakers ranging from all spectrums of political background, left and right, are engaged in rhetoric of hatred and fear. Poland’s new elected government claims immigrants “bring unknown diseases”; America’s new favourite bigot – Donald Trump – is suggesting creation of a Muslim database.


It is apparent that extremism is on the rise, not in any particular region of the world, but on a global scale. Social philosopher Bertrand Russell defined extremism as: “The opinions that are held with passion are always those for which no good ground exists; indeed the passion is the measure of the holders lack of rational conviction. Opinions in politics and religion are almost always held passionately”.


But how do we explain such great passion, with so little dialogue and so much shouting? Here, where the mundane subject of economics may help. A study (2012) was conducted on historical data preceding the outbreak of war in 1939 by Bromhead, Eichengreen and O’Rourke. It revealed that what mattered was not the current growth of the economy but cumulative growth or, more to the point, the depth of the cumulative recession. One year of contraction was not enough to significantly boost extremism, in other words, but a depression that persisted for years was. Higher per capita GDP growth is significantly negatively linked to the support for extreme political positions. Roughly a one percentage point decline in growth translates into a one percentage point higher vote share of right-wing or nationalist parties. Also, countries with relatively recent or no history of democracy, changing boundaries, high levels of inequality and existing extremist political base are relevant factors. Most of today’s areas of upheaval tick all the boxes.


What is perhaps more concerning is the rise of “far …” politicians in established democracies: France, Hungary, Turkey.

This graph was taken from Paul Krugman’s blog and links to the first point. Europe has now been embroiled in a crisis for nearly 8 years. Mainstream politics and economics does not seem to offer clear answers. How long can people believe that ‘a recession is only a temporary process of capital and labour reallocation’, when they do not have a prospect of finding a job? In that situation it is easy to shift the blame, to point fingers. Exactly that happened in Germany in the 1930s. It may be beginning to happen now.


On the other hand it is also true that the rise of extreme right-wing parties began long before the arrival of a global financial crisis. In fact, it had been during periods of relative economic stability and growth -in the 1980s, 1990s and early 2000s- that parties like the Austrian Freedom Party or Front National in France were scoring some of their most impressive performances.


Furthermore, while their voters tended to be financially insecure, they were generally not unemployed or on welfare. The chart shows that the support for the French National Front rose during a period of high positive growth


Concerns over economic wellbeing matter, but concerns over national identity and ways of life matter more. In other words, citizens are not endorsing the far right in response to economic threats alone. Rather, they also feel as though these parties are meeting their anxieties over perceived threats to their identity, values and ways of life, and they felt this way long before they had even heard of the words ‘credit crunch’. Increasingly, this ‘threat’ is being traced to immigrants.


While economics helps us observe and infer meaning from people’s actions and reactions, it offers us no solutions as to how to rectify them. It is up to us to open our hearts and minds, and reject peddlers of hate and discord and stand united.


Image 1 from: http://krugman.blogs.nytimes.com/2015/12/07/that-30s-show/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body

Image 2: constructed by author