Correlation between popularity and inflation

Does popularity in democracies bear a direct correlation with inflation? Well, actually it does. Reverse the question in order to argue from the other end, there can only be two competing hypotheses regarding the impact of success in democracy on inflation: One, as per the “populist” approach where inflation is the result of public demands for transfers financed by a ‘tax’ defined as inflation, suggesting that electoral competition will increase inflation and Two, a “state-capture” approach where inflation is a result of pressure from elites who derive private benefits from money creation, meaning that electoral competition may constrain inflation. Either way, in both arguments the impact of democracy is further conditioned by the prevailing level of income inequality. This fact has now been tested by a study conducted by Syracuse University, with data from more than 100 countries between 1960 and 1999 using different dynamic panel estimation methods to control for unobserved effects and the potential endogeneity of some independent variables. It reveals that the popularity graph of leaders and political parties in democracies is invariably associated with lower inflation and especially in countries where inequality is high. Last week Karnataka voted in a new government.

Going by the election manifestos of the two main political parties, the BJP (Bharatiya Janata Party) and the Congress, it appears the main issue engaging voters was inflation. If one looks at the history of winning combinations in South Asia over the year since 1947, this is not surprising, given that inflation has significantly accelerated in the region in the last couple of years, forcing the Reserve Bank of India to raise interest rates in rapid succession and as a result constraining growth cum compromising employment opportunities and in-turn stoking inflation. So, naturally, the just concluded elections in Karnataka, have thrown thrown up a corresponding trend. The incumbent, BJP suffered the voters’ wrath, and the challenger Congress finally got their long-awaited victory. In India, inflation has been rampant in the post-covid phase and though one may argue that in a relatively global or regional sense the inflation trends in India are considerably more moderate than elsewhere (Sri Lanka it touched 70 percent & Pakistan 38 percent). This a factor that in many ways is encouraging as well, as it tells us that contrary to the core belief that BJP and RSS have always maintained, in reality, it is not the politics of hate (towards Pakistan in particular and all Indian minorities in general) that drives electoral success, but the dispensation of economic relief and support to the common, which actually determines popularity amongst voters.

What we have also witnessed in India from this outcome is the fallout of a structural makeover in the provision of basic material needs of the populace where the essentials have a far greater horizontal scale from what they were let’s say at the turn of the century; things that didn’t carry much value than now find themselves added to the platform. For example, there was a time when access to cooking gas or mobile network was considered a privilege and a badge of entry into the middle class. What the results in India also or additionally tell us is that traditionally, staple food items like potatoes & onions, have been the trigger for public angst, however, this time, the outcome suggests that the touchstone of inflation may have changed, by also taking into account rising costs of household fuels like natural gas, gas cylinders, kerosene oil, wood, etc and a two-fold increase in mobile talk-time! Shift the focus to home and the trends in Pakistan tell the same story.

Inflation has been rampant and employment opportunities scarce due to the unprecedently high-interest rate imposed by the State Bank of Pakistan and the businesses are collapsing, as the government with a rather myopic vision moves to such the capital out of the markets. In essence, whosoever the public thinks is responsible for their economic woes, becomes unpopular. Not long ago when Imran Khan and the PTI were in power, their popularity graph plummeted because people held them responsible for their misery, however, soon after they were removed and the inflation kept rocketing un-checked, the focus shifted on PDM, making them perhaps the most unpopular government in a long time and ironically instead raising Khan’s and PTI’s popularity to an unprecedented level.

Sadly, it also goes on to show how frustrated people are today and would quickly clutch at any straw, no matter how weak, in the hope of quick relief. Interestingly, this correlation has always been there, whereas, leaders like fools have had this exaggerated notion about themselves that somehow their charisma makes people tick in their favour rather than a pure economic dispensation. For students of Pakistan’s economic history, it would be pertinent to note that every time a government changed and people welcomed the new one with applause, the inflation figures were either in the punishing double digits or at times even higher: Ayub Khan was welcomed in 1958, as inflation had touched 13 percent; Zulfiqar Ali Bhutto was welcomed in the role of Prime Minister from President in 1973, as inflation had touched 38 percent (highest ever); Zia-ul-Haq was welcomed in 1977, as inflation still stood in high double digits at 18 percent; Nawaz Sharif in 1990, when inflation was almost 12 percent; Musharraf in 1999 came on the back of 13 percent inflation; PPP in 2008 on the back of around 24 percent inflation; Nawaz Sharif was welcomed in 2013 when inflation was at around 12 percent and PTI in 2018 with inflation at 13 percent. One can only hope and pray that the prayers of Pakistanis are answered sometime soon with a government that concentrates on addressing inflation and growth instead of playing mere politics!

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