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Brexit and Donald Trump heralded the dawn of a political regime shift. The electoral upsets also spawned a domino theory whereby populist forces would overturn established political parties across Europe in 2017. This notion is fundamentally flawed.

The rise of populism is a real phenomenon. The world has lurched from a liberal order espousing free trade and economic integration to a populist regime bent on erecting barriers. The 20th century saw other era’s characterizing similar shifts towards populism as characterized by economic protectionism. However, a simplistic extrapolation of populist victories following Brexit and the US presidential election is simply naïve.

In the beginning of 2017, fears concerning political risk surged. Populists were expected to steamroll first through the Dutch parliamentary and then French presidential elections. In January, polls were indicating that Dutch populist Geert Wilders’ PVV party would win by a landslide by attaining 44 seats in parliament. In February betting odds gave Le Pen a 35 % probability of winning French presidential elections. Fears concerning Italy grew in the background.

Europe breathed a collective sigh of relief as, instead of 44 seats, Wilders’ party only managed to get to 20 as mainstream Dutch political forces rallied. Concurrently Le Pen’s chances of victory plummeted from 35 to less than 24 percent.

One vote may or may not be one vote

Le Pen faces a severe handicap compared to Trump, which does not seem to be reflected in betting odds. The reason is the difference between the presidential election systems in France and the US.

Polls have been ridiculed for their poor forecasting results in recent elections. There seems to be misinformation concerning this issue. The link between polls and elections is not one-to-one, because electoral systems weigh votes differently. Polls answer the question: how many will probably vote for a given candidate, not who will win a given election. Polls forecasted that Hillary Clinton would receive over two million votes more than Donald Trump, which is what happened. In fact, polls were particularly accurate in this instance.

An electoral victory in US presidential elections is dictated by winning a plurality at the state level. The winner at the state level gets all of the state’s Electoral College votes. Hence Trump was able to win the presidential election despite losing the popular vote by over two million votes.

France has no electoral college. One vote is one vote regardless of whether it is given in Paris or Guadeloupe. The two candidates that receive the most votes face off in the second round which is also decided by popular vote. Thus, if the US presidential election would have been decided using the French system, Clinton would have seized the presidency.

Vive la France

Le Pen will face elections in France. She will most likely proceed to the second round. Even if polls are off by a large amount, she will still lose in the second round regardless of whether she faces a right wing (Fillon) or left wing opponent (Macron). Of course her chances will rise significantly if, for instance, Macron faces corruption allegations and there is a terrorist attack just before the election.

Populism is the product of economic forces

Brexit, Trump and Le Pen are symptoms of a political regime shift towards a populist regime which in turn is the result of both short run and long run economic forces.

The most significant short-run force was the recession unleashed by the 2008 financial crisis. Recessions cause both a loss of income and wealth destruction, which result in a desire to blame the political establishment. The primary asset held by US households is their dwelling and house prices fell by 31.8 percent.

The main long run economic force has been income and wealth inequality, which have increased since the late 1960’s. A measure of income inequality, the Gini coefficient has increased in the US almost continuously from a low of 0.386 in December 1968 to a high of 0.482 in December 2015. Households have partially responded by taking on more debt. Falling interest rates have masked inequality issues by alleviating the financial stress from rising household debt levels.

Recessionary forces have been abating for a number of years, but income and wealth inequality continue to distress and hence generate populist demand. It is, of course, a deep irony that by electing the populist candidate Donald Trump, the US is set for measures that will likely exacerbate income and wealth inequality as healthcare is taken away from the poorer elements of society and taxes are slashed on corporations and wealthy individuals.

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