By Adam Szeidl and Ferenc Szucs
Populism is no longer a fringe phenomenon. Across Western democracies, from Donald Trump in the US to Viktor Orbán in Hungary and now even in Austria, populist leaders are gaining traction and wielding considerable power. What are the economic and social consequences of this political shift?
Research is beginning to paint a troubling picture. An important study by Funke, Schularick, and Trebesch (2023) in the American Economic Review offers compelling evidence of the economic costs associated with populist leadership. By analyzing a large dataset of 51 populist leaders across 60 countries from 1900 to 2020, the authors discovered a striking fact: populist leaders are linked to a reduction in GDP per capita of 10% over a 15-year period, compared to what happened in comparable countries in which a non-populist was in charge. This is no trivial sum. Furthermore, the researchers show that this loss in GDP was not compensated for by a decline in income inequality.
One might reasonably expect that such economic underperformance would lead to swift electoral defeat. Yet, in what could be described as the populist paradox, these leaders demonstrate remarkable political resilience. For instance, despite a felony conviction, Donald Trump was re-elected in 2024.
Beyond anecdotes, the study by Funke et al. reveals a clear pattern: populist leaders remain in power for approximately twice as long as their non-populist counterparts, despite the negative economic consequences. This raises a vital question: how do populists manage to buck accountability in the face of economic hardship?
A recent study of ours, Szeidl and Szucs (2025) also in the American Economic Review, offers a possible answer. We propose that populists succeed by skillfully constructing and disseminating a false narrative—what we term an “alternative reality”—that discredits legitimate criticism from established institutions and experts. This alternative reality serves as a bulwark against accountability by deflecting blame and sowing distrust in credible sources of information.
The cornerstone of this strategy involves portraying intellectual elites—academics, journalists, policy experts—as conspirators driven by ideological motives rather than genuine concern for the public good. For example, a populist leader might suggest that the media criticizes their policies not because of any inherent flaws, but because “liberal journalists” harbor a deep-seated bias against their conservative values. Our theory predicts that voters who come to believe this narrative will then discount—or even outright dismiss—truthful criticism from these elites, giving the populist leader a free pass despite demonstrable failings.
An unsettling implication of this research is that legitimate, fact-based criticism from elites can, perversely, strengthen support among a populist leader’s base. This is because such criticism aligns precisely with the narrative of a conspiring elite, further confirming the alternative reality for receptive voters.
Consistent with this counterintuitive dynamic, support for Trump increased after being found guilty of a felony in New York in 2024, and this increase was accompanied by increased beliefs in the conspiracy theory that the 2020 election was stolen from him.
Ultimately, this manufactured distrust in elites can seep into other critical areas of public life, including science and public health. If voters are taught to distrust experts and institutions, they may become more likely to question the safety of vaccines or the reality of climate change, with profound consequences for public health and well-being.
So, what can be done? Our study suggests inequality and polarization within our societies is a key source of populism, because these cleavages increase the perception that elites are actively working against the interests of ordinary citizens. Consistent with this logic, the study by Funke et al. finds that populists often come to power following recessions and macroeconomic crises. These observations suggest that economic policies that support disadvantaged segments of the population, including people who lost their jobs because of deindustrialization, is an avenue to protect societies from the appeal of populism.
Adam Szeidl is a Professor at the Department of Economics at Central European University, Austria. His research interests are in development economics, political economics, and the economics of networks.
Ferenc Szucs is an Associate Professor at the Economics Department of Stockholm University. His research focuses on the political economy of ideas and the role of media in governmental accountability.
This article is published under the sole responsibility of the author(s), with editorial oversight. The views expressed do not necessarily reflect those of the editorial team or the CEU Democracy Institute.
