Demagogues and the Fragility of Democracy* Dan Bernhardt†
Stefan Krasa‡
Mehdi Shadmehr§
July 27, 2021
Abstract We investigate the susceptibility of Democracy to demagogues, studying tensions between representatives who guard voters’ long-run interests and demagogues who cater to voters’ short-run desires. Parties propose consumption and investment. Voters base choices on current-period consumption and valence shocks. Younger/poorer economies and economically-disadvantaged voters are attracted to the demagogue’s dis-investment policies, forcing far-sighted representatives to mimic them. This electoral competition can destroy democracy: if capital falls below a critical level, a death spiral ensues with capital stocks falling thereafter. We identify when economic development mitigates this risk and characterize how the death-spiral risk declines as capital grows large.
* We are grateful for comments of Odilon Camara, Wioletta Dziuda, and the Editor, Roland Benabou, and
seminar participants at Northwestern Kellogg, University of Vienna, University of Bonn, and 2019 APSA. † University of Illinois and University of Warwick, danber@illinois.edu ‡ University of Illinois, skrasa@illinois.edu § University of North Carolina at Chapel Hill, mshadmeh@gmail.com