Monday, December 8, 2014

Political Bubbles

I am reading the book "Political Bubbles" by three American political scientists, about the failure of the political system in the US that led to the financial crisis of 2008 and that failed to react quickly and deeply enough to it afterwards. The authors explain how economic market failure was accompanied by political failure to a large scale. This failure was the result of what they call the three "i's": institutions, interests and ideologies. Interests are those of wealthy members of the financial community that spend resources in trying and sometimes achieving to capture the political system. Ideologies are those of unfettered free markets, but also those of egalitarians that content themselves with the use of imperfect instruments. That is the case when redistributions is pursued by selling houses, in a coincidence of interests with those members of the financial community and with those conservatives that work to create an "ownership society." Interests and ideologies can work against the interests of the majority when institutions favour gridlock and the status quo. Some degree of commitment to past policies is desirable to promote stability, for example when there are valuable sunk investments. But sometimes flexibility and adaptation is needed, especially when social disasters are growing in likelihood. Something similar may be happening today with climate change. The three "i's" explain why the popular response to the crisis has been so moderate and why outrage has been unable to transform itself into a wide movement for deep reforms. They contribute to explain why in the face of the absolute disaster of free market policies, Barack Obama still only won by a small majority against John McCain in 2008. Or why the Occupy Wall Street movement only lasted briefly and had a small impact on mainstream politics.

1 comment:

  1. I think there is a simpler and yet coherent explanation to America's (and the world's) economic woes. The lesson after the Great Depression was that retail banks should not be allowed to invest in speculative products. That resulted in a law that was scrapped around 2000 in the name of a deregulated free market. Wait a few years, and you're back in a depression. That's what happened.

    The public outcry was softer than in the 1930s because the crisis was managed better. Bailing out 'too-big-to-fail' banks was a good idea and it's worked.

    Let's not forget that back in the '30s, the Depression led to a world war. That's how the economy recovered. People accepted restrictions they wouldn't even hear of in peace, went hungry for years, lost family and friends to the terrible conflict, and at long last, communities recovered. We should count our blessings and praise advanced economic governance that this time we've avoided all that.