Political Bubbles: Financial Crises and the Failure of American Democracy

Description

Behind every financial crisis lurks a "political bubble"--policy biases that foster market behaviors leading to financial instability. Rather than tilting against risky behavior, political bubbles--arising from a potent combination of beliefs, institutions, and interests--aid, abet, and amplify risk. Demonstrating how political bubbles helped creat

Nolan McCarty is the Susan Dod Brown Professor of Politics and Public Affairs and chair of the Department of Politics at Princeton University. Keith T. Poole is the Philip H. Alston Jr. Distinguished Professor in the Department of Political Science at the University of Georgia. Howard Rosenthal is professor of politics at New York University and the Roger Williams Straus Professor of Social Sciences, Emeritus, at Princeton University.

"As pundits debate the causes of the 2008 economic crisis, the authors contend that financial crises have inherently political dimensions. McCarty, Poole, and Rosenthal argue persuasively that political bubbles and market bubbles are highly similar, with policy biases contributing to and amplifying market behavior... The authors provide an exhaustive review of structural problems that they believe impede effective government response to new catastrophic economic developments. Their arguments transcend the academic to include historical precedents and specifics on Wall Street machinations."--Publishers Weekly "McCarty, Poole, and Rosenthal have crafted a masterful analysis of the 2008 financial crisis. Their central thesis is that the underlying cause of the Great Recession was the 'political bubble'... The warnings for the U.S. political system are dire, and the authors make the case for political courage in dealing with wealth inequalities. This book would be an excellent addition to the library of any student of political economy and an excellent start in generating policy proposals on how to deal with future crises."--Choice "Greatly expanding upon and enriching prior work on political polarization, Political Bubbles persuasively shows that the 2008 financial crisis was the product of potent political forces."--Philip Rocco, Public Administration