Politics in the New Hard Times

Politics in the New Hard Times: The Great Recession in Comparative Perspective

Miles Kahler
David A. Lake
Copyright Date: 2013
Published by: Cornell University Press
Pages: 320
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  • Book Info
    Politics in the New Hard Times
    Book Description:

    The Great Recession and its aftershocks, including the Eurozone banking and debt crisis, add up to the worst global economic crisis since the Great Depression of the 1930s. Although economic explanations for the Great Recession have proliferated, the political causes and consequences of the crisis have received less systematic attention. Politics in the New Hard Times is the first book to focus on the Great Recession as a political crisis, one with both political sources and political consequences.

    The authors examine variation in crises over time and across countries, rather than treating these events as undifferentiated shocks. Chapters also explore how crisis has forced the redefinition and reinforcement of interests at the level of individual attitudes and in national political coalitions. Throughout, the authors stress that the Great Recession is only the latest in a long history of international economic crises with significant political effects-and that it is unlikely to be the last.

    Contributors: Suzanne Berger, MIT; J. Lawrence Broz, University of California, San Diego; Peter Cowhey, University of California, San Diego; Peter A. Gourevitch, University of California, San Diego; Stephan Haggard, University of California, San Diego; Peter A. Hall, Harvard University; Miles Kahler, University of California, San Diego; Peter J. Katzenstein, Cornell University; Ikuo Kume, Waseda University; David A. Lake, University of California, San Diego; Megumi Naoi, University of California, San Diego; Stephen C. Nelson, Northwestern University; Pablo Pinto, Columbia University; James Shinn, Princeton University

    eISBN: 978-0-8014-6763-9
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Illustrations
    (pp. ix-x)
  4. Preface
    (pp. xi-xii)
    Miles Kahler and David A. Lake
  5. Introduction: ANATOMY OF CRISIS: The Great Recession and Political Change
    (pp. 1-24)
    Miles Kahler and David A. Lake

    The Great Recession that began in December 2007 is the worst economic crisis to beset the world economy since the Great Depression of the 1930s.¹ In contrast with most financial crises since 1945, the Great Recession began at the developed center of the world economy, and the industrialized countries were both the most seriously affected and slowest to recover. Although parts of the developing world that were dependent on trade with the industrialized countries experienced sharp recessions, the largest emerging markets—China, India, Indonesia, and Brazil—experienced only brief inflections in their high rates of growth. This variation persisted into...


    • 1 ECONOMIC CRISIS AND GLOBAL GOVERNANCE: The Stability of a Globalized World
      (pp. 27-51)
      Miles Kahler

      In the public imagination, economic crises seem to offer a simple lesson: economic hard times threaten international cooperation and the institutions of global governance. The cataclysm of the Great Depression has shaped our views of global governance for eight decades. Vivid memories of post-Depression international economic disorder—the demise of the gold standard, rapid descent into competitive currency depreciation, beggar-thy-neighbor trade protectionism and discrimination, and imposition of capital controls—were prominent drivers of institution-building during World War II and in the postwar decades.

      The steep economic recession of the early 1980s, which succeeded two oil shocks and an inflation that...

    • 2 POLITICS IN HARD TIMES REVISITED: The 2008–9 Financial Crisis in Emerging Markets
      (pp. 52-74)
      Stephan Haggard

      From the onset of the U.S. housing market difficulties in 2007 through the summer of 2008, emerging markets seemed largely “decoupled” from the unfolding U.S. recession. With a few intriguing exceptions, such as Iceland, middle-income countries did not have much exposure to the subprime market and associated derivatives. Equity markets continued to boom and emerging market spreads did not turn up significantly until the collapse of Bear Stearns in mid-2008.

      The Lehman failure in September 2008 quickly put an end to the myth of decoupling. The subprime crisis had a direct effect on banks and hedge funds that had been...

      (pp. 75-101)
      J. Lawrence Broz

      Scholars give little attention to the partisan character of government as either a cause, or a consequence, of financial crises. Although the subprime crisis that began in 2007 has been attributed to a surge in capital inflows from abroad in the context of lax regulation, neither the policies that contributed to the capital inflow nor the level of regulatory oversight have been linked to government partisanship in the run-up to the crisis. Similarly, few scholars have analyzed government partisanship in the aftermath of financial crises or found evidence of consistent ideological shifts in the electorate in response to such crises...

    • 4 THE POLITICS OF HARD TIMES: Fiscal Policy and the Endogeneity of Economic Recessions
      (pp. 102-126)
      Pablo M. Pinto

      The causes and consequences of economic crises have become a recurrent theme in political and academic debates. Recent empirical work focusing on financial crises has documented how severe recessions cause business failures and bankruptcies and lead to unemployment and raising poverty levels in economies experiencing those recessions.¹ The short-run economic changes and the alleged long-term consequences have a direct impact on the well-being of individuals, which in turn is likely to trigger political responses of various kinds.

      Economic theory in several different strands provides a clear prescription regarding optimal responses to economic crises. During expansions, the government should reduce spending...


    • 5 THE POLITICAL ORIGINS OF OUR ECONOMIC DISCONTENTS: Contemporary Adjustment Problems in Historical Perspective
      (pp. 129-149)
      Peter A. Hall

      The financial crises and recession of 2008–9 are the worst experienced by the developed democracies since World War II. Will this crisis inspire radical changes in policies or in the economic models that underlie them? How do we explain the adjustment paths countries take in the wake of such a crisis? These are economic questions about the sources of demand and supply in a chastened world, and political questions about how the will to adjust is generated. Such issues can be approached in various ways, but in the political economy as in the forest, if we want to know...

      (pp. 150-168)
      Suzanne Berger

      In the first globalization, 1870–1914, as in our own times, debates raged over the impact on domestic life of free movement across borders of goods, people, and capital.¹ Then as today in the hard times that have followed in the wake of financial crisis, many saw that open borders brought uncontrollable risks and vulnerabilities. Even a hundred years ago, without benefit of sophisticated statistical analysis, it was generally understood that cross-border capital flows greatly increased the potential for crisis as the troubles of other financial markets poured in unimpeded by national controls, and financial market distress turned into credit...

    • 7 PORTFOLIO POLITICS IN THE NEW HARD TIMES: Crises, Coalitions, and Shareholders in the United States and Germany
      (pp. 169-189)
      James Shinn

      The Great Recession of 2007–8 induced a sideways slip in a decades-long trend of improved minority shareholder protections, blunting the effects of global investors on corporate governance while amplifying the effects of pension losses on support for shareholder protections. In two illustrative and contrasting country cases, painful stock market losses energized broad political support for governance reforms in the United States, given the wide exposure of American citizens’ pension savings to financial markets, but had little effect in Germany, where there are much lower levels of private- pension assets and equity. But in both countries, a broad public perception...

    • 8 COALITION OF LOSERS: Why Agricultural Protectionism Has Survived during the Great Recession
      (pp. 190-211)
      Megumi Naoi and Ikuo Kume

      The politics of the Great Recession illuminate the surprising disparity between the rise of public protectionist sentiments and the lack of protectionist policy responses (Kahler and Lake; Haggard, this volume). This chapter seeks to solve this puzzle by showing that the rise of mass protectionist sentiments did not translate into protectionist policies because these sentiments were not rooted in existing institutions, such as political parties and labor unions. Rather, protectionist sentiments were formed through social psychology of individuals, in particular, their sympathy for globalization losers and the projection of their own job insecurity onto struggling industries.

      We substantiate this claim...

    • 9 CRAFTING TRADE STRATEGY IN THE GREAT RECESSION: The Obama Administration and the Changing Political Economy of the United States
      (pp. 212-232)
      Peter Cowhey

      As President Obama took office, many global leaders cautioned that the Great Recession could ignite a new era of protectionism. Pessimists warned that the new president’s campaign had hedged on free trade and the Demo cratic Congress was skittish about trade. They said that the administration was not moving quickly to confirm the three pending free trade agreements (FTAs) with Panama, Colombia, and Korea or to conclude the World Trade Organization (WTO) Doha Round of negotiations. Moreover, the new Congress had attached “Buy America” provisions to the stimulus bill (Suominen 2009). Amid these fears, the Group of Twenty (G-20) met...

    • 10 WORLDS IN COLLISION: Uncertainty and Risk in Hard Times
      (pp. 233-252)
      Peter J. Katzenstein and Stephen C. Nelson

      In a decade marred by manias, panics, and crashes (Kindleberger 1978), our analytical worlds are in collision. Economists for the most part hold firmly to the view that the world of finance is a world of calculable risk. Other social scientists disagree and insist that we live not only in a world of risk but also in a world of uncertainty. A world of risk assumes that agents act on material incentives and respond to regulatory institutions, conventions, and norms. A world of uncertainty assumes that actors can, in addition, be motivated by social or constitutive institutions, conventions, and norms....

  8. Afterword: YET MORE HARD TIMES? Reflections on the Great Recession in the Frame of Earlier Hard Times
    (pp. 253-274)
    Peter A. Gourevitch

    What politics produced the Great Recession of 2008–10, and what politics shape the responses to it? Situating this crisis as another in the sequence examined in Politics in Hard Times (PHT) casts a shadow backward, compelling an appraisal of what was obscured about the earlier crisis, as well as a shadow forward, using the past to provide insights into what we are experiencing today. While we hate the effects of crises on our lives, they fascinate us in the same way that moths are famously attracted to flame. In examining all of these crises, I continue the search for...

  9. References
    (pp. 275-302)
  10. About the Contributors
    (pp. 303-306)
  11. Index
    (pp. 307-316)