Coping with Crisis

Coping with Crisis

Nancy Bermeo
Jonas Pontusson
Copyright Date: 2012
Published by: Russell Sage Foundation
Pages: 432
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    Coping with Crisis
    Book Description:

    The financial crisis that erupted on Wall Street in 2008 quickly cascaded throughout much of the advanced industrial world. Facing the specter of another Great Depression, policymakers across the globe responded in sharply different ways to avert an economic collapse. Why did the response to the crisis—and its impact on individual countries—vary so greatly among interdependent economies? How did political factors like public opinion and domestic interest groups shape policymaking in this moment of economic distress? Coping with Crisis offers a rigorous analysis of the choices societies made as a devastating global economic crisis unfolded. With an ambitiously broad range of inquiry, Coping with Crisis examines the interaction between international and domestic politics to shed new light on the inner workings of democratic politics. The volume opens with an engaging overview of the global crisis and the role played by international bodies like the G-20 and the WTO. In his survey of international initiatives in response to the recession, Eric Helleiner emphasizes the limits of multilateral crisis management, finding that domestic pressures were more important in reorienting fiscal policy. He also argues that unilateral decisions by national governments to hold large dollar reserves played the key role in preventing a dollar crisis, which would have considerably worsened the downturn. David R. Cameron discusses the fiscal responses of the European Union and its member states. He suggests that a profound coordination problem involving fiscal and economic policy impeded the E.U.’s ability to respond in a timely and effective manner. The volume also features several case studies and country comparisons. Nolan McCarty assesses the performance of the American political system during the crisis. He argues that the downturn did little to dampen elite polarization in the U.S.; divisions within the Democratic Party—as well as the influence of the financial sector—narrowed the range of policy options available to fight the crisis. Ben W. Ansell examines how fluctuations in housing prices in 30 developed countries affected the policy preferences of both citizens and political parties. His evidence shows that as housing prices increased, homeowners expressed preferences for both lower taxes and a smaller safety net. As more citizens supplement their day-to-day income with assets like stocks and housing, Ansell’s research reveals a potentially significant trend in the formation of public opinion. Five years on, the prospects for a prolonged slump in economic activity remain high, and the policy choices going forward are contentious. But the policy changes made between 2007 and 2010 will likely constrain any new initiatives in the future. Coping with Crisis offers unmatched analysis of the decisions made in the developed world during this critical period. It is an essential read for scholars of comparative politics and anyone interested in a comprehensive account of the new international politics of austerity.

    eISBN: 978-1-61044-792-8
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Contributors
    (pp. vii-viii)
  4. Chapter 1 Coping with Crisis: An Introduction
    (pp. 1-32)
    Nancy Bermeo and Jonas Pontusson

    The chinese ideograph forcrisiscombines the image of danger with the image of opportunity. This makes good sense. Crises are surely periods of peril, but they also facilitate change. This simple observation is the essence of the punctuated equilibrium model in economics. It is also the foundation of the social science literature on critical junctures. Whether they take the form of wars, depressions, deep recessions, or natural disasters, crises give leaders the opportunity to turn policies, and sometimes polities, in new directions.

    Thus, crises threaten but they also enable, and the economic crisis that erupted in 2007 and 2008...

    • Chapter 2 Modern Capitalism and the Advanced Nation State: Understanding the Causes of the Crisis
      (pp. 35-64)
      Torben Iversen and David Soskice

      We argue in this chapter that the crisis illuminates the relationship between modern capitalism and the advanced nation state. Advanced nation states are deeply concerned—in a world in which they can no longer use protection, direct intervention, or subsidies—with promoting the interests of their high value-added sectors, which are central to their innovation and human capital investment systems, as well as the source of wellpaid employment and tax revenue. In relation to the crisis, comparative institutional advantages led the U.S. and U.K. governments to be concerned with regulatory environments that promoted, among other things, their innovative and high-risk...

    • Chapter 3 Multilateralism Reborn? International Cooperation and the Global Financial Crisis
      (pp. 65-90)
      Eric Helleiner

      Policymakers have congratulated themselves for the cooperative ways in which they responded to the 2007 to 2009 global financial crisis. States worked together to manage the crisis through activities such as macroeconomic stimulus programs, supporting markets and firms in distress, enhancing the lending capacity of official international financial institutions, and restraining protectionism. Cooperation of this kind is credited with helping to prevent the crisis from becoming as severe as that in the early 1930s when international cooperation broke down. As International Monetary Fund (IMF) managing director Dominique Strauss-Kahn argued in the spring of 2010, “during the crisis, unprecedented cooperation allowed...

    • Chapter 4 European Fiscal Responses to the Great Recession
      (pp. 91-129)
      David R. Cameron

      Beginning in late 2007 with the collapse of the construction, real estate, and housing booms in Ireland and Spain, in 2008 and 2009 one European country after another experienced the most severe economic contraction since the 1930s. The effects of the contractions were amplified, of course, because they were synchronized and continent-wide, and part of a larger global economic and financial collapse (Krugman 2009; Münchau 2010; Rajan 2010; Roubini and Mihm 2010; Stiglitz 2010). Thus, by the late winter of 2008–2009, twenty-five of the twenty-seven member states of the European Union—all but Poland and Slovakia—were in recession,...

    • Chapter 5 Policymaking in Hard Times: French and German Responses to the Eurozone Crisis
      (pp. 130-161)
      Waltraud Schelkle

      Times are hard for economic policymaking. A financial crisis of unprecedented scope shattered politicians’ beliefs in the received economic wisdom that had informed two decades of continuous reform. After the demise of pump-priming Keynesianism in the late 1970s, governments tried to reduce their involvement in the direct provision of goods and services. They concentrated on setting regulatory frameworks and left the details to industry self-regulation or independent agencies; they came to follow rules in their budgetary policies and reduce discretionary interventions; and they established independent central banks that target inflation rather than the level of economic activity directly (Eichengreen 2007)....

    • Chapter 6 The Sorrows of Young Euro: The Sovereign Debt Crises of Ireland and Southern Europe
      (pp. 162-198)
      Klaus Armingeon and Lucio Baccaro

      This chapter examines the sovereign debt crisis of the so-called GIIPS countries—Greece, Ireland, Italy, Portugal, and Spain—focusing in particular on the interaction between national political economic conditions and membership in the eurozone. Ever since Peter Gourevitch’s seminalPolitics in Hard Times(1986), comparative political economy scholars have been accustomed to expecting different national responses to crises, and have generally explained such diversity by reference to different institutional arrangements. Thus, most comparative political economists today would anticipate that, faced with a common external shock, national actors would have multiple options from which to choose and that domestic politics ultimately...

    • Chapter 7 The Politics of the Pop: The U.S. Response to the Financial Crisis and the Great Recession
      (pp. 201-232)
      Nolan McCarty

      Recent research on the American political economy has stressed the emergence of at least two salient features: The first is the increasing levels of political polarization, partisanship, and ideological rigidity (McCarty, Poole, and Rosenthal 2006; Theriault 2008). This polarization in turn has made policymaking more difficult and contributed to gridlock (McCarty 2007). The second is the increasing political salience of economic inequality. Not only has the party system divided more along income and class lines (McCarty, Poole, and Rosenthal 2006; Gelman et al. 2007), but politicians and policymaking have become more responsive to the interests of high-income voters relative to...

    • Chapter 8 Politics and Policies in Two Economic Crises: The Nordic Countries
      (pp. 233-260)
      Johannes Lindvall

      In the Great Recession, the deep economic downturn of 2008 to 2009, European governments adopted expansionary fiscal policies quickly, and with little apparent controversy. In December 2008, the member states of the European Union agreed on a European Economic Recovery Program, which included discretionary stimulus measures amounting to 1.5 percent of GDP. The program was implemented by national parliaments in the beginning of 2009. In February of that year—when the U.S. Congress passed the American Recovery and Reinvestment Act, containing $787 billion in tax cuts and spending increases over three years—the Bundestag approved a stimulus plan for Europe’s...

    • Chapter 9 The Global Economic Crisis and the politics of Regime Change in Japan
      (pp. 261-286)
      Yves Tiberghien

      Unlike in the United States or Europe, the 2008 to 2009 crisis did not hit Japan through the banking sector. Rather, it unfolded mainly through the contraction of global trade and the collapse of its key export engine, which led to a 6.3 percentage point GDP contraction in 2009 and forced the government to rely further on fiscal stimulus and increase its overall public debt, reaching 200 percent of GDP by 2010. In large part because the banks had barely recovered from the protracted financial crisis that followed the collapse of the great Japanese bubble in 1990, they had not...

    • Chapter 10 The Liberal Model in (the) Crisis: Continuity and Change in Great Britain and Ireland
      (pp. 287-324)
      Lucy Barnes and Anne Wren

      The current crisis is a global one, but variation has been considerable across countries in the nature and scale of the economic downturn, in policy responses, and in the political impact. Why were some countries affected more than others, and what explains the varied policies implemented in response? The financial crisis has been characterized as a crisis of the Liberal variant of advanced capitalism, whose defining characteristics include light regulation, financial innovation, and credit expansion. We argue that the literature on varieties of capitalism provides an analytical framework for understanding divergence between the fates of the two varieties in the...

    • Chapter 11 Crisis as Political Opportunity? Partisan Politics, Housing Cycles, and the Credit Crisis
      (pp. 327-360)
      Ben W. Ansell

      The financial crisis of the autumn of 2008, sparking fears of a repeat of the Great Depression, produced a dramatic and choreographed set of government responses across the advanced industrial world. Policymakers faced immediate threats requiring urgent action, in particular the teetering financial sector, as well as the impending likelihood of a prolonged slump in broader economic activity. Looking to the longer run, the crisis also galvanized debate about the regulatory framework governing both global finance and domestic lending. Although recent economic events suggest that the worst-case scenarios were held at bay, decisions made by governments in the year following...

    • Chapter 12 West European Welfare States in Times of Crisis
      (pp. 361-398)
      David Rueda

      It is well known that relative poverty has increased dramatically in a number of industrialized democracies in recent times. In a 2008 report, before the effects of the Great Recession had been realized, the Organisation for Economic Co-operation and Development (OECD) observed that the period from 2003 to 2008 had seen growing inequality and poverty in two-thirds of OECD countries (OECD 2008). The report showed that in the mid-2000s, the percentage of people with an income, after taxes and transfers, below 60 percent of the median was higher than 20 percent in Australia, Ireland, Japan, New Zealand, Portugal, Spain, and...

  8. Index
    (pp. 399-422)