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Political Bubbles: Financial Crises and the Failure of American Democracy Hardcover – May 26, 2013

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Editorial Reviews


"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

From the Back Cover

"If you thought that the financial crisis was just about finance and the alphabet soup of financial products, think again. With style and eloquence, McCarty, Poole, and Rosenthal show it's all about politics--the Faustian bargains that our politicians have made, their ideological biases, and more. This is essential reading for understanding how we got into the current mess and how we are likely to get into many more unless we rethink our politics."--Daron Acemoglu, Massachusetts Institute of Technology and coauthor of Why Nations Fail

"McCarty, Poole, and Rosenthal are the most incisive analysts of America's political economy. In Political Bubbles, their penetrating gaze offers the clearest definitive political economic explanation for the recent financial crisis."--James Robinson, Harvard University and coauthor of Why Nations Fail

"This wise book offers an incisive evaluation of the politics of economic crisis. Persuasively insisting on the need for a new public philosophy, its elegant account at the juncture of political economy and policy analysis artfully connects conceptual argumentation about ideology, interests, and institutions to inventive and illuminating analyses of data."--Ira Katznelson, Columbia University

"This extremely interesting book subtly argues that political bubbles are an important dimension of financial bubbles. Financial bubbles are caused by exuberant expectations and greed, but political bubbles are about how institutions channel ideology and interest into outcomes. The authors make clear how polarization produces gridlock and leads reformers to prefer regulation over legislation--with attendant problems."--James Alt, Harvard University

"This innovative and compelling book demonstrates how financial bubbles and political bubbles go hand in hand, producing periodic meltdowns that deeply affect the lives of ordinary citizens. Synthesizing political science with economics and finance, the book explains not only how the most recent financial crisis relates to previous episodes in American history, but also why responses to the crisis have fallen short of what many had hoped for in terms of fundamental reforms."--Gregory Wawro, Columbia University


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Product Details

  • Hardcover: 368 pages
  • Publisher: Princeton University Press (May 26, 2013)
  • Language: English
  • ISBN-10: 0691145016
  • ISBN-13: 978-0691145013
  • Product Dimensions: 1.2 x 6.5 x 9.5 inches
  • Shipping Weight: 1.4 pounds (View shipping rates and policies)
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (6 customer reviews)
  • Amazon Best Sellers Rank: #890,745 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

4 of 4 people found the following review helpful By Dr. Wilson Trivino on June 22, 2013
Format: Hardcover
Financial Crises and the Failure of American Democracy By Nolan McCarty, Keith T. Poole & Howard Rosenthal is a continuation of previous works by the authors. This work attempts to understand what happen that caused the greatest financial crisis.
The authors stress that they point to the Three I's: ideology, institutions, and interest.
What I find useful in this book is able to develop a road map of sorts that point to the build up to this eventual crisis. It shows the frailties of our systems and that often good faith attempts in developing public policy can end up in unexpected disastrous results.
There are a few areas that read like an academic text but over all will leave the reader with a better understanding of what the hell happen.
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2 of 2 people found the following review helpful By Matthew Brosmer on July 19, 2013
Format: Kindle Edition Verified Purchase
The scholars view how ideologies, interests, and institutions from the left and the right in a polarized political environment created a systemic failure in the financial market. After the bubble popped, Republicans and Democrats became more politically polarized. It's a great book, I highly recommend it.
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1 of 1 people found the following review helpful By Gderf on December 26, 2014
Format: Hardcover
The book is organized by what the authors term “the three I's”, implications of ideology, institutions, and interest with primary focus on financial deregulation. They contend that each financial bubble is accompanied by a “political bubble”, meaning, I think, that financial bubbles are rooted in political causes. It's far from wrong but a somewhat simplistic analysis. There's much ambiguity, overlap and omission among MP&R's three I's. The focus on financial deregulation is very interesting and informative, but overdone as to importance. It's not the only political game in town. Indeed, a political bubble is often behind each economic crisis, but it may not always be the one these authors point to.

Another “I” should be added: ideas, mostly bad ones. Very bad ideas and legislation advanced by progressives in recent decades have proven much more damaging than any vested interests.

MP&R deplore grid lock which has been more beneficial than harmful. To cite the books examples, it's too bad we didn't get grid lock in 1998 when the Clinton administration repealed Glass-Seagall or in 1965 when LBJ privatized Fannie Mae.On the whole, perpetual grid lock since 1965 would have left our nation in much better condition than it is in today. There's nothing in this book to contradict that opinion.

Illogically to its political thesis the book overstates control of Wall Street. Our government is in full control of finance. MP&R admit that the Fed is not as independent as people imagine. The problem of undue influence can't be fixed as long as government influence is for sale. Since leaving office deregulators Clinton, Rubin and Summers have become rich, with the latter two joining Wall Street firms.
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