Politics and economics
The economic consequences of financial crises have been systematically explored. Their political consequences haven’t. This column argues that without paying attention to politics, crises will remain poorly understood. After all, politics shapes policy choices, market sentiment and, ultimately, economic outcomes. Evidence from the effects of banking crises over the past century show that crises have a dramatic impact on the survival prospects of governments.
A relatively unforeseen implosion in housing markets figured prominently in the 2007 meltdown in capital markets and the subsequent downturn in the global economy. This column presents new research on the political geography of subprime lending. Congressional leaders – as well as other recipients of campaign contributions – may have benefited from gains to trade in the direction, pricing, and sizing of subprime mortgage loans.
By the end of the 1990s, under the incentive of Eurozone entry, most peripheral European countries were busy undertaking structural reforms and putting their fiscal houses in order. This column argues that the arrival of the euro, and the subsequent interest-rate convergence, loosened a tide of cheap money that reversed the incentives for further reforms. As a result, by the end of the euro’s first decade, the institutions and governance in the Eurozone periphery were in worse shape than they were at the start of the decade.
During the 2013 papal conclave the Catholic church has been criticised for failing to give an adequate voice to the global south, which now garners a majority of Catholics. This column applies concepts from voting theory to inquire whether the south and the north are equal in the eye of the church. It suggests that the south is indeed underrepresented. In a fair world, Mexico and the Philippines should each get seven more cardinals. Italy should get 23 fewer.
Investment in infrastructure can bring growth and social benefits. This column highlights the infrastructure opportunities open to depressed economies, stressing that the main obstacles are governance-related. To bring opportunities to life will require an overhaul of infrastructure governance – a root cause of infrastructure projects’ poor productivity.
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Reichlin, Baldwin, 14 April 2013