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The right allows financial crises, the left handles financial crises

Or so argues political scientist Lawrence Broz in a new paper (pdf):

Financial cycles of boom and bust are as old as finance itself -- a fact that has led some observers to infer that human nature may be a fundamental cause of financial cycles. But “politics” also influences financial cycles by way of government policies and regulations. I argue that policies and regulations vary predictably with the partisan character of the government, creating a partisan-policy financial cycle in which conservative, pro-market governments preside over financial booms while left-wing governments are elected to office after crashes.

My sample consists of all bank-centered financial crises to hit advanced countries since World War II, including the current “Subprime” crises -- a total of 27 cases. I find that governments in power prior to major financial crises are more likely than the average OECD country to be right-of-center in political orientation. I also find that these governments are more likely than the OECD average to be associated with policies that predict crises: large fiscal and current account deficits, heavy borrowing from abroad, and lax bank regulation. However, once a financial major crisis occurs, the causal arrow flips and government partisanship becomes a consequence of crises. I find that the electorate moves to the left after a major financial crisis, and this leftward shift is associated with changes in government partisanship in that direction

Broz left part of this cycle out: Once the left takes power, the right unburdens itself of any sense of responsibility for the crisis and begins relentlessly attacking the left for both the drastic measures necessary to repair the financial sector and the devastating economic aftereffects of the meltdown.

(Paper via The Monkey Cage.)

By Ezra Klein  |  April 21, 2010; 10:32 AM ET
Categories:  Political Science  
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Next: Heads the banks win, tails they also win. And they win if you don't flip.


What the author of this study is probably implying is that 1) Conservatives are more likely to be corporatist than liberals, 2) That a corporatist does what corporations think is best, 3) That corporations think that the optimal amount of regulation is no regulation and 4) That a lack of regulation leads to financial crashes.

To which I say, "Duh."

Ever since Regan said that, “Government is the problem,” conservatives have been pushing a deregulation agenda. You would think the Savings and Loan fiasco would have killed this meme, but corporatist tend to be immune to things like logic.

Though there is no metric for such things, I’d guess that the people who work on Wall Street are amongst the greediest people on the planet. How anyone can think that giving Wall Street free reign to do as they like with America’s wealth is beyond me. It just doesn’t pass the sniff test.

Posted by: nisleib | April 21, 2010 10:55 AM | Report abuse

The irony of this paper is that, according to Broz, the right causes economic crises when it abandons its supposed allegiance to fiscal responsibility. I actually think the author is dead-on in calling out the right for abandoning its supposed small-government philosophy in boom times. With that in mind, it's no surprise that after a bust the electorate shifts left (if the government is going to spend like a drunken sailor either way, you might as well vote in the pros). However, the author's attempt to tie in market deregulation is pretty weak. He offers "anecdotal" evidence of deregulation under Bush and no evidence that it actually caused the subprime crisis, and he further notes that the S&L crisis was NOT precipitated by deregulation. If only the right could maintain fiscal responsibility during boom times (something that last occurred, curiously enough, under Clinton) maybe we could avoid subsequent crashes which are inevitably pinned on the deregulation strawman.

Posted by: ClubMedSux | April 21, 2010 10:57 AM | Report abuse

I think that's a very self-congratulatory view. And extremely selective. There were many significant actors in the creation of the subprime mortgage crisis, including Barney Frank, Chris Dodd, Andrew Cuomo, Chuck Schumer, Bill Clinton, Jimmy Carter. And many others. Since the comments only allow a few links, I just include one:

But there are plenty of others. Search google for "Democrats Burning Down the House" or "Andrew Cuomo Burning Down the House" for more YouTubian goodness.

Which is not to say the economic crisis is the Democrats fault. Just saying that many Democrats participated in the allowing of our current economic crisis, and don't seem especially anxious to address it seriously (despite the posturing of FinReg), because of who addressing is seriously might offend. Which would be, the folks who bankroll their campaigns. Google "Obama admin gives blank check to Freddie Mac" for one example of how the Democrats are doubling down on the sort of thinking that helped created the mortgage crisis in the first place.

Ideologically, the left may be more about regulation and control and the right may be more about the free market and deregulation, but the parties themselves tend to both allow (or help create) financial meltdowns and then pretend to try and fix them, while often perpetuating the same (presumably donor appealing) behaviors.

Posted by: Kevin_Willis | April 21, 2010 11:00 AM | Report abuse

I guess the author forgot about the dot com bubble burst that put us into a recession after Clinton left office (Bush had to deal with it) and also, what about the Dem Congress (2006+)supporting subprime loans (Barney Frank, et al) through Freddie Mac and Sally Mae, which is one of the overriding reasons for the recent recession. He somehow forgot about this as well? Ezra, are you asleep at the switch on this one or do you believe in revisionist history?

Posted by: mmourges | April 21, 2010 11:01 AM | Report abuse

Once the left takes power

Any idea on when that will occur? It's been a long time since FDR gave up the ghost, so any chances that the Left will take power within the next 50 years or so, or is the "Left Takes Power" a once every 100 years thing?

Nothing but "Right Takes Power/Slightly Less Right Takes Power" regime changes since I've been born, so I hope mightily that I might see a "Left Takes Power" moment in this country, similar to when the Leftist who saved us from the Depression took power.

There is always hope.

Posted by: johninflorida | April 21, 2010 11:02 AM | Report abuse

I think it's worth reading carefully and noting that the data set is all financial crises in all advanced OECD countries over the last 60 years, not just the U.S. So the paper is not just comparing U.S. Republicans to U.S. Democrats... it's comparing right of center parties to left of center parties in financial crises around the world throughout modern history. It's about ideology on a larger global scale throughout history, not about Barney Frank and Andrew Cuomo.

Posted by: vvf2 | April 21, 2010 11:05 AM | Report abuse

ClubMedSux says, "and he further notes that the S&L crisis was NOT precipitated by deregulation."

Um, no he doesn't. What he says is, "Republicans retained control of the executive branch for two presidential terms after the onset of the S&L crisis. Furthermore, the deregulation of the saving
and loan industry began prior to the election of Ronald Reagan, under a Democratic administration."

There are right wing Democrats and there used to be left wing Republicans. What I'd like to know is what Deregulation of the banking industry, specifically, went through before Reagan and how it got passed.

Posted by: nisleib | April 21, 2010 11:14 AM | Report abuse

It never ceases to amaze me that there are people to whom this would come as a surprise.

Posted by: CalD | April 21, 2010 11:22 AM | Report abuse

See for a concise history of banking regulation and deregulation. It's a three-part series focusing on the rise and fall of the Glass Acts and was prepared contemporaneously with a PBS Frontline documentary.

Posted by: rmgregory | April 21, 2010 11:41 AM | Report abuse

the right may allow them but so does the left. The left presupposes that EVERYONE deserves to be a homeowner irregardless of their ability to actually REPAY a mortgage. As others have mentioned there have been plenty of liberals that are complicit in this. This error is not reserved solely for the right.

A better explanation would be the right would like less regulation for industry while the left would like less responsibility for the individual.

Posted by: visionbrkr | April 21, 2010 11:46 AM | Report abuse

visionbrkr says, "A better explanation would be the right would like less regulation for industry while the left would like less responsibility for the individual."

Yeah, right. The right pretends to be for personal responsiblity, but it sure doesn't legislate that way. See "Individual Mandate" for an example.

And can you please provide a quote from a prominent elected Democrat that is the equivalent of, "EVERYONE deserves to be a homeowner irregardless of their ability to actually REPAY a mortgage." Because I've never seen any such proclimations from any politian regardless of party. That sounds like you are taking the things said on Fox News at face value. That is a bad idea; repeating such nonsense can make you look less than serious.

Posted by: nisleib | April 21, 2010 11:52 AM | Report abuse

@nisleib: "Because I've never seen any such proclimations from any politian regardless of party."

Andrew Cuomo came close. Search for Andrew Cuomo and burning down the house, or Andrew Cuomo and sub-prime crisis. I don't remember the specifics (and can't see YouTube at work). But I recall being mildly impressed.

That being said, there was clearly advocacy for getting people who couldn't previously afford houses into houses, and without a deep concern for what might happen if getting those folks into houses turned out to be not such a great idea. Only a few ways to do that: subsidize them, subsidize the loans directly with the banks, or allow the banks to create new magical financial instruments that get folks into houses without much concern about how they are going to keep servicing the mortgage, 3 years later, when the balloon payments kick in.

While nobody has said explicitly that "Everyone deserves to be a homeowner regardless of ability to pay", there was clearly activity and legislation and incentives that said it was a good idea to get lots of people with no history of good, long-term credit into houses. And what happens if there is suddenly a spate of foreclosures? Oh, don't be such a negative nay-bob! These folks are in houses now! Yay!

Which is not to let off the banks, who should have well been able to see the problem with giving ARMs and balloon mortgages to folks unable to come up with even a small fraction of a downpayment for a home. Irrespective of what sorts of guidelines they were getting from Freddie Mac and Fannie Mae.

Posted by: Kevin_Willis | April 21, 2010 12:08 PM | Report abuse

"To the last syllable of recorded time."

Posted by: golewso | April 21, 2010 12:08 PM | Report abuse


you're conflating Republican politicians with those of us with conservative views.

And back in 1994 the Republicans were all for the individual mandate. Now when its become politicized and they believe an end to the mandate can end the healthcare law they feel the ends justifies the means. Doesn't mean its right but its what I believe they believe.

As i've said I'm 100% FOR the mandate.

Personally I don't care whose to blame (D or R) when it comes to the mortgage mess. Greedy banks and mortgage brokers deserve blame for putting people in homes they knew they couldn't afford and likewise homeowners deserve blame too. Any responsible person knows what they can and can't afford.

Personally I don't watch Fox News. In fact I watch MSNBC now more than ever. In fact now that its in XM/Sirius, I listen more than anything.

That being said I said presuppose, not that any specific lawmaker said that. Of course they wouldn't come out and say that just like no politician in their right mind from the right would come out and say anything outwardly racist nowadays. That doesn't mean that some aren't racist now does it?

Posted by: visionbrkr | April 21, 2010 12:17 PM | Report abuse

Kevin - I remember several Democrats trying to do away with discriminatory lending practices. My memory is not perfect by any means, but I seem to remember that lenders were discriminating against certain people based on skin color. I applaud those efforts.

And there was certainly efforts made to help people afford homes who could not otherwise afford homes. Those programs are ongoing and, in many cases, a good thing. Now, if you want to argue that the government shouldn't be encouraging home ownership, well, that would be an interesting conversation. But if you look at the numbers poor people buying homes was NOT the primary cause of this financial meltdown.

My, admittedly imperfect, memory seems to remember Alan Greenspan encouraging Wall Street to create more new kinds of exotic mortgage instruments. The head financial guru for this country for decades encouraged Wall Streets bad behavior. Think on that for awhile.

And nobody in government, not even "Bubbles" Greenspan, encouraged mortgage lenders to target the less fortunate, less savvy homeowners to continuously refinance their homes into bigger and bigger loans without providing an iota of income verification. Mortgage brokers did that all on their own.

Posted by: nisleib | April 21, 2010 12:28 PM | Report abuse

@visionbrkr: "The left presupposes that EVERYONE deserves to be a homeowner irregardless of their ability to actually REPAY a mortgage."

"the right would like less regulation for industry while the left would like less responsibility for the individual."

Where do you come up with this stuff? You generally sound like you're intelligent, independent, slightly right-leaning, yet you mindlessly parrot the worst of the stereotypes that the GOP has to offer. I have never once heard someone on the left suggest that everyone 'deserves' to be a homeowner or that individuals have too much responsibility.

Posted by: BigTunaTim | April 21, 2010 12:34 PM | Report abuse

visionbrkr - I'm on the left and I don't presuppose any such thing. I don't know anybody who does. I don't think people should be discriminated against because of their race, religion, or for any other reason, but that is NOT the same thing as saying everybody should own a home even if they can't afford it.

I maintain that that comment sounds like something Glenn Beck would say. Totally devoid of an ounce of evidence, your statement is just wrong. It is a false characterization of people who don't agree with you and it makes you sound poorly informed and reactionary.

Posted by: nisleib | April 21, 2010 12:43 PM | Report abuse


thanks for saying that I "sound like I'm intelligent" I think ;-)

again i said "presuppose". I never said for example that Nancy Pelosi said "X" or (fill in the liberal blogger) said "X". The idea behind holding down interest rates (IMO) has always been to make homeownership easier to afford and that then allows more homeowners into the market whether or not they truly have the ability to pay.

After minimal research on Google see below.

How about Matt Yglesias. While I admittedly don't read him the below post admits to the existence of this belief and holds it as a "longstanding policy".

Posted by: visionbrkr | April 21, 2010 12:56 PM | Report abuse

visionbrkr - Good lord, do you read the links you provide? That Yglesias piece does not say everyone should own a home regardless of their ability to pay for it.

Ajust your tinfoil hat please.

Posted by: nisleib | April 21, 2010 1:10 PM | Report abuse


I guess i'm asking too much of you but here goes.

ignoring your personal attack at me I'm saying that take it from the beginning at the root cause of the problem is the fact that in my belief liberals (and most politicians in general whether they're Republican or Democrat) believe that the more homeowners we have, the more happy constituents they have and the more happy constituents we have the better chance of re-election whether you're a Dem or a Rep being re-elected). It all goes towards the premise that if we have more homeowners the economy must be doing better, right?

When it comes to regulating interest rates I'm honestly more libertarian than anything. I don't believe the Fed should intervene where it has to keep interest rates as low as they have. By keeping their rates and in turn mortgage rates as low as they are they are a part of the problem with too many homeowners (and Yglesias does specifically point to this as a cause of the flat rental market because too many people own homes.

Does he come out and specifically say that people have a right to own a home even if they have little ability to pay, no. no sensible person would do that. But by keeping the system they way they have through Republican and Democratic administrations that's what the end result is. The American homeowner in general (IMO) does not have the ability to say NO to more and more excess.

Posted by: visionbrkr | April 21, 2010 1:25 PM | Report abuse

Jeepers, Ezra, it must have been nice working for the WaPo for a while.

Posted by: SqueakyRat1 | April 21, 2010 1:42 PM | Report abuse

visionbrkr - Your last post bears little resemblance to your original bout of hyperbolic character assassination. I'm a liberal, I know lots of liberals, none of us think the way you say we do. When you assign to us beliefs we don't hold in a manner similar to Ann Coulter, don't be surprised when we knock down your ridicules talking points.

As to interest rates I'd say that the fed keeping down interest rates over the last decade was terrible for many reasons. One of the most important reasons, in my opinion, is that it took away the Feds ability to fight the recession through monetary policy. You can’t pump money into the economy via rate cuts if your rates are already at zero.

You made a silly statement that was totally divorced from reality. Your point could have been cut and pasted from Rush Limbaugh’s blog. You can do better.

Posted by: nisleib | April 21, 2010 2:14 PM | Report abuse

@visionbrkr: there is a vast, gaping divide between

"The left presupposes that EVERYONE deserves to be a homeowner irregardless of their ability to actually REPAY a mortgage."


"[(Most politicians] believe that the more homeowners we have, the more happy constituents they have and the more happy constituents we have the better chance of re-election whether you're a Dem or a Rep being re-elected). It all goes towards the premise that if we have more homeowners the economy must be doing better, right?"

I think your first statement condensed about 12 suppositions into one terribly biased statement of apparent fact, which I took issue with. Additionally your explanation doesn't make sense - holding down interest rates DOES allow them to pay where they otherwise might not have been able to. That was the whole point. That said, holding rates down *temporarily* using adjustable rate mortgages was a total scam destined to explode sooner or later, but I don't believe the government should be blamed for encouraging home ownership just because the mortgage companies responded to the call with a devious, borderline-evil implementation designed to take advantage of uninformed borrowers.

Now If I'm reading your further posts correctly and you're saying that homeownership is essentially a bipartisan fetish to attract votes for reelection, then I'm on board with that.

Posted by: BigTunaTim | April 21, 2010 2:25 PM | Report abuse


point taken. Maybe I went a bit too far. I wouldn't quite call it hyperbolic character assassination though. That's a little over the top IMO.

You do know that that when you say the below

When you assign to us beliefs we don't hold in a manner similar to Ann Coulter . . .

You do realize I could substitute Jane Hamsher for example for Ann Coulter and show misrepresentations of the conservative viewpoints, right?

Posted by: visionbrkr | April 21, 2010 3:53 PM | Report abuse

visionbrkr - Of course Jane Hamsher does the same thing, but Jane Hamsher doesn't post on this blog, you do. And during the HCR debate I grew to value your posts. So when I see you spouting nonsense that denigrates people who don't agree with you it riles me up. When you say liberals, of which I proudly consider myself, think something repulsive you are saying that I think the same way because I am a liberal.

By the way, how can you stand MSNBC? Maybe the daytime programming is decent, I wouldn't know. But with the possible exception of Chris Matthews, the nighttime lineup is just as silly as Fox News' nighttime line up. Just because they are more on my side of the ideological divide does NOT make their tactics acceptable.

False indignation, which is what these pundits traffic in, is counter productive. There are plenty of things to be upset about, why MSNBC, FOX and hate radio have to continuously try to anger their viewers with non-issues is beyond me. Actually, no, it isn't beyond me, they do it because anger/controversy sells. The angrier you can make your viewers the more likely they are to keep tuning in. But if your goal is a better informed populace (which, I know, is not their goal) than all this phony outrage just gets in the way.

Posted by: nisleib | April 21, 2010 4:11 PM | Report abuse


now we're getting totally off the topic but IMO the government should set strict guidelines not only to what mortgage companies should be able to offer but also to what consumers should be able to mortgage. Yes mortgage lenders and mortgage bankers were borderline criminal in who they offered mortgages to so as to make a buck but I'm sorry stupidity is not a valid excuse.

If borrowers are uninformed that is their fault. Get informed or don't buy a product you don't understand. That excuse carries very little weight.

To that end to fix the problem once and for all I'd be all for requiring mortgagees to show that they're not mortgaging more than "X"% of the current value of the home. If we go too far and kill off all ARM's because some mortgagees are to uninformed then that kills what is a viable market for those that do understand the product and what they're getting into.

I'm sorry but I don't believe in dumbing down everything so that everyone understands it.

Posted by: visionbrkr | April 21, 2010 4:12 PM | Report abuse


as far as MSNBC goes yes it is much like Fox but certainly less inflammatory (although i haven't watched Fox in a long time.) I gave up soon after the HCR debate went nuclear over there and facts started becoming optional.

Posted by: visionbrkr | April 21, 2010 4:28 PM | Report abuse

Another way to look at this from a policy perspective is that Liberals seek power for what can be done, while Conservatives seek power for what they can undo.

Posted by: tomcammarata | April 21, 2010 5:54 PM | Report abuse

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