The tricky thing about answering this question is that the labor market has collapsed along with the housing market whereas during the boom the housing market covered over cracks in the labor market making splitting out effects more difficult. Moreover, even if citizens demanded protection from the whims of the market it is not obvious that governments could protect them given the mistrust of debt and deficits in European sovereign bond markets.
Finally, since citizens' preferences over redistribution are not mercurial, one might expect the process of preference reversal to be slow, perhaps driven by cohort effects not individual changes of heart. There are of course outliers, particularly the USA, on which more in a moment.
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Still, this bivariate relationship is in fact statistically significant, at the five percent level even when including the USA, and at the one percent level when excluding the USA. The position of the USA is especially interesting since its housing bust began earlier and was faster and deeper than most other countries. Indeed by it had almost bottomed. By contrast the housing crash was smaller in countries like the UK and Denmark, even with equivalent or larger booms than the USA. In other words, a similar question asked in which unfortunately it was not!
A further question is whether countries that have not yet experienced a bust in line with the size of their boom will have major further shifts in both asset prices and support for redistribution. The preferences of citizens' over government programs will have little substantive import if politicians remain unresponsive. Thus, the next question is do politicians actually respond to changes in public opinion wrought by the housing cycle?
There are two ways of attacking this question. How much did politicians create the boom in the first place and why? And how have they responded to the credit crisis and desperate recent economic times? With stagnating incomes and stubborn structural employment, the quickest and seemingly cheapest way to bridge the gap between expectations and outcomes was to provide credit. However, not all politicians across the industrialized world have been similarly constrained in their policy instruments. Nor have all citizens had similar access to cheap credit.
Schwartz and Seabrooke , and Schwartz argue, concurring with Rajan , that global imbalances in trade and capital flows explain which countries had access to cheap credit and which countries were the providers of the financing. However, other countries with trade deficits such as the United Kingdom and Spain were also able to access cheap credit in order to finance these deficits, causing a boom in asset prices.
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On the flip side some northern European countries, above all Germany, took advantage of de facto undervaluation within the Euro zone to amass large current account surpluses and capital outflows. Thus currency valuations produced capital account inflows and outflows that led to house price booms in trade deficit countries and oftentimes asset price stagnation in trade surplus countries like Germany and Japan.
Ahlquist and Ansell take a more institutional tack, arguing that the differences in electoral institutions across the industrialized world help to explain differential credit supply during this period. In particular, policymakers in majoritarian systems face greater demand for credit because of low levels of redistribution and have systematically lower interest rate spreads creating higher supply of credit.
Importantly, this insight about the role of electoral institutions in translating voter preferences into policy outcomes is complementary with analysis that takes the effect of asset prices on public opinion more seriously. Finally, how have asset markets affected policymakers' responses to the credit crisis? I argue elsewhere Ansell a that the size of housing market bubbles appears to have determined the importance of partisanship in the structuring of stimulus policies. Broadly, countries with larger housing booms both had larger discretionary stimulus packages in the to period and greater differences in the structure of those packages as driven by ideological demands.
By contrast, countries with smaller bubbles like Switzerland and Norway had few partisan distinctions in their stimulus composition.
In the wake of the credit crisis, accordingly, scholars can begin piecing together the connections between political institutions, access to finance, political partisanship, and the desires of the public. What we do know is that these connections are in many cases novel and not easy to explain using the theoretical rubrics developed to explain the postwar period.
Are the macroeconomics of the product cycle reaffirming their importance once more? But this current recession was different to those experienced by advanced industrial nations since the Great Depression and it is most apparent that the traditional arsenal used to fight business cycle turndowns has proved largely inadequate to the task of deleveraging and liquidity provision facing Europe today.
A recession caused largely in the financial markets deserves political economy theories that take asset markets seriously. Access to global financial markets may be in a lull presently but it is sure to rise to unprecedented levels in the near future and it is incumbent on social scientists to understand the opportunities and risks this poses to citizens in their desires to build up lasting stocks of wealth and to governments in their desires to match citizens' aspirations and outcomes.
The economic transformation of the last few years merits a transformation in our own understanding of political economy in the contemporary world. Volume 18 , Issue 4. The full text of this article hosted at iucr. If you do not receive an email within 10 minutes, your email address may not be registered, and you may need to create a new Wiley Online Library account.
If the address matches an existing account you will receive an email with instructions to retrieve your username. Debate Free Access. Ben Ansell University of Minnesota Search for more papers by this author. Tools Request permission Export citation Add to favorites Track citation. Share Give access Share full text access. Share full text access. Please review our Terms and Conditions of Use and check box below to share full-text version of article.
Introduction The credit crisis, beginning in and still hammering the advanced industrial world today, is distinct from other postwar recessions not only in its magnitude but also in its root causes. Public Opinion in the Credit Crisis How do citizens behave as assets like housing become more important to their economic security? Figure 1 Open in figure viewer PowerPoint. Policy Causes and Responses The preferences of citizens' over government programs will have little substantive import if politicians remain unresponsive. The Rebirth of Employment Dominance? Ahlquist, J.
W Ansell. Google Scholar. Crossref Google Scholar. Citing Literature.
Assets in Crisis: Housing, Preferences and Policy in the Credit Crisis
Volume 18 , Issue 4 December Pages In the boom phase, growth is positive. You know you're at the end of a boom phase when the media says the expansion will never end. The end of the boom or expansion phase is the peak. According to the National Bureau of Economic Research , it is the inflection point where the economy stops expanding. The bust phase is the contraction phase of the business cycle.
It is brutish, nasty, and mercifully short. It rarely lasts more than 18 months. A stock market crash can cause a recession. As stock prices fall, everyone loses confidence in the state of the economy. They cut back business activities such as purchasing, hiring, and investing.
The trough is the inflection point where the economy stops contracting and begins to expand. Three forces combine to cause the boom and bust cycle. These three forces work together to cause each phase of the cycle.
The Booked Review: 'The Housing Boom and Bust'
In the boom phase, strong consumer demand is the leading force. Families are confident about the future, so they buy more now. They know they'll get better jobs, and their home values and investments will increase in value. This demand means companies have to boost supply, which they do by hiring new workers. Capital is easily available, so consumers and businesses alike can borrow at low rates.
That stimulates more demand, creating a virtuous circle of prosperity. They ignore the risk of bad investments to achieve gain. In the bust phase, the main force is plummeting expectations about the future. Investors and consumers get nervous when the stock market corrects or crashes. They buy safe-haven investments that traditionally don't lose value, such as bonds , gold , and the U.
As companies lay off workers, consumers lose their jobs and stop buying anything but necessities.