The Politics of Financial Development: A Review of Calomiris and Haber's Fragile by Design
Journal of Economic Literature
vol. 54,
no. 1, March 2016
(pp. 208-23)
Abstract
Fragile by Design by Charles W. Calomiris and Stephen H. Haber introduces a framework for understanding financial crises and credit abundance with politics at its center. Using the historical experiences of five nations to illustrate, the authors propose that democracies such as the United States and Canada can have stable banks and ample credit so long as populist forces do not dominate the policy agenda, and that strong autocratic states such as Mexico can also achieve stability at the cost of restricting credit. Weak autocracies, such as Brazil over much of its history, often require inflationary finance and suffer from the banking fragility that comes with it. The authors identify populist ideologies and related policy decisions (such as unit banking, deposit insurance, and the Community Reinvestment Act) as underlying causes of banking instability in the United States as typified by the recent subprime crisis. Canada, in contrast, by holding populist forces in check through calculated political choices, remains crisis-free. (JEL D72, E44, G01, G21, N20, O16, O17)Citation
Rousseau, Peter L. 2016. "The Politics of Financial Development: A Review of Calomiris and Haber's Fragile by Design." Journal of Economic Literature, 54 (1): 208-23. DOI: 10.1257/jel.54.1.208Additional Materials
JEL Classification
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- E44 Financial Markets and the Macroeconomy
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- N20 Economic History: Financial Markets and Institutions: General, International, or Comparative
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O17 Formal and Informal Sectors; Shadow Economy; Institutional Arrangements