That is one way to interpret the evidence from a new paper (ungated) by Lawrence Broz on partisan financial cycles, presented at a conference in honor of Peter Gourevitch. The abstract is below:
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
Update: See more analysis on the FT blog.
{ 2 comments }
I hate to be a bit of a wet blanket, but I am a retired draftsperson with a love of dogs and peonies and no formal economics education at all, and I could have told you that. 15 years ago, even.
But it’s nice to see it proven.
Noni
Interesting, I agree it seems obvious, though evidently not to many.
Another point that seems obvious, but would love to see elaboration on: CEO and banker salaries tend to increase under right-leaning govts, but company profits and stock prices tend to increase under left-leaning ones, at least in the US.
I wonder if this is somewhat due to the same patterns of booms and busts noted in the paper above.
Comments on this entry are closed.