The Wealth Effect: How the Great Expectations of the Middle Class Have Changed the Politics of Banking Crises

The politics of major banking crises has been transformed since the nineteenth century. Analyzing extensive historical and contemporary evidence, Chwieroth and Walter demonstrate that the rising wealth of the middle class has generated 'great expectations' among voters that the government is responsible for the protection of this wealth. Crisis policy interventions have become more extensive and costly - and their political aftermaths far more fraught - because of democratic governance, not in spite of it. Using data from numerous democracies over two centuries, and detailed studies of Brazil, the United Kingdom and the United States, this book breaks new ground in exploring the consequences of the emerging mass political demand for financial stabilization. It shows why great expectations have induced rising financial fragility, more financial sector bailouts and rising political instability and discontent in contemporary democracies, providing new insight to anyone concerned with contemporary policy and politics.

Table of Contents:
Part I. Banking Crises and the Rise of Great Expectations: 1. Great expectations, banking crises, and democratic politics; 2. Great expectations: banking crises, policy responses and politics; 3. Household wealth and financialization in the United Kingdom, the United States and Brazil since the nineteenth century; 4. The emergence of great expectations in the United Kingdom, the United States and Brazil; Part II. Evolving Policy Responses to and Political Consequences of Banking Crises since the Nineteenth Century: 5. Changing expectations and policy responses to banking crises; 6. Banking crises and voters over the long run; Part III. Banking Crises, Policy and Politics in the United Kingdom, the United States and Brazil since the Nineteenth Century: 7. Banking crises in the United Kingdom in an era of low expectations; 8. A banking crisis in the United Kingdom in an era of great expectations; 9. Banking crises and politics in the United States before 1945; 10. The 2007–2009 crisis and its aftermath in the United States; 11. Banking crises in Brazil in an era of low expectations; 12. Banking crises in Brazil in an era of rising expectations; 13. Conclusion.

About the Author :
Jeffrey M. Chwieroth is Professor of International Political Economy in the Department of International Relations, and a Research Associate of the Systemic Risk Centre at the London School of Economics and Political Science. He is the author of Capital Ideas: The IMF and the Rise of Financial Liberalization (2010). He has published numerous articles on the political economy of international money and finance and on global governance. His research has been supported by grants from the Australian Research Council, the AXA Research Fund, the British Academy for the Humanities and Social Sciences, and the Economic and Social Research Council. Andrew Walter is Professor of International Relations in the School of Social and Political Sciences at the University of Melbourne. He has received research grants from the Australian Research Council and the Centre for International Governance Innovation in Canada. He has published numerous articles on the political economy of international money and finance and their governance among and within countries. His books include Governing Finance: East Asia's Adoption of International Standards (2008), Analyzing the Global Political Economy (2009), China, the United States, and Global Order (Cambridge, 2011, with Rosemary Foot), East Asian Capitalism (2012, ed. with Xiaoke Zhang), and Global Financial Governance Confronts the Rising Powers (2016, ed with C. R. Henning).

Review :
'Special-interest politics figure importantly in all scholarly analyses of the causes and resolution of financial crises. Marshalling an amazing array of historical, statistical and narrative evidence, Chwieroth and Walter show that this point applies not just to the bankers who are commonly seen as the key players in these complex financial events, but also to the households whose deposits and savings are at risk. This observation has powerful implications for how financial crises play out in our modern era of mass democratic politics. The literature on financial crises will never be the same.' Barry Eichengreen, George C. Pardee and Helen N. Pardee Professor of Economics and Political Science, University of California, Berkeley 'The global pandemic of banking crises, and government-sponsored bailouts in response to those crises, are both unprecedented phenomena. Such new and socially costly phenomena beg for deep inquiry by political scientists seeking to understand their political roots, and The Wealth Effect offers just such an inquiry. It argues convincingly that bailouts and the severity of crises are connected to each other, and both reflect a new underlying politics in which the protection of banks has become popular with a broad class of voters. This book challenges mechanical views of risks that abstract from politics, and in doing so, calls upon voters in democracies to look in the mirror when seeking causes for their financial system, and fiscal, troubles.' Charles W. Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia University, New York 'A fascinating and novel argument about the politics of finance before and after the Great Recession. Tracing the development and effects of a an enlarged 'bailout' constituency, involving both wealthy and middle class citizens, this book offers valuable lessons about finance, class politics and the workings of democracy.' Nancy Bermeo, University of Oxford and Princeton University