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The Credit/Welfare State Tradeoff

The Land of Too Much: American Abundance and the Paradox of Poverty (Harvard University Press), 2012

Posted: 10 May 2010 Last revised: 14 Feb 2013

Monica Prasad

Northwestern University

Date Written: December 16, 2010

Abstract

Until recently, the U.S. had stricter banking regulations than all European countries. This was one reason for the American deregulations of the 1990s. But when the U.S. attempted to imitate the looser regulations of Europe, the consequences were much worse than in Europe. Our theories of comparative political economy cannot explain either the heavier regulation in the supposedly liberal U.S., or the different consequences of deregulation in the U.S. To make sense of these phenomena I sketch a “demand side” theory of comparative political economy. I show that there is a tradeoff between reliance on credit and reliance on the welfare state across the industrial countries, that the divergence stems from political economic patterns laid down at the turn of the twentieth century, and that under deregulation less well developed welfare states see an explosion in household indebtedness, while more developed welfare states do not.

Suggested Citation

Prasad, Monica, The Credit/Welfare State Tradeoff (December 16, 2010). The Land of Too Much: American Abundance and the Paradox of Poverty (Harvard University Press), 2012. Available at SSRN: https://ssrn.com/abstract=1602204 or http://dx.doi.org/10.2139/ssrn.1602204

Monica Prasad (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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