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
Date Written: December 16, 2010
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: Suggested Citation