Populism, Group Thinking and Banking Policy
17 Pages Posted: 29 Feb 2020
Date Written: February 2020
This paper builds a model of populism called Democratic Rioting in which citizens – i.e. the poor and the rich - are assumed to be heavily influenced by psychological group dynamics that result from banking shocks. We highlight a display of anger that is channelled through an election instead of in the streets. In turn the anger – a self-serving bias – can be influenced by non-financial news about immigration, welfare plans and housing plans. Therefore after a banking shock the consensus on a myopic populist policy can depend on many issues that have nothing to do with the bailout decision itself. We describe a mechanism that can be applied to the aftermath of both the Great Recession and the Great Depression.
Keywords: Populism, Political Economics, Behavioural economics, Financial inequality, Banking policy
JEL Classification: D72, D78, E31, E52, E58, E62, E71
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