The Institutionalist Roots of Macroprudential Ideas: Veblen and Galbraith on Regulation, Policy Success and Overconfidence

Andrew Baker, Wesley Widmaier*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

21 Citations (Scopus)

Abstract

One consequence of the global financial crisis has been to prompt debate over macroprudential regulation - meant to limit private risk-taking that threatens systemic stability. In this paper, we stress the roots of macroprudential ideas in the Institutionalist economics of Veblen and Galbraith in a way that highlights both unrecognised policy possibilities and underappreciated impediments to policy effectiveness, arguing in particular that regulatory success can breed overconfidence. First, we argue that while Veblen's views anticipated macroprudential arguments, they also obscured tensions between the technocratic acumen of policy 'engineers' and popular legitimacy. Second, we argue that while Galbraith's views similarly shaped the postwar Keynesian policy mix, they also echoed Veblen in underrating the potential for populist resentment of an intellectual 'technostructure'. We conclude that while this analysis can be seen as highlighting an overlooked century of macroprudential debate, it also demonstrates the potential for technocratic overconfidence - which can eventually undermine policy legitimacy and effectiveness.

Original languageEnglish
Pages (from-to)487-506
Number of pages20
JournalNew Political Economy
Volume19
Issue number4
DOIs
Publication statusPublished - Jul 2014
Externally publishedYes

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