Understanding the 2007–2008 Global Financial Crisis: Lessons for Scholars of International Political Economy

TLDR

Economists attribute the 2007–2008 crisis to market and regulatory failures and a pre‑crisis environment of cheap credit, while political factors also played a key role that IPE scholars should have examined. The study investigates how well international political economy scholars anticipated the crisis. While IPE scholars correctly identified many dangers of securitization, regulatory failures, and their politics, they largely missed the macroeconomic roots—particularly international capital flows fueling the U.S.

Abstract

Economists have explained the 2007–2008 global financial crisis with reference to various market and regulatory failures as well as a macro-economic environment of cheap credit during the precrisis period. These developments had important political causes that scholars of international political economy (IPE) should have been well positioned to study before the crisis. How well did they anticipate the crisis? Although none foresaw all the causes, a number of IPE scholars correctly identified many of the dangers associated with new models of securitization as well as accompanying regulatory failures and the politics underlying them. IPE scholars were less successful in identifying the macroeconomic roots of the crisis, particularly the role of international capital flows in fueling the U.S. financial bubble, but some scholars did usefully explore the politics that contributed to the latter phenomenon. The study of IPE scholarship in this episode contains useful lessons for the field's future.