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

New Political Economy

Author/s (editor/s):

Andrew Baker, Wesley Widmaier

Publication year:

2014

Publication type:

Journal article

Find this publication at:
Taylor & Francis

Andrew Baker and Wesley Widmaier, ‘The Institutionalist Roots of Macroprudential Ideas: Veblen and Galbraith on Regulation, Policy Success and Overconfidence’, New Political Economy, 19(4) 2014: 487‒506.

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.

Updated:  7 June 2020/Responsible Officer:  Bell School Marketing Team/Page Contact:  CAP Web Team