The Political Causes and Consequences of Credit Markets

Over the last decades, financial markets have become increasingly central to the daily activities of households, companies, and governments. Most families in advanced industrial countries are now entangled in financial markets through mortgages, car loans, credit cards, and pension plans.

In May 2019, two members of the WEALTHPOL team (Asli Cansunar and Jonas Markgraf) organized, alongside Andreas Wiedemann, a workshop at Nuffield College that brought together scholars to enhance the understanding of the relationship between financial markets and political consequences. We invited nine external speakers from various institutions around the world: Sir Paul Tucker (Harvard Kennedy School, The Systemic Risk Council), Daniel Martens (University of Frankfurt), Alexander Reisenbichler (University of Toronto), Guillermo Rosas (Washington University in St Louis), Gyozo Gyongyosi (Kiel Institute for the World Economy), Philipp Rehm (Ohio State University), James Wood (University of Cambridge), Tim Hicks (UCL), and Nils Redeker (University of Zurich). We also had numerous internal speakers from the University of Oxford, including Tim Vlandas, Marek Naczyk, Desmond King, Alexander Kuo, David Rueda, Ben Ansell, and Pepper Culpepper.

Our workshop started with a keynote speech by Sir Paul Tucker. His speech focused on central bankers, who have emerged from the financial crises as an alternative unelected power alongside the judiciary and the military. In his talk, Tucker explored the necessary conditions for delegated but politically insulated power to be legitimate in the eyes of constitutional democracy and the rule of law.

This keynote speech was followed by four different panels, each examining a different aspect of financial markets’ effects on politics. The first panel, ‘A Regime Perspective on Credit Markets’ featured three different presenters. Daniel Mertens explored the potential of two key concepts of institutionalist political economy – complementarity and hierarchy – to make sense of household debt trajectories in advanced capitalist countries. Alexander Reisenbichler argued that little research in political science has focused on how and why governments support mortgage debt (the most significant component of household debt) as part of the public-private welfare state. Finally, Tim Vlandas explored the shift from moderate to high inflation rates of the Golden Age of post-war capitalism to the low inflation regime of monetarism in the 1970s and 1980s. He modeled and examined the shifts in the inflationary preferences of the median voter and their translation into party politics and economic policies.

The second panel focused on the political consequences of credit markets. Guillermo Rosas talked about how voters see bank credit as an acceptable substitute for publicly-provided welfare. In the last talk of the panel, Gyozo Gyongyosi focused on the impact of debtor distress during a financial crisis on support for the populist far-right.

The third panel focused on the impacts of austerity on politics. Philipp Rehm argued that the rise in private debt had become a significant driver of inequality because access to and the terms of credit vary by the risk of default, which is closely tied to income. The effect is, he explained, magnified by a trove of new data that allow lenders to more accurately assess individual risks, thereby linking interest rates more closely to the underlying risk distribution. The second speaker of the panel, James Wood, focused on the effect of household debt in shaping inequality. He argued that household debt increases the share of income captured at the top of the income distribution while increasing disparity between the top and the middle of the income scale. The final paper in the panel, presented by Tim Hicks, focused on the determinants of support for austerity measures.

The final panel focused on savings and labor markets. Nils Redeker investigated the political roots of the global rise of corporate savings. Marek Naczyk, on the other hand, focused on the privatization of pensions. He examined the politics behind the different fates of pension privatization in Hungary and Poland.

Overall, the workshop was an excellent opportunity for scholars to share recent work in this emerging field, as well as presented a unique opportunity for social scientists in Oxford to come and learn about trends in the political economy of financial markets. Through this gathering, we helped to build a new network of scholars working on similar and related issues to share and discuss new work and create and promote a long-lasting research agenda that deals with the political causes and consequences of credit markets. We hope that this workshop helped to develop an intellectual community among scholars across the social sciences that so far are rarely in touch with each other and foster collaboration and exchange. We look forward to building on this links with the WEALTHPOL project.