Partisan Shifts after Financial Crises

How do electorates respond to financial crises? This question seems pertinent as analysts are scrambling to make sense of the Occupy Wall Street movement and ponder how the crisis is going to affect the next election. According to a working paper by Lawrence Broz, electorates generally shift to the left and so do governments. Broz bases this conclusion on a study of all bank-centered financial crises in OECD countries since 1973. He finds that:

[..] governments in power prior to major financial crises are more likely than the OECD average to be right-of-center in political orientation. I also find that these governments are more likely than average to be associated with policies that precipitate crises: large fiscal and current account deficits, heavy borrowing from abroad, and lax bank regulation. However, once a major financial crisis occurs, the causal arrow flips and government partisanship becomes a consequence of crises. I find that the electorate moves to the Left after a major financial crisis, and this leftward shift is associated with changes in government partisanship in that direction.

The general claim that we should expect people to shift leftwards during crises is well-supported by logic and evidence; and not just in this paper. In this sense, Occupy Wall Street is not unexpected but the Tea Party is. Now, there is an obvious way the current US case is different: the shift to the left occurred as the crisis was unfolding. Indeed, in Germany, France, and the UK right-wing coalitions are all facing plummeting approval ratings and difficult reelection prospects (although not immediate in all countries). Perhaps the US is different in other ways too. Scholars have been debating for years why working-class radicalism is so weak in the US?. Nonetheless, the comparative perspective provides some useful context to a movement whose salience appears to surprise a lot of people.

ps. I have mentioned an earlier version of this paper before.

[Cross-posted at The Monkey Cage]

Erik Voeten

Erik Voeten is the Peter F. Krogh associate professor of geopolitics and global justice at Georgetown University.