Counterproductive evolution: the long-term effects of short-term interventionism following the Great Financial Crisis

Abstract

Following the 2008 financial crisis, policymakers in advanced economies employed unconventional economic interventions that were meant to be short-term but continued for more than a decade and were followed by unconventional interventions in non-financial markets. What causal mechanisms connect short-term unconventional interventions with long-term policy change? By developing a constructivist-evolutionary framework, we suggest that employing unconventional policy ideas for the sake of securing the pre-crisis growth regime, in a volatile economic environment, has repeatedly failed policymakers’ expectations. The gap between expectations and outcomes expanded the policy space for unconventional policy ideas, and activated an evolutionary process, through which expanding ‘temporary’ interventions have been adopted in additional areas, became hard to reverse and modified macroeconomic priorities. A comparative process-tracing analysis of two case studies – the UK and Israel – demonstrates how short-term employment of innovative policy ideas and long-term change in economic policy are tightly connected via causal ideational evolutionary mechanisms.