Credible interventionism: economic ideas of government and macroeconomic policy in the Great Recession

Abstract

ABSTRACT The macroeconomic policies of advanced economies during the Great Recession were characterised by a curious mixture of unconventional market interventions executed through depoliticised governance structures. We explain this phenomenon by developing a theoretical framework that focuses on the ideational and institutional influence of government-related economic ideas by combining insights of constructivist institutionalism and historical institutionalism. Specifically, we argue that the dominant government-related idea of ‘policy credibility’ – the need to convince markets of government commitment to refrain from ‘politicised’ interventions – was crucial for the adoption of depoliticised macroeconomic interventionism. The ideational dominance of ‘policy credibility’ and its pre-crisis institutionalisation enabled significant policy interventions as long as depoliticised decision-making was maintained and consolidated. We demonstrate this argument through a comparative in-depth analysis of monetary and fiscal policy in two very different cases among advanced economies – the UK and Israel.