UK strongEconomic Policystrong and the Global Financial Crisis Paradigm.pdfVIP

JCMS 2009 Volume 47. Number 5. pp. 1041–1061 UK Economic Policy and the Global Financial Crisis: Paradigm Lost?* jcms_2034 1041..1062 DERMOT HODSON Birkbeck College, University of London DEBORAH MABBETT Birkbeck College, University of London Abstract The global financial crisis of 2007–08 produced a sudden change in the economic policy of the United Kingdom (UK). Prior to the crisis, the government preached the gospel of price stability, fiscal prudence and light-touch financial regulation. In the wake of the crisis, the government countenanced unconventional monetary policies, a surge in public-sector borrowing and the need for a rethink of financial supervision. This article seeks to understand the significance of these changes using Peter Hall’s theory of policy paradigms. Its central argument is that, contrary to appearances, the UK has not yet experienced a fundamental reordering of the instruments, institutions and aims of economic policy. Third-order change cannot be ruled out as the crisis unfolds but the economic ideas underpinning UK economic policy have, for better or worse, demonstrated remarkable resilience thus far. Introduction The UK has been among the European economies hardest hit by the global financial crisis. The worldwide financial turmoil that began in 2007 triggered the first run on a British bank since 1866 and a near meltdown in the banking system 12 months later. The credit crunch, the effects of which have been amplified by the bursting of the UK’s decade-old house price bubble, has taken a severe toll on the economy. According to the latest data, which are * Thanks to three anonymous referees for helpful comments. The usual disclaimer applies. © 2009 The Author(s) Journal compilation © 2009 Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA 1042