With this book, Nolan McCarthy, Keith Poole, and Howard Rosenthal have made a major contribution to our understanding of the 2008 financial crisis and resulting recession. Political Bubbles offers an imaginative application of now-standard analytical tools for the study of American political institutions by three of the major developers of those tools. At the same time, as I will argue, it also represents an important milestone in the development of the study of American political science.

McCarthy, Poole, and Rosenthal explore of the role of government in making the financial bubble worse before the crisis, and failing to take appropriate action following the crisis to deal with future bubbles. The authors are solid in their knowledge of the crisis and are particularly good at detailing the prior history of financial bubbles in the United States. Nevertheless, the book adds little to our understanding of the economics and psychology of the bubble. What it does add is a focus on the role of government from a political science perspective—something quite lacking in any other book-length account of the crisis. I find that refreshing, as so many economists and journalists have critiqued the role of government without the analytical perspective that political science can offer.

The authors organize their analysis in around three causal components: ideology, interests, and institutions (the Three I’s), and argue that the interplay among these components is critical for understanding government’s response. These elements are treated separately in Chapters 2–4. I found their treatments of ideology and institutions sophisticated and persuasive, while the role of interests is somewhat less persuasive. The analysis of ideology is particularly strong and is an advance independent of the contribution to our understanding of the economic crisis. The authors highlight three aspects of ideology: dimensionality, content, and behavior (they do not use these terms, but I think they are fair summaries of the ideas). Dimensionality refers to the typical understanding of ideology in the congressional literature: a left–right structure to policy choices. The content of ideology, which the authors term free-market conservatism, infuses the understandings of policymakers and citizens, whatever their particular positions on the ideological left–right dimension, with a deference to markets. Finally, the authors include a well-argued section that justifies behavioral measures of ideology, and in particular the legislative roll-call voting measures that Poole and Rosenthal have developed.

The analysis of institutions is similarly persuasive. Here, the authors use the now-standard pivotal politics approach developed by Keith Krehbiel, in conjunction with their own behavioral right-to-left legislative voting scaling, to show the way that institutions and behavioral ideology interact to thwart more aggressive action to address the recent financial bubble as it was built and its devastating aftermath.

Unlike the analyses of ideology and institutions, the authors’ approach to interests is less satisfactory. Notions of capture and undue influence of financial firms infuse their analysis, which is really too limited a view given the modern literature. Unfortunately, neither the new perspectives developed on lobbying and interest groups nor the themes of bureaucratic autonomy and how agencies avoid capture are addressed in their discussion.

McCarthy, Poole, and Rosenthal go on to analyze the recent financial bubble from the perspective of the Three I’s. While they blame government for errors of commission (and what one might call codependency), they see financial bubbles as created mostly outside of government, through the more-or-less standard operations of a dynamic financial capitalism that can create financial products that undermine the broader economy. Government contributes to the crisis by failing to act when desirable and underreacting when policy action becomes necessary. Each of the Three I’s caused government response to be slow and inadequate, and the core of the book examines the roles of each of these factors separately.

McCarthy, Poole, and Rosenthal’s analysis shows that the 2008 crisis caused no permanent shift in ideology. They also study specific votes that were critical in the policy choices before and during the crisis. This is generally a powerful mechanism for showing the role of ideology and institutions, particularly the role of one-dimensional behavioral ideology in structuring choices. But the vote on TARP (Troubled Assets Relief Program) presented to Congress by the Bush administration at the peak of the crisis was not one-dimensional. The authors dismiss this as an aberration and do not compare differences between the two votes on TARP (the first one failed, resulting in a 500 point decline in the Dow-Jones). Yet it represented a complete breakdown of ideological structure, suggesting that such “windows of opportunity” can lead to major change. It is not immaterial that the shift occurred in the absence of an election—major change can and does happen without election-induced shifts in gridlock intervals.

The authors also examine the similarities and differences in the political contexts and governmental responses between earlier financial crises and the 2008 crisis. Their core finding is the role of politics in limiting the response of government. The power of their historical account resides in its easy familiarity with past economic crises and its ability to leverage quantitative studies of polarization in the historical studies of polarization.

In a chapter on the role of the public in the crisis, the authors depict a public that blames the financial sector and its deregulation, but also displays a high skepticism of interest-group influence and “capture.” The public never supported the critical 2009 stimulus bill, seeing it as wasteful. The attack on deficit spending and the notion that government was the handmaiden of Wall Street were critical in the Tea Party mobilization and subsequent Republican landslide in 2010. It may be, as Political Bubbles suggests, that elite ideology guided the Tea Party mobilization, but it is hard to see how this could have been accomplished absent at least amorphous mass readiness to receive the messages.

Finally, the authors discuss what they see as major failings before, during, and after the crisis. While some of these failings relate to long-standing features of the American political economy, many relate to current political choices, driven in part by the increases in partisan polarization and the consequent friction in the American system.

The authors are not happy with the performance of government, either before, during or after the crisis, even highlighting this in the subtitle of the book: Financial Crises and the Failure of American Democracy. The recognition of policy errors implies that there exists a better set of policies that should have been put in place. But I am not sure that the authors’ diagnoses and remedies are correct.

McCarthy, Poole, and Rosenthal are clearly dissatisfied with elite behavior; the book concludes with this observation: “Our political leaders wasted a crisis and kicked the can down the road. Democracy has failed ordinary Americans” (p. 282). But is this true? The Bush administration Treasury and the Federal Reserve acted with haste due to a true crisis, bailing out and consolidating investment banks, saving AIG (American International Group), nationalizing Fannie Mae and Freddie Mac, initiating a rescue of American automobile manufacturers, and, at the Fed, dropping short-term interest rates to zero and flooding the markets with liquidity (the monetary base more than doubled in the fourth quarter of 2008). The Obama Administration completed the automobile manufacturer rescue, passed a major economic stimulus bill that resulted in a jump in the Congressional Budget Authority of almost a third (in a $3 trillion budget), and proposed a major restructuring of the rules governing the financial industry (which Congress passed as The Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010).

I tend to agree with the authors that more or different would have been desirable, and they are persuasive in the argument that the course of policy was negatively influenced by the Three I’s. But the reaction of the public, expressed through elections, was definitely not “more, and get going”; it was, rather, “too much, too fast, with too much debt.” In my opinion, the American Recovery and Reinvestment Act of 2009 was by far the most important thing that President Obama and Congress did in the crisis, but it was met with a strongly negative public reaction. And by the time Congress was considering major regulatory action, public opinion had viewed the problem not as saving the world from another Great Depression but as committing the unforgivable sin of moral hazard and “capture.” Did America’s elites fail democracy? Or did electoral democracy fail the elites?

Moreover, it is possible to offer a much more positive reading of the response of the federal government to the crisis. Ben Bernanke, Chair of the Federal Reserve, was convinced that both the lack of liquidity and the collapse of the institutional structure for delivering it (that is the banking system) during the Great Recession were responsible for the depth of that crisis, and he moved both to save the structure and pump liquidity into the markets. Dodd-Frank has turned out not to be the weak structure predicted for it, as even liberal economists such as Paul Krugman have noted. Compared to other Western democracies, the United States performed quite well; Europe did not institute as rigorous a financial regulatory regime, nor did it employ monetary policy as aggressively or accept the macroeconomic wisdom of fiscal stimulus.

What should government have done beyond getting through the immediate crisis? It basically confronted two choices: Establish a stronger regulatory regime or go for antitrust–style breakups of the financial giants. Breaking up the oligopolistic banking structure rather than consolidating it may be an unachievable siren song, and while political leaders may have been unduly influenced by Wall Street lobbying, they also surely judged what was within the realm of the possible. Antitrust action would surely have met a roadblock. We may all admire Iceland for sticking those responsible for the crisis with the bill (and jail time), but the United States is not Iceland, and policymakers’ estimates of the impact of U.S. action on the world’s financial stability was surely a factor.

Dodd-Frank, as the authors write, is complex and perhaps overly so, but it created new regulatory structures and modified the jurisdictions of others in a manner that ensured competition among agencies over regulatory jurisdiction. I am of the opinion that there are two ways around regulatory capture: The first is reliance on the professionalism of the bureaucrats operating the structures (they are much better than you think). The second is to construct a complex web of overlapping responsibilities among agencies to ensure that all agencies are captured so that a monolithic industry can achieve its ends. The call for clear jurisdictions with tight links to clear and simple legislation (which is a part of McCarthy, Poole, and Rosenthal’s solution set) is most probably misguided. Rather, if the legislature does not work, then “ambition must be made to counteract ambition” in the bureaucracy, which can be done in regulatory structures only with complex and confusing assignments of jurisdiction.

I may disagree with the authors on the performance standard one might use to judge the post-crisis governmental response, but that does not detract from my admiration for their book. Putting Political Bubbles in context requires recognizing that its authors have produced a monumental research program in the study of American politics. Poole and Rosenthal laid the groundwork in their tour de force Congress: A Political-Economic History of Roll Call Voting (1997), extended and updated in Ideology and Congress (2007). These books were primarily methodological and descriptive. The authors introduced their metric scaling approach to roll call voting in Congress and traced the dimensional patterns through the course of U.S. history. So long as the pattern is one-dimensional, as it generally is, the approach allows calculations of average party differences and traces this difference across time, a measure of polarization. In Polarized America (2006), McCarthy, Poole, and Rosenthal explored the causes of increasing party differences since the 1970s, finding an important role for income inequality. In Political Bubbles, the authors examine the consequences of polarization—or at least one set of consequences. Kudos to the authors for developing the analyses both in Polarized America and Political Bubbles primarily in graphical form, allowing the reader to grasp readily the historical trends that the team is so adept in exploring.

Surely, no political scientist reading this book can any longer ignore the effects of government policy in their models of politics. Policy in today’s world is both too important in current affairs and too crucial for understanding today’s politics. We simply cannot understand politics without understanding, in both process and substance, public policy. Yes, external factors such as the realignment of the South and increasing income inequality are responsible for increasing polarization. But so, too, is the huge increase in the “broadening” of government as actions that have left little to the civic sphere alone (The Politics of Information: Search and the Course of Public Policy in America, n.d.).

In her new book, Elaine Kamarck (How Change Happens—Or Doesn’t: The Politics of US Public Policy, 2013, p. 7) writes, “The intersection of policy and politics is a lonely place.” She means that policy professionals seldom speak the same language as politicians. But the observation could also speak to the yawning divide between policy-process scholars and students of American institutions and politics. Economic policy is too important to leave to the economists, and policy more generally is too important to leave to students of policy processes (that includes me). Political Bubbles has the potential of turning the focus of institutionalists from the causes of polarization (actually all three of the I’s) toward their policy consequences. But there is much more that this enterprise may-foreshadow. One is obvious given what I wrote previously: Surely we need a much better understanding of the operations of administrative agencies than we have now. We must jettison the old saw of thinking that simply making agencies hierarchically accountable to elected politicians will solve all of our policy problems (the authors will surely join me in this, as they are quite disgusted with the performance of Congress).

The notion of political bubbles is itself intriguing, and we owe McCarthy, Poole, and Rosenthal a debt of gratitude for developing this concept to guide their study. Political bubbles come from the actions of the Three I’s in thwarting government action. The authors’ depiction of ideology as bounded rationality that acts as resistance to needed change, rather than serving as an efficient shortcut to making optimum decisions, is a welcome bromide. It also points to a systematic way to get beyond what still is an overreliance on economic models of maximization in the study of political institutions.

Are bubble dynamics possible in the absence of the strong forces of free-market conservatism? Are they more general phenomena in democratic policy processes? In a study of such policy bubbles in three issue areas (crime, school reform, and privatization), Bryan Jones, Hershel Thomas, and Michelle Wolfe (“Policy Bubbles,” n.d.) have found that in crime and privatization, after a period of underinvestment relative to indicators of the policy problem, government then vastly overinvested in these areas and has been slow to reduce policy investments to match the declining indicators. The pattern of under and overinvestment suggests great difficulty in matching policy solutions to problems. This certainly occurred in the financial crisis.

Political Bubbles is a contribution to our understanding of the particular role of government in the financial crisis of 2008. But it is much more. It builds on its authors’ long-term research program to assess quantitatively and historically the role of ideology and polarization in Congress. It offers a powerful analysis of its topic. More important, it is a beacon pointing toward a serious integration of the study of politics and policy in our discipline. It is a landmark accomplishment.