This book offers an intriguing explanation for the persistence of poverty in the United States grounded in American political development and comparative political economy. Rather than following the lead of past research that emphasizes the power of labor relative to capital or the vagaries of national cultures, Monica Prasad’s account begins with “the most consequential event of the late nineteenth and early twentieth centuries in the Western world … the unprecedented economic growth of the United States” (p. 54). Under the gold standard, the high agricultural productivity resulted in plunging prices that left farmers on both sides of the Atlantic in economic ruin. In the late nineteenth century, European farmers joined protectionist coalitions and sought to counter deflation through tariffs. In the United States, a comparable response was foreclosed by the reliance on access to export markets. Agrarian populism focused, instead, on fighting the great concentrations of wealth that they believed were responsible for their fate through railroad regulation, antitrust, and progressive taxation, while countering deflation by expanding access to credit.

During the next crisis—the deflation of the 1920s and the Great Depression—protectionism was once again the first response in Europe. But this time, it was combined with a supply-side model of growth that constrained present consumption via wage restraint, allowing firms to reinvest their profits to build productive capacity. Moreover, European states relied on the sales tax or value-added tax to further restrain consumption relative to investment. These taxes generated the revenues to fund public consumption. Welfare state expansion was “an explicit quid pro quo for wage moderation and consequent restraint of private consumption” (p. 80). In the end, this model generated both reductions in poverty and steady export growth.

In the United States, policymakers developed a consumption-based growth model. With respect to revenues, there was an ongoing dependence on the progressive personal and corporate income tax rather than a national sales tax, rejected for its regressive features. Equally important, policymakers promoted the creation of a credit-financed consumer economy. During the Depression, Franklin Roosevelt and others believed that revival of residential housing was crucial for recovery. The Federal Housing Administration standardized the long-term, low-interest, fully amortized loan with small down payments while providing insurance for lenders. The Federal National Mortgage Association added liquidity by creating a secondary market for insured mortgages. The New Deal policies “created the American model of credit-based homeownership. … [T]hey made [it] easy and widely popular for Americans to take on significant levels of debt” (p. 205). They laid the foundation for what Prasad refers to as “mortgage Keynesianism.” As she notes, “credit-financed consumption of homes became a central element of the functioning of the economy as well as of the organization of people’s lives” (p. 221).

This policy mix had unintended consequences. While corporate tax rates were high by comparative standards, firms could deduct fringe benefits (e.g., pensions, health insurance) via tax preferences. Employment-based benefits crowded out public provision, thereby limiting the support for those who did not benefit from private welfare. While the income tax may have been lauded for its redistributive effects, its visibility rendered it vulnerable to political assaults. From the late 1970s onward, economic problems in the United States fomented tax revolt and popular support for deep cuts in marginal rates, thereby reducing revenues. Ironically, as tax rates fell, the incentives for private welfare provision dissipated, leaving workers increasingly subject to the vicissitudes of the market. In Europe, in contrast, less visible consumption taxes proved to be far more stable, generating revenues for public provision.

With the decline in private and public welfare provision, U.S. citizens could always rely on credit. As economic performance lagged in the 1970s, efforts to eliminate discrimination in credit markets and promote deregulation were embraced by grassroots activists—not simply business or financial interests—for a simple reason: “[C]redit had become a necessity in American life. … While policymakers may have abetted the financialization of the economy for their own reasons, in aiding the growth of consumer and mortgage credit they were following the lead of social groups who saw equal access to credit as a social goal” (p. 225). Deregulation was “the logical outcome of a system in which welfare needs were met through credit and the limits that this system hit during the macroeconomic difficulties of the 1970s” (p. 240).

Prasad argues that logics of the welfare state and the credit-based model are not dissimilar. The former uses redistribution between groups to fund productive public investments that arguably will pay for themselves. The latter seeks the same ends by borrowing from a presumably richer future. There is a trade-off between welfare and credit. In nations with well-developed welfare institutions, deregulation did not have the same implications for household indebtedness as in the United States. However, the credit-based model increases vulnerability to financial volatility. Moreover, the models carry very different ramifications for poverty: “While a political economy based on credit may offer a measure of relief to those who are able to borrow, it leaves unprotected those who are not. In undermining the welfare state, the American path of democratization of credit condemns a segment of the populace to poverty” (p. 244).

Prasad concludes by offering some reflections and potential reforms. In the wake of the financial crisis, the most important insight is that a focus on regulation is insufficient. Rather, we must understand the underlying demand for credit: “In the absence of the welfare institutions common in Europe, credit is how Americans survive.” Regulatory constraints on credit will create hardship, and this “guarantees the emergence of calls for increased access to credit from all quarters” (pp. 260–61). Absent an expansion of social welfare or a more coherent growth strategy, one should expect ongoing vulnerability to financial instability.

There is much to celebrate in this theoretically insightful and empirically rich book. Scholars of American political development and comparative political economy will have no choice but to engage its core arguments. While the book contributes much, one might have hoped for greater attention to the ideological and political dimensions of the changes in the post-1970s period. Prasad is quite convincing that persistent poverty is a legacy of the policy responses to earlier episodes of deflation. But in the contemporary period, there is much to suggest that poverty and inequality were amplified by an ideological commitment to welfare reform, a heightened skepticism regarding social provision, efforts to harness markets to serve a social welfare function, and the failure to adjust welfare institutions to meet demographic changes and the changing nature of risk (see Jacob Hacker, The Great Risk Shift, 2006). Similarly, the demand for credit may not have had the same catastrophic results absent the concerted efforts to block the construction of a regulatory architecture to cover the shadow banking system. The faith that rational actors had the incentives and the capabilities to manage risk led policymakers to eschew solutions that would have appeared prudent to their predecessors. In short, while long-term trajectories were critically important, decisions and nondecisions magnified their manifestations.

Fortunately, there are many studies on the contemporary period to fill whatever gaps remain. The Land of Too Much will force scholars interested in the recent events to contemplate the deeper roots of the crisis and the challenges of meaningful reform.