Ideas and Coordination in Policymaking: The Financial Crisis of 2007–2009

Policy change occurs because coalitions of actors are able to take advantage of political conditions to translate their strong beliefs about policy into ideas, which are turned into policy. A coalition's ability to define a problem helps to keep policies in place, but it can also cause coalitions to develop blind spots. For example, policy subsystem actors will often neglect the need for coordination between governmental actors. We examine the financial crisis of 2007–2009 to show how entrenched policy ideas can cause subsystem actors to overlook the need for policy coordination. We first analyze the prevalent idea that policymakers should aim to keep inflation low and stable while employing light touch regulation to financial markets. We then demonstrate how this philosophy led to a lack of coordination between monetary and regulatory policy in the subprime mortgage market. We conclude with thoughts about the need for coordination in future economic policy.