Populism, financial crises and banking policies: Economics and psychology

Financial crises often seem to be associated with populism, although the populist banking policies introduced to address such crises are far from homogenous. This apparent paradox-a sort of "sight-unseen consensus"-suggests that specific economic drivers coupled with general psychological components can explain populist consensus. We propose a model of populist consensus, which we term "democratic rioting," in which individuals' decisions to support or resist a specific populist bailout policy after a financial crisis are heavily influenced by psychological group dynamics. Those dynamics, in turn, are driven by general, non-banking-related motivations, such as anti-elite sentiments. In a multiple equilibria setting, the more individuals are unhappy for general economic and/or psychological reasons, the more likely they are to support myopic and redistributive populist banking policies rather than long-sighted public interventions.