The United States, which sometimes thinks of itself as the world’s leading democracy, is showing that democracy does not always work well. The American fiscal crisis is the clearest evidence of this. Federal deficits and federal debt are matters of political choice as well as of circumstance. Some good choices have been avoided and some poor choices have been made by the U.S. government. The links between democratic politics and the financial crisis of 2007–9 are more subtle and contestable, but this book will show how various decisions and practices leading up to the crisis and various responses to the crisis can be linked to democratic politics.

This is not to say that formal democratic institutions in the United States are flawed. It is to say that formal democracy works best when supplemented by informal institutions of prudence and caution. Such informal norms and practices have weakened in recent decades and the U.S. economy is showing the effects; it will probably continue to do so into the foreseeable future.

Nor is it to say that the message of democratic politics as benign in the first edition of this book was not correct for the time it was written. What has happened since to make for a more mixed message about the consequences of democratic politics has two sources. The first is the failure to act on problems that were foreseeable in 1995 or, worse yet, decisions that made the fiscal outlook worse. The second is that random events have made the economic world more dangerous, and American institutions were not prepared to deal with unforeseen random shocks to the financial system.