Reading the right signals and reading the signals right: IPE and the financial crisis of 2008

Although the meltdown in the American financial system in 2008 created the most profound financial crisis in sixty years, the field of International Political Economy (IPE) has remained curiously silent. More worrisome is the inability of the paradigmatic approach to the study of IPE in the United States - Open Economy Politics (OEP) - to shed much light on the causes of the crisis. We develop the conceptual distinction between risk and uncertainty to explain why the rationalist (and largely materialist) "American School" of IPE failed so badly. OEP followed orthodox economics in conflating risk and uncertainty. Preserving the distinction, as constructivist IPE scholars and economic sociologists have done, enables us view the crisis through dual rationalist and sociological optics. Our illustrative evidence, drawn from public (the Federal Open Market Committee of the US Federal Reserve) and private actors (accountants, credit rating agencies, and arbitrage traders) in financial markets, shows that only eclectic approaches that make use of both rationalist and sociological optics give IPE scholars the depth of vision and the breadth of imagination necessary to make sense of the financial crisis of 2008.