I'd like to go back to that article in the Economist I mentioned a few posts back. The article makes a good point which is of a different sort of perspective. Political constraints that interfere with economically efficient solutions is indeed another form of institutional constraints that interfere with efficient economic choices. The most common analyses of how institutions matter for economic growth is in cases where it limits the growth of certain economies: trade policies that inhibit the free flow of goods to and fro a country, labor market policies that constrain the growth of establishments, even the lack of reinforcing property rights. But the article points to one other aspect--that of preventing an economy from rebounding (efficiently) from an economic slowdown, or in this case, an economic crisis.
The same way that institutions should foster the economic growth of a country (breaking down trade barriers, a strong reinforcement of rule of law, etc.), institutions should also take the role of ensuring a country gets back to its growth track after experiencing a devastating crisis. One way is safety nets should have already been in place to mitigate the adverse effects on the already vulnerable members of the population (the poor and the marginalized), as we have espoused in our recent paper. Another one, which seems to be a revolutionary idea, is suggested by Raghuram Rajan, former IMF chief economist, in another Economist article: a cycle-proof regulation--a regulatory system that is immune to boom and bust. And like Dr. Rajan mentioned in his article, there should also be a balance so as not to over-regulate, but enough so that the policies in place would last for many years.