From an economist who warned of the global financial crisis, a new
warning about the continuing peril to the world economy
Raghuram Rajan was one of the few economists who warned of the global
financial crisis before it hit. Now, as the world struggles to recover,
it's tempting to blame what happened on just a few greedy bankers who
took irrational risks and left the rest of us to foot the bill. In
Fault Lines, Rajan argues that serious flaws in the economy are also
to blame, and warns that a potentially more devastating crisis awaits us
if they aren't fixed.
Rajan shows how the individual choices that collectively brought about
the economic meltdown--made by bankers, government officials, and
ordinary homeowners--were rational responses to a flawed global
financial order in which the incentives to take on risk are incredibly
out of step with the dangers those risks pose. He traces the deepening
fault lines in a world overly dependent on the indebted American
consumer to power global economic growth and stave off global downturns.
He exposes a system where America's growing inequality and thin social
safety net create tremendous political pressure to encourage easy credit
and keep job creation robust, no matter what the consequences to the
economy's long-term health; and where the U.S. financial sector, with
its skewed incentives, is the critical but unstable link between an
overstimulated America and an underconsuming world.
In Fault Lines, Rajan demonstrates how unequal access to education and
health care in the United States puts us all in deeper financial peril,
even as the economic choices of countries like Germany, Japan, and China
place an undue burden on America to get its policies right. He outlines
the hard choices we need to make to ensure a more stable world economy
and restore lasting prosperity.
