Fault Lines

By R. Rajan. 2010

420 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/5da485075b7ce0de3b72155ff00802f7bf15628a

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Citations in the corpus

Income inequality as a cause of the Great Recession?: A survey of current debates (2012, methodology): “” Indeed, in recent years there has been a proliferation of analyses supporting this view (e.g. UN Commission of Experts, 2009; Stiglitz, 2009; IMFILO, 2010; Rajan, 2010; Reich, 2010; Kumhof and Rancière, 2010; Kumhof et al, 2012; Galbraith, 2012; Palley, 2012).”
The Role of Finance in Economic Development: Benefits, Risks, and Politics (2011, background): “As laid out convincingly by Rajan (2010), in the absence of easy solutions to reduce income inequality, there was a political focus on reducing consumption inequality, which included boosting access to credit.”
Does unconventional monetary policy affect inequality? Evidence from Japan (2014, background): “This is particularly true for debt-driven housing booms in the pre-crisis period in economies such as the US (Rajan, 2010; Van Treeck, 2014).”
Roepke Lecture in Economic Geography—Crises, Geographic Disruptions and the Uneven Development of Political Responses (2011, background): “Given that the crisis had its origins in the United States housing market, then surely the cult of home ownership had something to do with it (see Rajan 2010, chap.”
European integration and the crisis: practice and theory (2015, background): “In such a situation, illiquidity may quickly lead to insolvency and the collapse of the financial system (Rajan 2011).”
Income Inequality and Current Account Imbalances (2012, background): “…and private saving ratesin the United States,3 high saving rates in the rest of the world [Bernanke(2005)], global underinvestment [Prasad et al.(2007); Rajan (2010)], demographics and productivity [Feroli (2003); Ferrero(2007)], and the role of the U.S. dollar as the world’s reserve currency.”
The Sociology of Finance (2011, background): “Rajan (2010) even suggests that household debts rose because of easy credit policies put in place to ameliorate increased income inequality.”
How do banking crises impact on income inequality? (2012, background): “emphasize the role of credit demand (Rajan, 2010; Reich, 2010) or credit supply (Fitoussi and Saraceno, 2010; Levitin and Wachter, 2010) in explaining the high debt levels of households at the bottom of income distribution.”
The Political Economy of Ownership: Housing Markets and the Welfare State (2014, positive): “For example, Rajan (2010) notes that median incomes in the USA were stagnant between 2000 and 2007, even as property prices surged.”
The Emergence of a Finance Culture in American Households, 1989-2007 (2015, methodology): “Wage stagnation, rising inequality, and declining job security over the past three decades have altered Americans’ life-chances and mobility strategies in profound ways.”
Democracy of Credit: Ownership and the Politics of Credit Access in Late Twentieth-Century America1 (2016, background): “While the American state had long relied on credit to substitute for weakly developed public sector institutions, this compensatory function assumed even greater importance as growth stalled, incomes stagnated, and inequality increased (Hyman 2011; Rajan 2011).”