In its wide-ranging inquiry into the financial crash, Rethinking the Financial Crisis marshals an impressive collection of rigorous and yet empirically-relevant research that, in some respects, upsets the conventional wisdom about the crisis and also opens up new areas for exploration. Two separate chapters–by Burton G. Malkiel and by Hersh Shefrin and Meir Statman – debate whether the facts of the financial crisis upend the efficient market hypothesis and require a more behavioral account of financial market performance. To build a better bridge between the study of finance and the “real” economy of production and employment, Simon Gilchrist and Egan Zakrasjek take an innovative measure of financial stress and embed it in a model of the U.S. economy to assess how disruptions in financial markets affect economic activity—and how the Federal Reserve might do monetary policy better. The volume also examines the crucial role of financial innovation in the evolution of the pre-crash financial system. Thomas Philippon documents the huge increase in the size of the financial services industry relative to real GDP, and also the increasing cost per financial transaction. He suggests that the finance industry of 1900 was just as able to produce loans, bonds, and stocks as its modern counterpart—and it did so more cheaply. Robert Jarrow looks in detail at some of the major types of exotic securities developed by financial engineers, such as collateralized debt obligations and credit-default swaps, reaching judgments on which make the real economy more efficient and which do not. The volume’s final section turns explicitly to regulatory matters. Robert Litan discusses the political economy of financial regulation before and after the crisis. He reviews the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which he considers an imperfect but useful response to a major breakdown in market and regulatory discipline.
At a time when the financial sector continues to be a source of considerable controversy, Rethinking the Financial Crisis addresses important questions about the complex workings of American finance and shows how the study of economics needs to change to deepen our understanding of the indispensable but risky role that the financial system plays in modern economies.
ALAN S. BLINDER is the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University.
ANDREW W. LO is Charles E. and Susan T. Harris Professor at M.I.T.
ROBERT M. SOLOW is Institute Professor, Emeritus, at M.I.T.
Based on the 1996 Lionel Robbins Lectures, this readable book deals succinctly, in a nontechnical manner, with a wide variety of issues in monetary policy. The book also includes the author's suggested solution to an age-old problem in monetary theory: what it means for monetary policy to be "neutral."
"Guaranteed to make blood boil." —Janet Maslin, New York Times
In Michael Lewis's game-changing bestseller, a small group of Wall Street iconoclasts realize that the U.S. stock market has been rigged for the benefit of insiders. They band together—some of them walking away from seven-figure salaries—to investigate, expose, and reform the insidious new ways that Wall Street generates profits. If you have any contact with the market, even a retirement account, this story is happening to you.
Over the years a number of suggestions have been made for improving labor productivity by changing the manner in which laborers are compensated for their efforts. The ideas presented and analyzed in this volume have all been put into practice, in modified form or on a small scale, in the United States or elsewhere. Some are new; others quite old.
David I. Levine and Laura D'Andrea Tyson consider the effects of employee participation in decisionmaking on firm performance, and Martin L. Weitzman and Douglas L. Kruse discuss the implications of profit sharing and related forms of pay for group performance. Michael A. Conte and Jan Svejnar analyze employee stock ownership plans in the United States and other forms of worker ownership in Europe; Masanore Hashimoto uses a transaction-cost perspective to assess Japanese employment and wage systems. Daniel J. B. Mitchell, David Lewin, and Edward E. Lawler III give an overall analysis of traditional and alternative pay systems, their history, development, and curent use, and recommend further experimentation with alternative compensation plans to ensure more adaptability on the part of U.S. firms. Blinder provides an overview of the findings and conclusions.
Solow contends that the demand implicit in the 1996 Welfare Reform Act for welfare recipients to find work in the existing labor market has two crucial flaws. First, the labor market would not easily make room for a huge influx of unskilled, inexperienced workers. Second, the normal market adjustment to that influx would drive down earnings for those already in low-wage jobs. Solow concludes that it is legitimate to want welfare recipients to work, but not to want them to live at a miserable standard or to benefit at the expense of the working poor, especially since children are often the first to suffer. Instead, he writes, we should create new demand for unskilled labor through public-service employment and incentives to the private sector--in effect, fair "workfare." Solow presents widely ignored evidence that recipients themselves would welcome the chance to work. But he also points out that practical, morally defensible workfare would be extremely expensive--a problem that politicians who support the idea blithely fail to admit. Throughout, Solow places debate over welfare reform in the context of a struggle to balance competing social values, in particular self-reliance and altruism.
The book originated in Solow's 1997 Tanner Lectures on Human Values at Princeton University. It includes reactions from the distinguished scholars Gertrude Himmelfarb, Anthony Lewis, Glenn Loury, and John Roemer, who expand on and take issue with Solow's arguments. Work and Welfare is a powerful contribution to debate about welfare reform and a penetrating look at the values that shape its course.