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.
• Editors' Summary
• The Increase in Income Cyclicality of High-Income Households and Its Relation to the Rise in Top Income Shares By Jonathan A. Parker and Annette Vissing-Jorgensen (Northwestern University)
• The State of the Social Safety Net in the Post-Welfare Reform Era By Marianne P. Bitler (University of California, Irvine) and Hilary W. Hoynes (University of California, Davis)
• The Impact of No Child Left Behind on Students, Teacheres, and Schools By Thomas S. Dee (University of Virginia) and Brian A. Jacob (University of Michigan)
• How Useful Are Estimated DSGE Model Forecasts for Central Bankers? By Rochelle M. Edge (Board of Governors of the Federal Reserve System) and Refet S. Gürkaynak (Bilkent University)
• Regulating the Shadow Banking System By Gary Gorton and Andrew Metrick (Yale University)
• State Fiscal Policies and Transitory Income Fluctuations By James R. Hines, Jr. (University of Michigan)
The Squam Lake Report distills the wealth of insights from the ongoing collaboration that began at these meetings and provides a revelatory, unified, and coherent voice for fixing our troubled and damaged financial markets. As an alternative to the patchwork solutions and ideologically charged proposals that have dominated other discussions, the Squam Lake group sets forth a clear nonpartisan plan of action to transform the regulation of financial markets--not just for the current climate--but for generations to come.
Arguing that there has been a conflict between financial institutions and society, these diverse experts present sound and transparent prescriptions to reduce this divide. They look at the critical holes in the existing regulatory framework for handling complex financial institutions, retirement savings, and credit default swaps. They offer ideas for new financial instruments designed to recapitalize banks without burdening taxpayers. To lower the risk that large banks will fail, the authors call for higher capital requirements as well as a systemic regulator who is part of the central bank. They collectively analyze where the financial system has failed, and how these weak points should be overhauled.
Combining an immense depth of academic, private sector, and public policy experience, The Squam Lake Report contains urgent recommendations that will positively influence everyone's financial well-being--all who care about the world's economic health need to pay attention.
The top 1 percent of Americans control some 40 percent of the nation’s wealth. But as Joseph E. Stiglitz explains in this best-selling critique of the economic status quo, this level of inequality is not inevitable. Rather, in recent years well-heeled interests have compounded their wealth by stifling true, dynamic capitalism and making America no longer the land of opportunity that it once was. They have made America the most unequal advanced industrial country while crippling growth, distorting key policy debates, and fomenting a divided society. Stiglitz not only shows how and why America’s inequality is bad for our economy but also exposes the effects of inequality on our democracy and on our system of justice while examining how monetary policy, budgetary policy, and globalization have contributed to its growth. With characteristic insight, he diagnoses our weakened state while offering a vision for a more just and prosperous future.