Fault Lines – Part Two – Who Should Read This Book?

Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram G. Rajan (Princeton University Press, 2010)

 
Who should read this book? Short answer: Anyone, who like me, wishes to see economists build a model for explaining economics on a world-wide basis.

“Raj” Raghuram is not just examining how the Financial Crisis happened in the first decade of this century. He is also helping to build a global view of economics in his books. Raj is particularly interested in the differences between what economists call “developing” and “developed” countries.

That’s because, as we will see in Part Three of this book review, the previous Financial Crisis was not just limited to the U.S.: it affected the rest of the world as well.

The dominant schools of economic thought in the U.S., Keyesian and Chicago Schools of economics are limited to being national rather than global in scope. But it is much more likely that the next Financial Crisis will be global in scope.

Here’s are short synopsis of Fault Line‘s first five Chapters Continue reading →

Fault Lines – Part One – The Financial Crisis Revisited

Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram G. Rajan (Princeton University Press, 2010)

As its title suggests, this book is a wake up call!

Its author, Raghuram G. Rajan (“Raj”) is an economist who challenged his community’s adoration of Alan Greenspan in the years before the Financial Crisis.

After the crisis “Raj” looked deeper into that crisis. He revealed the “fault lines” that nearly ten years after the Financial Crisis, still threaten us today.

 Fault Lines’ Questions

Raj Raghuram dared to ask “why’ questions about the Financial Crisis of 2007-2008, questions that most economists have not yet explained.

So why do we need a reminder about the Financial Crisis? Because we have not yet plumbed the depths of what happened in the first decade of this century. Continue reading →

Word of The Day – Stagflation

Those of us who lived through recession during Jimmy Carter’s Presidency will remember this word—stagflation.

During Carter’s time in office we had long-lasting rise in unemployment and even gasoline rationing – one could only fill up on certain days of the week. 

It was a frustrating time for me as, with two graduate college degrees I stood in a line of 200 unemployed workers in South Carolina trying for a grocery store’s cashier job. 

Stagflation is a word that conflates inflation with stagnation into one word.

First inflation comes about because there is “too much money chasing too few goods”. (And since our tariffs on imports are a tax on U.S. consumers, we expect prices of U.S.-made goods will go up in a trade war).

Then, if the government does nothing to curtail inflation, will come layoffs of workers.

After that, if too many Americans aren’t able afford to buy higher-priced U.S. goods, we’ll have stagnation occur in our economy because the production of goods and services slows down or even starts to decline.

Note too that the US. is a debtor country. We import $3.1 trillion and export only $2.5 trillion in goods and services.

Trump’s tariffs are threatening us with this fate again. Here’s why. Continue reading →