Newsmakers

Alex Field, Michel and Mary Orradre Professor of Economics, wrote a review of Jack Rasmus’ book Systemic Fragility in the Global Economy, that appeared in the European Financial Review.

An excerpt from the review:
Jack Rasmus’s Systemic Fragility in the Global Economy is an ambitious attempt to synthesise trends in the world economy, particularly since the 2007-09 financial crisis, to understand why fiscal, monetary, and regulatory policies have been largely ineffective in returning economies to paths of full employment growth, and to warn of the possibility, indeed likelihood, of even more severe financial crises in the future.

Rasmus’s overarching concern is the degree to which additional liquidity created by central banks has flowed into financial investment, rather than real investment as understood by macroeconomists: it has fueled asset speculation rather than the acquisition by businesses of new structures (residential and nonresidential), equipment, and inventories (gross private domestic investment). No doubt massive monetary stimulus in different regions of the world has coincided with a revival of stock and bond prices, as well as a lowered trajectory of real capital formation. The question that Rasmus wrestles with, not ultimately successfully, is whether there is a causal connection.

Let me begin by stipulating that I am sympathetic to many of Rasmus’s concerns. Fiscal and monetary policy has not been especially successful in reestablishing economies on sustainable paths of full employment growth. Nor have regulatory initiatives such as Dodd-Frank necessarily reduced the likelihood of another and even greater financial calamity in the future. It is when we drill down to the details of Rasmus’s arguments that I have a number of ‘yes, but’ moments.

Find the full review here»

Learn more about Professor Alex Field»