As the world economy tiptoes back from the precipice, there is a growing appetite for books that try to read the future. Two thoughtful studies—one by a former Economist journalist and commentator on globalisation, Philippe Legrain, and the other by Raghuram Rajan, once the chief economist at the IMF and now at the University of Chicago—aim at giving readers a deeper understanding of the forces that brought about the worst financial and economic crisis in at least half a century and look at what can be done to prevent the next one.
Mr Legrain’s book is the zippier read. In just a few chapters, he outlines the forces that brought the world to the brink of a bust: a house-price bubble boosted by runaway mortgage lending in the rich world, particularly America, a lightly regulated global financial system that found ever-more creative ways to speculate on rising house prices, and macroeconomic policymaking that was far too laid back about the dangers posed by asset-price bubbles.
None of this is new. But Mr Legrain has a gift for combining big numbers that offer a sense of the scale of the global build-up in things like household debt while zeroing in on what all this means for people like Thorvaldur Thorvaldsson, a proudly left-wing Icelandic carpenter and unlikely sometime property speculator. This makes his book a particularly good survey of what made up the unpleasant cocktail which the world has yet to digest…
Both books say it would be folly to eliminate the benefits of a more open, globalised world—including vastly improved standards of living for millions in the emerging world—because of disgust with the depredations of the financial sector. Mr Legrain cites innovative, entrepreneurial and peripatetic Swedes and Indians to drive home his central thesis that both rich and emerging countries stand to gain from the latter’s increasing economic dynamism. In particular, he makes a strong pitch for the freer movement of people across borders. Both authors would also like institutions like the IMF to be reformed in such a way that would allow them to play a greater role in sorting out the macroeconomic imbalances that underlay the crisis.
Mr Rajan, however, was the fund’s chief economist when it tried, with little success, to get a serious conversation going on this matter. For that reason, perhaps, his book, excellent though it is, has less of a “can do” feeling about it than Mr Legrain’s. Despite that, both deserve to be widely read in a time when the tendency to blame everything on catch-all terms like “globalisation” is gaining ground.
Read the full review on The Economist’s website.