In Fault Lines: How Hidden Fractures Still Threaten the World Economy (Princeton University Press, 2010), Raghuram 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 where incentives for risks are out of step with the dangers of those risks. The book traces the fault lines of the crisis to a world economic system overly dependent on indebted American consumers to power global growth. It outlines the hard choices we need to make to ensure a more stable world economy and restore lasting prosperity.
On June 21, Global Economy and Development at Brookings hosted a discussion on the global economy with Raghuram Rajan, Charles Dallara, managing director of the Institute for International Finance, and David Wessel, economics editor for the Wall Street Journal. The discussion focused on the main policy conclusions of Professor Rajan’s new book in light of current policy debates, especially social inequality, financial sector reform and the world economy. Brookings Fellow Douglas J. Elliott provided introductory remarks and moderated the discussion.
After the program, the panelists took audience questions.