I am very late in tha game at reading this text that is primarily looking at the context to the 2008 crisis, which we now know so much about.

But the book remains relevant, and even more important perhaps because the author identifies with foresight the collapse in rational policy making and politics that has afflicted the US in the last years.

The author even offers some very rarional policy answers to reduce the tension of these growing fault lines, some of which were even attempted years after the book was released. But all the solutions proposed rely on: rational decision making that is often bi-partisan something impossible to see in US politics today (2022).

What happened instead is we have been relying more and more on fractioned tribal thinking in which the irrational cause can act as a symbol for cohesion and beats drums in echo chambers.

I think the key point one gets to from this work and the reality of what the world is like after the fact is we need to address higher education so that it is useful for everyone at any point in their career… ( )

i haven't read all chapters but chapters on income inequality in US and potential for India are so well written and full of deep insights.. really helps you appreciate the big picture perspective a world quality economist needs to have. ( )

An interesting and well ordered look at the causes and consequences of the financial crisis from a mainstream but non New Keynesian approach. Its focus on the role of government agencies in the fostering of the housing boom alone makes it worthwhile. ( )

Raghuram Rajan is the hands down co-winner of the best title for any economics book in recent years: Saving Capitalism from the Capitalists. It was also a very good book.

Relative to this stellar predecessor, Fault Lines was a disappointment. The thesis is that a number of fault lines contributed to the financial crisis and continue to leave us vulnerable. In Rajan's view these include: (i) inequality which led to encouraging over-borrowing as a palliative; (ii) a system without automatic stabilizers that leads the Fed to overreact with overly low, bubble-causing interest rates during downturns; (iii) faulty financial regulation and corporate governance that breeds and exacerbates bubbles; and (iv) global macroeconomic imbalances.

In some cases the diagnosis seems apt, in others I would much more strongly disagree, but most of them are reasonably predictable -- albeit it would be hard to predict that any one person would share this eclectic a set of views.

Rajan proposes solutions to most of these fault lines, some of which seem more commensurate to the challenge than others. The most interesting is the notion that the economy would be less bubble prone if it had a more robust social safety net, including health insurance (which we now have), automatically extended unemployment insurance, etc.

As to the disappointment, it stems partly from thinking some of Rajan's arguments are tendentious (e.g., putting disproportionate blame on the government's home ownership policies for the subprime meltdown) and some are pretty obvious. The book is also marred from too many three-page literature summaries of everything from the causes of inequality to universal health care where Rajan does not have as much to add as he does in areas closer to his specialization like finance. ( )

Raghuram Rajan’s Fault Lines is the best book on the financial crisis that I have read thus far. Here’s why.

First, Rajan does not claim that there was a single causa causans. There wasn’t – it was a toxic cocktail that brought us the crisis. Many writers, pundits and ideologues have thought to promote their pet ideas by assigning them special, even exclusive, status in that mix. The result of this orgy of (self-) promotion of overly simplistic views is a lot of heat but little light. I understand, but am not sympathetic to, the tendency to oversimplify.

Humans have a natural tendency to simplify existential threats by turning them into dichotomies. I think it is because, when we are faced with a threat to survival, we rely then on our instinctual (automatic) assessment mechanisms. Those mechanisms reduce our decision machinery to a dichotomous choice – is this good or bad, do I fight or run, do I swerve right or left, do I withdraw all my cash from the bank or do I trust the system to work as promised. Viewing a threat as multifaceted, collecting data, building (conceptual) models, weighing the trade-offs, and engaging in informed discussion is not a successful strategy for survival when faced with a perceived immediate life-threatening situation.

In addition, we simplify because complex dynamics don’t have solutions most of the time, and we have a strong preference for problems with solutions, even if they are irrelevant to understanding the actual problem at hand, because (a) they give us a feeling of control and (b) they get you published in an academic journal (if that is your sort of thing).

Reductionism – which permeates the literature on the crisis – doesn’t provide much help either understanding the dynamics that led to the crisis or therefore, deciding how to modify behavior going forward.

Second, Rajan does not give a free pass to any group of actors who contributed to the development of the crisis, including especially politicians and regulators.

To treat, as many have done, the ruling or governing class of actors as an inconsequential aspect of the crisis is to vastly misunderstand the role of politics in human affairs generally. The attention Rajan gives to their role in the crisis seems almost excessive until, upon reflection, it becomes clear that this only seems so because it is a factor that is treated so rarely, lightly, or dismissively in most other books on the crisis.

Third, again unlike many other books on the crisis, there is no substitution of appeal to emotion for appeal to reason. And the reasoning is (in most cases) reasonable. Its OK to be angry, but emotion does not serve well as a tool of analysis. That is not to say that Rajan has no opinions. He makes those quite clear. The intellectual parapets on which he stands are also clear.

The last three chapters contain Rajan’s prescription for the future. Here the book shares with the rest of the batch of crisis book writers a fall-off in quality, not so steep a fall-off as in many other books. The reason is obvious – Rajan doesn’t have an answer to the question, what do we do about this going forward (I doubt there is an answer). Yet because every author (or editor, or the public) requires one (see my point above), Rajan provides one while, to a lesser extent than most, employing rhetoric, partial solutions, and ad hoc arguments.

I haven’t said much about what is actually in the book, and I guess I won’t say much. The book has a very interesting, provocative and non-consensus starting point, specifically, that peculiarities of the social contract in the United States lead the ruling or governing class to prefer certain policy responses which helped light the fire under the crisis.

Rajan’s book is a very interesting companion to Dani Rodrik’s book, The Globalization Paradox, which I have previously mentioned on my belranto.tumblr.com blog. It is not that they agree. Actually, I think Rodrik and Rajan could get into a fistfight over the role of international organizations like the IMF and World Bank. But the intellectual bases of the two books are complementary, and where they contrast they inspire thought.