Martin Wolf’s new book, The Shifts and the Shocks, is a work that deserves to be widely read and discussed. It takes the reader across the landscape of contemporary debates on macroeconomic and financial policy and, as one would expect from the premier financial journalist of our era, it presents deep analysis with remarkable fluidity and nuance. Whether or not one agrees with Wolf’s take on all the issues one must recognise that this is a thoughtful and deeply researched piece of work. That said, Wolf’s analysis and conclusions underemphasise crucial points, and overstate key conclusions. How is this book different from the dozens of others on the financial crisis? It is profoundly so in four ways. First and foremost, The Shifts and the Shocks is an ambitious attempt to offer a truly comprehensive analysis of the seeds, outbreak and aftermath of the crisis. Wolf rightly believes that one needs to look at the entire global economic system to understand what happened. Second, Wolf tackles both the financial and regulatory side of the crisis, along with its macroeconomic and development dimensions.
Third, in his recommendations, Wolf eschews the usual approach of giving one or two pet reforms, often quite anodyne (“better regulation,” for example). Instead, he endorses concrete and sometimes quite revolutionary changes. For instance, he essentially concludes that there will be no long-run financial stability without kicking banks out of the money creation business, leaving it as a government monopoly, much as leading “Chicago Plan” economists first suggested in the 1930s.
Fourth, Wolf incorporates a broad range of other people’s ideas, and does so with both integrity and balance. Although his own voice rings strongly across the pages, Wolf explains each author’s view, mostly in a way they would find reasonable. The views of Ben Bernanke, Lawrence Summers, Nassim Nicholas Taleb, Raghuram Rajan and many others are summarised, supported or critiqued here, with many earlier thinkers including Hyman Minsky, Knut Wicksell and of course John Maynard Keynes. The book will have a long shelf life as a desk reference for students, researchers and policymakers.
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