Fault Lines: How Hidden Fractures Still Threaten the World Economy

Raghuram Rajan was one of the few economists who warned of the global financial crisis before it hit. Now, as the world struggles to recover, it's tempting to blame what happened on just a few greedy bankers who took irrational risks and left the rest of us to foot the bill. In Fault Lines, Rajan argues that serious flaws in the economy are also to blame, and warns that a potentially more devastating crisis awaits us if they aren't fixed.

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 in which the incentives to take on risk are incredibly out of step with the dangers those risks pose. He traces the deepening fault lines in a world overly dependent on the indebted American consumer to power global economic growth and stave off global downturns. He exposes a system where America's growing inequality and thin social safety net create tremendous political pressure to encourage easy credit and keep job creation robust, no matter what the consequences to the economy's long-term health; and where the U.S. financial sector, with its skewed incentives, is the critical but unstable link between an overstimulated America and an underconsuming world.

In Fault Lines, Rajan demonstrates how unequal access to education and health care in the United States puts us all in deeper financial peril, even as the economic choices of countries like Germany, Japan, and China place an undue burden on America to get its policies right. He outlines the hard choices we need to make to ensure a more stable world economy and restore lasting prosperity.

About the Author

Raghuram Rajan is an academic with substantial current and past business and policy experience. He is a professor of finance at the University of Chicago. From 2003 to 2006, he was the chief economist at the International Monetary Fund. He is currently an economic advisor to the Prime Minister of India, on the advisory board of the Comptroller and Auditor General of the United States, and on the advisory boards of a number of financial firms and consultancies. Rajan is President (elect) of the American Finance Association, a fellow of the American Academy of Arts and Sciences, and the inaugural winner of the Fischer Black Prize awarded to the best financial economist under 40. His past books include Saving Capitalism from the Capitalists, with Luigi Zingales.