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Fault Lines: How Hidden Fractures Still Threaten the World Economy

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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.

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... Потребление в долг под вывеской финансовой инклюзии стало одним из лейтмотивов пропаганды как в промышленно развитых странах, так и в развивающихся. Рост кредитования на цели потребления, в том числе предметов не первой необходимости, наблюдался даже в периоды социальных и экономических потрясений (Rajan, 2010;Kurysheva, Vernikov, 2024). ...
... Потребительская активность, сопряжённая с заимствованиями и накоплением долга в секторе домашних хозяйств, становится источником финансовой хрупкости в экономической системе (Rajan, 2010;Hein, 2012 (Rajan, 2010). Расчёты на региональных данных показали, что в России рост неравенства по доходам между регионами сопровождался беспрецедентным ростом кредитования (El-Shagi et al., 2020). ...
... Потребительская активность, сопряжённая с заимствованиями и накоплением долга в секторе домашних хозяйств, становится источником финансовой хрупкости в экономической системе (Rajan, 2010;Hein, 2012 (Rajan, 2010). Расчёты на региональных данных показали, что в России рост неравенства по доходам между регионами сопровождался беспрецедентным ростом кредитования (El-Shagi et al., 2020). ...
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Задача данной главы в том, чтобы кратко осветить различные теоретические и методические подходы, позволяющие изучать и осмысливать явление финансиализации и его последствия, в частности, для экономики России. Текст главы основан на авторской статье в журнале AlterEconomics (2024), т.21, №2. Сослаться на эту работу можно так: Верников А.В., Курышева А.А. (2024). Финансиализация: подходы к её изучению и актуальность для российской экономики (Глава 4). – в кн.: Экономические особенности становления нового мирового порядка: вызовы для России. Колл. монография / под общ. ред. В.И.Маевского и С.Г.Кирдиной-Чэндлер. – СПб.: Алетейя, 2024. С. 73–100. DOI: 10.13140/RG.2.2.20543.21928
... With some exceptions (Garon, 2012), sociologists, demographers, and other social scientists have paid surprisingly limited attention to this international phenomenon, but they have written abundantly about a closely related macro-economic trend: the growth of household borrowing (Prasad, 2012;Rona-Tas & Guseva, 2018;Wiedemann, 2023). Together, this existing literature suggests several explanations for the fall in household savings that all focus on economic and political changes, including the financialization of the economy (Fligstein & Goldstein, 2015;Krippner, 2012), growing precarity (Bofinger & Scheuermeyer, 2019;Rajan, 2011), and welfare state retrenchment (Prasad, 2012). ...
... A third explanation of the decline in household savings emphasizes soaring inequalities and the deteriorating economic situation of working and middle-class workers since the 1980s, especially men (Ahlquist & Ansell, 2017;Dwyer, 2018;Rajan, 2011), among whom median wages and labor force participation have fallen (Krueger, 2017;Ruggles, 2015). At the micro level, lower-income households save proportionally less than richer ones (Dynan et al., 2004), so aggregate household savings may have declined because of the growing number of people without enough to save (Alvarez-Cuadrado & El-Attar Vilalta, 2018;Rajan, 2011). ...
... A third explanation of the decline in household savings emphasizes soaring inequalities and the deteriorating economic situation of working and middle-class workers since the 1980s, especially men (Ahlquist & Ansell, 2017;Dwyer, 2018;Rajan, 2011), among whom median wages and labor force participation have fallen (Krueger, 2017;Ruggles, 2015). At the micro level, lower-income households save proportionally less than richer ones (Dynan et al., 2004), so aggregate household savings may have declined because of the growing number of people without enough to save (Alvarez-Cuadrado & El-Attar Vilalta, 2018;Rajan, 2011). Others, however, suggest the opposite may be true: if the top earners save intensively, income inequality could increase saving rates at the aggregate level, because they possess the major part of available economic resources (Bofinger & Scheuermeyer, 2019). ...
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The aggregate household saving rate has declined in many nations since the 1980s, partly due to increased borrowing. To explain this puzzling trend, previous scholarship has focused on precarity, welfare state retrenchment, and financial development. Building on research describing marriage’s significance in shaping the capacity and the motivation to accumulate assets, my main contribution in this paper is to theorize that the retreat from this institution was another factor behind the dwindling of aggregate household savings. I also empirically explore this hypothesis using country-year macro data from 19 OECD countries between 1980 and 2014. After controlling for several of the major factors previous research shows contribute to the decline of savings, including interest rates and asset price growth, I find additional effects of declining marriage rates. I estimate that this factor explains between 14 and 32% of the fall in household savings. My argument and results do not suggest promoting marriage to bolster savings. Instead, they invite research on the precautionary strategies of unmarried people, how they may disrupt the role of private savings in contemporary economies, and how policies can adapt to support savings among diverse families. Importantly, this paper also calls for attention to the macroeconomic implications of family change, which remain understudied owing to the enduring traction of the “hostile worlds” view of the economy and intimacy.
... India's economic history is shaped by a legacy of colonialism that left deep imprints on its socioeconomic landscape. The British colonial administration prioritized certain regions for infrastructure development, industrialization, and agricultural productivity, leaving others at a disadvantage (Rajan, 2010). Postindependence, the newly formed Indian government embarked on a path of planned economic development, focusing resources on heavy industries and agricultural modernization through initiatives like the Green Revolution in the 1960s (Dreze & Sen, 2013). ...
... Infrastructure development involves investments in transportation networks, energy infrastructure, digital connectivity, and urban amenities aimed at reducing connectivity gaps between developed and underdeveloped regions (World Bank, 2020). Regional industrial promotion focuses on leveraging local resources, skills, and comparative advantages to stimulate economic activity and create employment opportunities in lagging regions (Rajan, 2010). Governance strengthening entails improving administrative efficiency, transparency, and accountability at the local and state levels to facilitate effective policy implementation and service delivery (Dreze & Sen, 2013). ...
... 2. Regional Industrial Promotion: Leveraging local resources and skills can stimulate economic activity and create employment opportunities in lagging regions. Policies tailored to the specific needs and strengths of each region can drive balanced industrial growth (Rajan, 2010 ...
... India's economic history is shaped by a legacy of colonialism that left deep imprints on its socioeconomic landscape. The British colonial administration prioritized certain regions for infrastructure development, industrialization, and agricultural productivity, leaving others at a disadvantage (Rajan, 2010). Postindependence, the newly formed Indian government embarked on a path of planned economic development, focusing resources on heavy industries and agricultural modernization through initiatives like the Green Revolution in the 1960s (Dreze & Sen, 2013). ...
... Infrastructure development involves investments in transportation networks, energy infrastructure, digital connectivity, and urban amenities aimed at reducing connectivity gaps between developed and underdeveloped regions (World Bank, 2020). Regional industrial promotion focuses on leveraging local resources, skills, and comparative advantages to stimulate economic activity and create employment opportunities in lagging regions (Rajan, 2010). Governance strengthening entails improving administrative efficiency, transparency, and accountability at the local and state levels to facilitate effective policy implementation and service delivery (Dreze & Sen, 2013). ...
... 2. Regional Industrial Promotion: Leveraging local resources and skills can stimulate economic activity and create employment opportunities in lagging regions. Policies tailored to the specific needs and strengths of each region can drive balanced industrial growth (Rajan, 2010 ...
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ISBN: 978-91-7308-083-5 ISBN-10: 91-7308-083-7 DOI: 10.25215/9173080837
... The increase in income inequality is usually associated with an economic policy designed to maintain the standard of living for those suffering from stagnation in real income (Rajan 2010). Unfortunately, such a policy is usually not aimed at solving the causes of inequality but enables cheap borrowing followed by financial liberalization. ...
... Looking for the causes of current account imbalances, researchers find that increased income inequality is associated with the current account worsening. Rajan (2010) and Galbraith (2012) demonstrate how rising income disparity forces low-and middle-income households to raise their debt to sustain their current level of consumption. Since then, this link has provided an impetus for research that focuses on numerous theoretical mechanisms through which income inequalities can endogenously reverse credit expansion. ...
... Since then, this link has provided an impetus for research that focuses on numerous theoretical mechanisms through which income inequalities can endogenously reverse credit expansion. Rajan (2010) shows that economic policy measures, primarily through financial liberalization, aimed at reducing income inequality play a vital role in the growth of current account deficits. Namely, such policy measures do not directly affect the causes of inequality. ...
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Three decades before the Great Recession (the 2008 financial and economic crisis) were marked by the continuous growth of current account imbalances and income inequality. This period of high globalization is accompanied by financial liberalization and an increase in trade openness. The empirical investigations of the causes of global imbalances show that growing income inequalities are worsening the current account. After the fall of the Berlin Wall, new EU member states experienced an increase in trade openness accompanied by current account deficits and financial liberalization, but also an increase in income inequality. The Great Recession led to a decrease in imports in these countries and an improvement in the current account. The goal of our research is primarily to examine the relationship between income inequality, current account, and economic openness in the new EU member states. We show that rising income inequality linked with financial liberalization is connected with the deterioration of the current account in new EU member states. Financial liberalization relates to an increase in household domestic debt, contributing to a deterioration of the current account.
... The essence of financial inclusion is broader access of individuals to financial services including lending, which has long been claimed to have a positive impact on economic growth and development, as well as contributing to the reduction of poverty and inequality (Green, Kirkpatrick, and Murinde 2005;Collard and Kempson 2005;Levine 2005;Beck, Demirgüç-Kunt, and Levine 2007;Demirgüç-Kunt and Levine 2009). Meanwhile, empirical studies present conflicting evidence concerning the impact of growing household debt on socio-economic indicators (Rajan 2010;Scott and Pressman 2013;El-Shagi, Fidrmuc, and Yamarik 2020). Consumer loan availability has socio-economic consequences and an ethical dimension. ...
... Raghuram Rajan suggests that rising income inequality may tempt authorities to implement financial deregulation to provide low-income households access to cheap credit, be it mortgage lending or other loans (Rajan 2010). Rising regional income inequality in Russia is found to correlate significantly with the growth in personal loans (El-Shagi, Fidrmuc, and Yamarik 2020), which confirms the Rajan hypothesis. ...
... While being a driver of the national economy from the macroeconomic perspective due to its high multiplier, the automotive industry has a number of negative externalities that are incompatible with sustainable development goals. Stimulating consumer demand with credit money as a policy solution for reassuring the public is rather risky and may trigger a financial crisis (Rajan 2010). In times of crises, widening access to consumer credit may be perceived as a measure to prevent social tension, "smooth" income shocks, sustain consumption, and prevent living standards from falling. ...
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We study the connection between financialization and consumerism, and claim that greater availability of consumer loans affects consumerist culture and promotes the institution of conspicuous consumption. We extend the ideas of Thorstein Veblen who coined the term of “conspicuous consumption” to illustrate our thinking with the empirical evidence on car purchases financed through bank loans in Russia’s Rostov Region. We find that leveraged car buying has become embedded over the past 20 years. Social positioning drives people to seek more expensive cars, whereas getting a bank loan allows to buy an otherwise unaffordable car. We see a sign of conspicuousness in the fact that household income grows slower than the average price of a new car financed by a car loan, as well as the amount of loans. Our contribution is that a basic concept of institutional theory (conspicuous consumption) is combined with elements from other research approaches, namely the social significance of bank lending, functional differentiation of credit, and the effects of financialization.
... In contrast, the ECB's delayed adoption of unconventional policies has been criticized for contributing to prolonged stagnation in the Eurozone [15]. The divergence in policy responses between these two central banks reveals both institutional and cultural differences in their approach to crisis management, with status quo bias potentially influencing the ECB's reluctance to implement unconventional measures sooner [16]. ...
... The hesitation to adopt QE immediately can be seen as an example of status quo bias, where policymakers preferred incremental adjustments to more radical measures. This initial delay is consistent with behavioral findings suggesting that organizations are more likely to pursue familiar and risk-averse strategies, especially in high-pressure situations [16]. In addition to delayed policy responses, status quo bias during the crisis was reflected in inadequate adjustments to the magnitude of policy interventions. ...
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This research examines the role of status quo bias in shaping monetary policy decision-making during the 2008 financial crisis, focusing on the responses of the Federal Reserve and the European Central Bank (ECB). Status quo bias, a cognitive bias that leads individuals and institutions to resist change, often results in delayed decisions and sub-optimal outcomes. This study employs a comparative case study methodology, analyzing the timing and nature of central bank interventions, such as interest rate cuts and quantitative easing during the crisis. By systematically reviewing policy actions and utilizing qualitative content analysis, the research identifies how status quo bias contributed to delayed responses and inadequate adjustments. The findings indicate that while the Federal Reserve, despite initial hesitation, quickly implemented unconventional measures that helped stabilize the U.S. economy, the ECB's adherence to traditional frameworks led to critical delays, resulting in a slower recovery in the Eurozone. These insights underscore the significant influence of cognitive biases on monetary policy, with implications for future crisis management strategies. Addressing the effects of status quo bias could lead to more agile and adaptive central banking policies, ultimately enhancing economic resilience during times of crisis.
... The revenue deficit became almost null while the primary deficit achieved a marginal surplus in FY08 (Fig. 16). But as the fears of severe unemployment and recession grew in the wake of 2007-08 financial crisis, G7+5 countries as well as IMF favoured a fiscal stimulus up to 2 percent of GDP as a pathway out of the feared recession.There was a striking difference between the expansionary fiscal policies adopted in India and other countries, for instance in China, nearly 40 percent of the fiscal stimulus was directed toward investment in infrastructure development whereas, the Indian fiscal package was more focussed on stimulating demand by granting direct subsidies (ranging from food, fertiliser, energy subsidies to even flat waivers in agricultural debt25 ), expansionary income support schemes like MGNERGS26 and generous pay hikes announced in Sixth Pay Commission for state servants. These welfare and employment guarantee schemes imparted substantial amounts of liquidity and purchasing power, particularly to rural households, boosting demand for food items (Rakshit 2011) but with several supply bottlenecks in place, particularly, stagnant productivity and subpar infrastructure, the situation soon got transformed into demand-pull inflation. ...
... These welfare and employment guarantee schemes imparted substantial amounts of liquidity and purchasing power, particularly to rural households, boosting demand for food items (Rakshit 2011) but with several supply bottlenecks in place, particularly, stagnant productivity and subpar infrastructure, the situation soon got transformed into demand-pull inflation. The withdrawal of these politically sensitive outright doles still poses a25 Just before 2009 general elections, then ruling United Progressive Alliance (UPA) government waived the repayment of loans made to small and mid-sized farmers which, some commentators believed, helped the coalition get re-elected (Rajan 2011)26 Mahatma Gandhi National Rural Employment Guarantee Scheme challenge in winding down the deficit financing without an abrupt shock to an already fragile growth. ...
Preprint
Over the past decade, the stellar growth of Indian economy has been challenged by persistently high levels of inflation, particularly in food prices. The primary reason behind this stubborn food inflation is mismatch in supply-demand, as domestic agricultural production has failed to keep up with rising demand owing to a number of proximate factors. The relative significance of these factors in determining the change in food prices have been analysed using gradient boosted regression trees (BRT), a machine learning technique. The results from BRT indicates all predictor variables to be fairly significant in explaining the change in food prices, with MSP and farm wages being relatively more important than others. International food prices were found to have limited relevance in explaining the variation in domestic food prices. The challenge of ensuring food and nutritional security for growing Indian population with rising incomes needs to be addressed through resolute policy reforms.
... The IMF unveiled another concern that constitutes this paper: that these policies may increase inequality by favouring more well-off segments of the population, undermining progress in education and health in LIDC and emerging countries (IMF, 2014c). Apart from inequality concerns, mounting research suggests that inequality may be a significant determinant of financial instability by fuelling financial imbalances on credit markets (Rajan, 2010;. ...
... According to emerging empirical evidence, inequality may be a major driver of financial fragility by exacerbated financial imbalances on credit markets (Rajan, 2010;Hauner, 2020). The argument is that high-income inequality forces middle and low-income households to borrow more than they reasonably should in order to maintain the relative levels, which leads to excess borrowing (credit bubbles), which in turn leads to financial crises. ...
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The study used the data from emerging markets to examine the impact of restrictive macroprudential policies on income inequality from 2000–2019 using Bayesian panel vector autoregression and Bayesian panel dynamics generalized method of moments models. The chosen models are suitable for addressing multiple entity dynamics, accommodating a wide range of variables, handling dense parameterization, and optimizing formativeness and heterogeneous individualspecific factors. The empirical analysis utilized various macroprudential policy proxies and income inequality measures. The results show that when the central banks tighten systems using macroprudential policy instruments to sticker debt-to-income and financial instruments for lower-income borrowers (the bottom 40% of the income distribution) promote income inequality in these countries while reducing income inequality for high-income borrowers (the high 1 per-cent of the income distribution). The impact loan-to-value ratios were found to be insignificant in these countries. Fiscal policy through government expenditure and economic development reduces income inequality, while money supply and oil price shocks exacerbate it. The study suggests implementing a progressive debt-to-income (DTI) ratio system in emerging markets to ad-dress income inequality among lower-income borrowers. This would adjust DTI thresholds based on income brackets, allowing lenient credit access for lower-income borrowers while stricter limits for higher-income borrowers. This would improve financial stability and reduce income disparities. Additionally, targeted financial literacy programs and a petroleum-linked basic income program could be implemented to distribute oil revenue to lower-income households. Monetary Supply Stabilization Fund could also be established to maintain financial stability and prevent excessive inflation.
... Inequality has been raised as a problem in itself by [2], [3], [4], and [5]. Inequality could also be considered an issue because of its negative relation with other variables such as health [6], consumption [7], households indebtedness [8], financial stability [9], [10], and growth [11]. Addressing the specificities of inequality as a phenomenon and its measurement is not our goal here. ...
... Therefore, not only does the mean change but it is also found that differences occur throughout the distribution, as indicated by the Kolmogorov-Smirnov goodness of fit test. 9 This result allows us to infer that the change in the tax structure generates significant alterations in the outcomes of the experiments for the examined variables. ...
Article
In this article, we apply an agent-based stock-flow consistent model (AB-SFC) to analyze economic growth differences when establishing different types of taxes on personal income: proportional and progressive. We use an income tax design that distinguishes between two sections of income. We contribute to the prominent literature on macro agent-based models by providing an unexplored feature in the income tax scheme. Our main findings are that this tax design seems to offset the inequality through tax exemption for low-income households but seems to have a limited impact on inequality generated between middle and high-income households. Notably, we did not find evidence of a deterioration in economic growth in the presence of a progressive income tax instead of a proportional one. Therefore, this article proposes a scenario where changing the tax scheme reduces inequality without hampering growth. This result has important implications for policy.
... A growing body of literature highlights the potential drawbacks of policy responses. For instance, prolonged low interest rates can fuel asset bubbles (Diamond and Rajan, 2012) and exacerbate income inequality (Rajan, 2011). Furthermore, unconventional monetary policies like quantitative easing may lead to unintended consequences, such as distortions in financial markets and inflationary pressures (Baumeister and Benati, 2010). ...
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The housing markets in districts across the United Kingdom (UK) co-move over time. We use the dynamic factor model to decompose the co-movement in house prices of the smallest possible geographical unit into national, regional, and idiosyncratic factors. Using the Bayesian time-varying parameter VAR (TVP-VAR) model, we study the dynamic impact of uncertainty shocks on synchronization in housing markets. We find that the estimated national factor accurately tracks the overall housing market cycles in the UK and explains nearly all the variations in East, South–East, and South–West districts. Furthermore, the results from TVP-VAR indicate that the estimated response of the national factor to uncertainty shocks is negative. However, the magnitude of the effect is more pronounced and persists longer in the case of housing price uncertainty shocks compared to overall economic uncertainty. Overall, our results suggest that uncertainty about house prices is a primary driver of the national factor.
... This is because of the forms of the EU and the complexity of the intergovernamentality not to mention the tatonnement practice, the absence of course (Taylor, 2012) and the submission of the MS policies to the electoral game. This is the case for the dialectics of stimulus vs. austerity, in particular the management of the fiscal balance (Raghuram G. Rajan, 2010;and Jean-Claude Trichet, 2011). What should be the main deficit, and hence the policy priority: the demand deficit (related to general economic crisis and recession) or the public accounts deficits? ...
Article
Structural non-competiveness and unruly policies have provoked severe financial instability and put certain euro zone countries in a shocking situation. Indeed, the entire European Union is at economic and political systemic risk. In this paper we shall analyze the coinciding conditions which helped generate this perfect and fatal storm: a) the structures of the European economy and of some Member States; b) the non-optimal currency zone that is the euro area; c) the profligate policies of certain governments and institutions; and d) the deficit in European economic governance. Newer and tougher mechanisms for European financial stability and detailed government measures for budget sustainability and structural reforms need to be most effective to be able to address the risks and challenges many States, and the Union itself, are facing.
... Pour (Stiglitz, 2012), la résilience économique est la faculté d'une é conomie à absorber les secousses et à ré agir promptement aux nouvelles circonstances, tout en favorisant la croissance économique. Elle se caractérise par la capacité d'une économie à maintenir sa stabilité et à promouvoir la croissance é conomique face aux chocs et aux crises auxquelles elle ré siste (Rajan, 2010). La ré silience é conomique est essentielle pour faire face à un monde complexe et instable. ...
Article
Dans le contexte du développement économique et social, la résilience se définit comme la capacité d’une communauté à absorber des chocs économiques, environnementaux ou sociaux de nature diverse et variée. Mais c’est surtout la capacité à se rétablir précipitamment tout en tirant des leçons de ce malaise économique pour construire des perspectives solides et durables. La résilience, lorsqu’elle fait face aux défis économiques aux Comores, devient une question alarmante puisque les multiples contraintes qui s’y pèsent déterminent l’état sous-développé de son économie. L’archipel subit plusieurs revers liés à des enjeux économiques complexes comme une faible diversification de l’économie, une pauvreté spectaculaire, une croissance considérable du chômage, une inflation grandissante, une accumulation de la dette publique et une vulnérabilité environnementale. Tous ces aléas économiques empêchent la création d’emplois et l’accroissement du produit intérieur brut. Ce qui conduit à une vulnérabilité accrue des contraintes économiques. La dépendance excessive à l’agriculture de subsistance rend aussi les Comores vulnérables aux variations des prix des matières premières et aux événements climatiques outrés. Cela entraîne des défis majeurs pour la stabilité économique et le développement durable du pays. L’intérêt de cette recherche est d’analyser la résilience économique des Comores en modélisant certaines variables économiques comme le produit intérieur brut, la dette publique et le taux de chômage. Les résultats économétriques obtenus sont significatifs, avec un coefficient de détermination de 52% et une p-value de 18%. Malgré cette affirmation, il est quasi important de favoriser une économie plus diversifiée et compétitive afin de garantir la stabilité économique, la création d’emplois, l’innovation, la réduction des inégalités, l’accès à des nouveaux marchés et le développement durable.
... In fact, the dominant consumerist version of financial literacy programs is influenced by commodity sign production, and eventually contribute to civic irresponsibility, inequality and disengagement, rather than other way around (Arthur, 2012). Loans aimed at increased consumption, including that of everyday luxuries and other non-essentials, may grow even amidst socio-economic turmoil (Rajan, 2010;Kurysheva & Vernikov, 2023). Bankers have convinced the populaces that it is absolutely 'normal' to live beyond means. ...
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This paper adds a new dimension to the financialization research. The research question is how the contribution of banks to national economic performance compares with the share of national wealth appropriated by banks. In order to quantify it, I put forward a novel set of metrics. It embraces aspects such as: banks’ propensity to lend to non-financial enterprises, bank lending contribution to investment in fixed assets by non-financial companies, a cross-sector comparison of profitability and average wages, the share of banks in total taxes paid by corporations nationwide, etc. Each metric is composed by one or more indicators derived from publicly accessible statistical sources, thus ensuring transparency and replicability. I apply the metrics to Russian banking industry in the period of 1991–2020, and arrive at a number of counter-intuitive findings, such as banks flourishing and displaying record profitability while the rest of the economy melts down in the 1990s, or the trend reversing along with a creeping nationalization of the banks after 1998. Overall, one might argue that it is the economy (and society) at large that serves the banking industry, rather than the other way around, as it should be.
... The crisis that we have gone through has triggered research on the role that rising inequality has played in creating preconditions for the collapse, with many recent studies suggesting that deteriorating distribution tends to amplify the risk of macroeconomic instability (Rajan, 2010;Ostry and Berg, 2011;Cingano, 2014;Ostry et al., 2014;Dabla-Norris et al., 2015;Kumhof et al., 2015). But the economic crisis has also persuaded many scholars that the time has come for a serious rethinking of standard economic theory. ...
Preprint
Over the last decades, the distribution of income and wealth has been deteriorating in many countries, leading to increased inequalities within and between societies. This tendency has revived the interest in the subject greatly, yet it still receives very little attention within the realm of mainstream economic thinking. One reason for this is that the basic paradigm of "standard economics", the representative-agent General Equilibrium framework, is badly equipped to cope with distributional issues. Here we argue that when the economy is treated as a complex system composed of many heterogeneous interacting agents who give rise to emergent phenomena, to address the main stylized facts of income/wealth distribution requires leaving the toolbox of mainstream economics in favour of alternative approaches. The "k-generalized" family of income/wealth distributions, building on the categories of complexity, is an example of how advances in the field can be achieved within new interdisciplinary research contexts.
... The capital cost reduction from QE leads to enhanced corporate valuations and provides companies with leverage to expand operations, pursue mergers and acquisitions, and manage debt [31]. However, prolonged asset purchases may also inflate equity prices disproportionately, raising concerns about market bubbles [32]. ...
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Federal Reserve policies play a pivotal role in shaping the U.S. economy, influencing not only macroeconomic stability but also the financial strategies and tax implications for corporations. Broadly, the Federal Reserve's use of monetary tools-such as interest rate adjustments, Quantitative Easing (QE), and inflation targeting-affects the economic environment within which businesses operate, impacting costs of capital, investment incentives, and overall corporate behaviour. Through mechanisms like lowering interest rates, the Federal Reserve reduces borrowing costs, which encourages companies to adjust their capital structures and debt levels, with significant implications for tax planning due to interest deductibility. QE, on the other hand, drives asset prices higher, promoting increased investment activity, stock buybacks, and changes in dividend policies that indirectly influence corporate taxation. This article examines the nuanced relationships between Federal Reserve decisions and corporate finance, analysing how shifts in policy impact tax revenue and how governments adapt tax policies to manage economic conditions such as inflation. By presenting case studies from the 2008 financial crisis and the COVID-19 pandemic, this analysis illustrates the practical effects of the Federal Reserve's actions on corporate financial decisions and the broader tax landscape. The article concludes by addressing the future of Federal Reserve policies in light of technological advances in finance and the adaptive strategies that corporate and regulatory bodies may adopt to navigate an increasingly dynamic economic environment.
... Moreover, because the moving parts of these critical moments are so small, they tend to go unnoticed until the critical moment, often perceived as a crisis, makes itself known. Often this happens because other issues take priority or because of a human tendency to ignore outliers, warning lights and contradicting viewpoints (Rajan, 2010;Taleb, 2007). The people in this study experienced similar tipping points when the previously existing balance of assets and liabilities in their lives was unexpectedly disturbed in such a way that earlier strategies to restore the balance were no longer effective. ...
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In the wake of the 2007 global financial crisis, household debt and its corrosive effects on everyday life have seen increasing attention from academia, debt counselling, policy makers and the media. Due to subsequent years of economic precarity, household debt continues to negatively affect a substantial number of lives worldwide to this day. The Netherlands has not escaped this development, leaving more than 700,000 Dutch households affected by a problem debt in 2023. Following a historical lineage of economic anthropology, this study widens the perspective on what constitutes a problem debt in everyday life by assuming a multidimensional point of view that accounts for social, cultural, moral and health-related influences. The study develops this perspective on the foundation of Bourdieu’s capital theory, which it operationalises as an equation of assets and liabilities. The study plots these assets and liabilities across the debt maelstrom, a visualisation of the interaction between the economic, social, cultural, health and moral dimension of everyday life. By applying this debt maelstrom to a rich collection of empirically collected debt narratives the study develops a framework of indebtedness which relates the conditions of indebtedness to the restrained agency of people in debt.
... rynku nieruchomości, a to z kolei wpływa na podatność danej gospodarki na kryzysy. Wśród badaczy funkcjonuje pogląd, że wzrost nierówności dochodowych należał również do źródeł globalnego kryzysu finansowego z 2008 r. (Rajan, 2010;Stiglitz, 2012;Lansley, 2012). ...
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Tekst porusza temat społecznych nierówności, które objawiają się w dostępie do różnych dóbr przez jednostki, grupy społeczne czy całe społeczeństwa. Nierówności te mogą dotyczyć aspektów ekonomicznych, kulturowych, władzy, edukacji czy prestiżu. Głównym celem badania jest próba odpowiedzi na pytanie: czy istnieje statystyczna zależność pomiędzy poziomem nierówności a wzrostem gospodarczym w krajach Bliskiego Wschodu i Afryki Północnej? Autorka podkreśla globalny charakter problemu nierówności społecznych, zwracając uwagę na ich występowanie w różnych obszarach świata, jednak definiuje jako zakres badania kraje Bliskiego Wschodu i Afryki Północnej (MENA). W pracy zastosowano jako główne metody badawcze: krytyczną analizę literatury, analizę danych wtórnych oraz analizę korelacji i regresji. W dalszej części tekstu autorka przedstawia metodologię badania, prezentuje wyniki, które następnie omawia i interpretuje. Podkreślić należy brak jednoznacznych zależności między nierównościami a wzrostem gospodarczym, co może wynikać z interdyscyplinarnego charakteru problemu oraz konieczności uwzględnienia jakościowych metod badawczych. W końcowej części autorka zauważa, że nadmierne skoncentrowanie się na metodach ilościowych w ekonomii może być nieuzasadnione, zwłaszcza w przypadku zagadnień tak skomplikowanych jak społeczne nierówności. Zaleca także większe zastosowanie metod jakościowych oraz podkreśla konieczność uwzględnienia kontekstu społecznego i ekonomicznego w analizie nierówności. Wskazuje, że przezwyciężenie nierówności przy jednoczesnym budowaniu wzrostu gospodarczego jest możliwe, a międzynarodowe agendy, takie jak Cele Zrównoważonego Rozwoju, mogą stanowić inspirację dla działań mających na celu osiągnięcie tego ideału.
... Moreover, inequality is projected to impede prospected growth through a variety of transmission channels (Abass et al., 2023;Flayyih et al., 2024). Specifically, it may rise the possibility of financial predicaments and rise deficits in the current account (Rajan, 2010;Acemoglu, 2011;Salman et al., 2023). Evidently, the interlinked relationship between growth, inequality and poverty, the so-called growth, inequality and poverty (GIP), is complex. ...
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The study purpose is to explore the simultaneous relationships between the Growth, income inequality and Poverty (GIP) triangle in Egypt, and the interaction effect of growth and income inequality on Egypt’s poverty level and the effect of both poverty on economic growth and income inequality on economic growth in Egypt .Using the three-stage least squares (3SLS) method to estimate the simultaneous equations on annual data between 1975 and 2019. The results show that economic growth affects poverty indirectly through the income inequality channel, as increasing economic growth leads to an increase in the misdistribution of income, which leads to a decrease in the poverty rate, and that poverty has a direct negative effect on economic growth. In contrast, inequality has a net negative effect on economic growth, as income inequality has a direct negative effect on economic growth, and income inequality has a positive indirect effect via the poverty channel. The current study also found a negative reciprocal relationship between poverty and income inequality in the Egyptian economy
... Ces questions ne sont pas nouvelles tant en histoire de la pensée économique 1 que dans la macroéconomie très récente. La littérature récente souligne que la demande et les inégalités étaient parmi les causes de la crise financière débutée en 2007 (Rajan, 2010 ;Palley, 2012 ;Stockhammer, 2013 ;Van Treeck, 2014 ;Kumhof et al., 2015) La première section examine le courant dominant de la macroéconomie de la stagnation séculaire, notamment l'approche néo-wicksellienne, recommandant les politiques de bilan pour sortir de la stagnation séculaire. Etant données les limites de cette approche mises en évidence dans cette première section, la deuxième section propose une approche à la Keynes de la politique de bilan. ...
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Les politiques monétaires non conventionnelles de la Banque Centrale Européenne, souvent qualifiées de politique de bilan, sont généralement traitées dans la littérature selon une approche néo-wicksellienne basée sur le taux d'intérêt réel naturel. L'article présente cette approche néo-wicksellienne, ainsi que ses limites. En particulier, il est proposé l'idée que cette approche maintient la politique monétaire dans une perspective de court-moyen terme de politique de stabilisation conjoncturelle ne permettant pas d'intégrer de manière parfaitement adéquate des problématiques de moyen terme et structurelles, comme la stagnation séculaire, mises en évidence par la crise. L'article développe une approche d'inspiration keynésienne des politiques de bilan de la Banque Centrale Européenne permettant notamment de tenir compte de problèmes structurels de l'économie européenne comme la stagnation séculaire et la transition écologique ; mais aussi les questions de demande, de redistribution et d'inégalités qui ont aussi été présentés comme étant à l'origine de la crise. La finalité ultime de cette approche d'inspiration keynésienne des politiques de bilan est de contribuer à la sortie de la crise actuelle, et tenter de prévenir les crises futures.
... Los títulos respaldados por hipotecas se emitieron con la participación de instituciones financieras bancarias y no bancarias, como los hedge funds, y las aseguradoras cubrieron esos valores con swaps (contratos de derivados) de préstamos morosos. Tampoco hubo regulaciones sobre las agencias calificadoras de riesgo, como Standard and Poor's y Moody's, contribuyendo para que estas cediesen a los intereses de los emisores de títulos, asignándoles altas calificaciones (Rajan, 2010;Kaufmann y Bude, 2018;Amadeo, 2020;Bowman, 2020). ...
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En este artículo se usan los casos de las aprobaciones de las Leyes: Dodd-Frank y Crapo, por los senadores de Estados Unidos, respectivamente en 2010 y 2018, para examinar los condicionantes de medidas legales o reglamentarias relativas al sector financiero. Se verifica en este artículo que puede existir relación entre las contribuciones financieras de los segmentos económicos y el comportamiento del voto legislativo al diseñar dichos aportes como actos impulsados con el objetivo de establecer conexiones personales, accesos y, sobre todo, de obligar al beneficiario a actuar de manera equivalente.
... Потребление в долг под вывеской финансовой инклюзии стало одним из лейтмотивов пропаганды как в промышленно развитых странах, так и в развивающихся. Рост кредитования на цели потребления, в том числе предметов не первой необходимости, наблюдался даже в периоды социальных и экономических потрясений [Rajan 2010;Kurysheva, Vernikov 2023]. ...
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We describe the main research approaches that contribute to a critical rethinking of financialization and its consequences. Financialization refers to the expansion of financial and banking sector; invasion of finance into social, family and private life; a shift in the activities of non-financial companies towards financial transactions, etc. This ideology prioritizes financial performance and metrics, with the financial institutions as the primary (if not the only) beneficiaries. In academia, several heterodox approaches challenge the mainstream myth of exaggerated financial sector beneficence for society, and try to develop a framework for an alternative social order. We have identified institutional (evolutionary and anthropological), macroeconomic, structural, spatial, sociological and ethical non-mainstream approaches dealing with the risks and threats related to the hypertrophied growth of the financial sector. We especially emphasize household financialization, in terms of its negative socio-economic consequences. Our results indicate that, surprisingly, sociologists, anthropologists, psychologists, etc. are concerned about rampant financialization rather than economists themselves. In Russian research papers, by inertia, the role of finance in economic development is still represented as inherently benign. The articles which address the need for de-financialization, i.e., reducing the absolute and relative weight of the financial and banking sector in the economy and society, are few if any. Meanwhile, de-financialization might be a part of a more general framework to implement independent monetary policy, as well as a strategy for economic sovereignty, including the process of reindustrialization. Кратко охарактеризованы основные исследовательские подходы, позволяющие критически оценить явление финансиализации и его последствия. Под финансиализацией понимают абсолютное и относительное расширение финансово-банковского сектора; внедрение финансовых отношений во все сферы жизни, включая социальную, семейную и частную; изменение структуры деятельности нефинансовых компаний в пользу финансовых операций и т.д. Это такая парадигма и философия хозяйства, когда приоритет отдаётся достижению финансовых показателей и результатов, а главным (порой — единственным) бенефициаром становятся кредитно-финансовые организации. В академической сфере постепенно набирают силу идеи, оспаривающие благотворность, а главное, безальтернативность финансиализации. Мы условно выделили в исследовательской литературе институциональный (эволюционно-антропологический), макроэкономический, структурный, пространственный, социологический и морально-этический подходы. Неортодоксальные течения и школы в экономической и социальной теории видят в гипертрофированном росте финансового сектора риски и угрозы. В плане негативных социально-экономических последствий выделяется тема финансиализации домохозяйств и их растущей долговой зависимости. При некоторой пассивности экономистов вклад в эти исследования внесли географы, социологи, антропологи, психологи и представители других специальностей. Авторы высказывают мнение, что в анализе финансиализации и её последствий мы отстаём на два-три десятилетия. Российский академический дискурс по инерции акцентирует пользу от финансового развития и призывает форсировать его, даже если макроэкономической необходимости в этом нет. В литературе пока не ставится вопрос о запуске процесса дефинансиализации, т.е. уменьшения абсолютного и относительного веса финансового и банковского сектора в экономике и обществе. Дефинансиализация может быть одним из недостающих элементов для перехода к самостоятельной денежно-кредитной политике, осуществления стратегии суверенизации экономики, включая развитие промышленного потенциала на новой основе — реиндустриализацию.
... Abadi et al. (2022) neglect to consider possible macro implications of financial dynamics deriving from their effects over distributional variables, namely income and wealth inequality. The co-evolution of financial and distributional dynamics is a distinguishing feature of modern financialized economies though (see Botta et al., 2021Botta et al., , 2022, as well as potential cause of macro-financial instability itself (see Rajan, 2010;Bordo and Meissner, 2012;Stockhammer, 2015;Kumhof et al., 2015, among other). ...
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In this paper, we present a hybrid Agent-Based Stock-Flow-Consistent (AB-SFC) model about the macroeconomic and distributional implications of central bank’s decision to leave a ‘‘Low(-for-long) Interest Rate Environment’’ (LIRE). Our goal is to study the non-linear effects of monetary tightening when implemented under LIRE than in an alternative ‘‘Higher Interest Rate’’ setting (HIRE). This way, we shed light over the interaction between monetary policy, inequality, and macro-financial fragility in a financialized economy characterized by the presence of securitization and the production of complex financial products, i.e., Asset-Backed Securities (ABSs). We obtain three main findings. First, consistent with existing empirical literature, LIRE may be sources of vulnerabilities in the financial industry (i.e., lower banks’ profitability and capital adequacy ratio). However, it may reduce systemic macro-financial risk by stimulating faster growth, lower unemployment and inequality records alongside with lower public and private indebtedness and lower-scale securitization. Second, central bank’s decision to raise interest rates improves financial sector’s performance indicators at the costs of harsh real-side consequences, i.e., permanently higher unemployment and inequality, when implemented under LIRE. Third, financialization structurally changes the functioning of the economy by feeding the creation of a debt-led economy in which monetary policy becomes less effective in its attempt of controlling inflation. Central bank’s reaction in the form of a permanently tighter monetary policy stance eventually prompts a more unequal and unstable rentier-friendly economy.
... Personal and functional inequality increased before the crisis in most countries [54]. Inequality's role in the 2008 crisis, particularly household indebtedness, is widely acknowledged [21,55]. Excessive credit contributing to the 2007-2008 crisis resulted from financialization, political interventions, and mortgages to low-income households [14]. ...
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Financial development and deregulation have historically driven economic growth but have also exacerbated inequality. The relaxation of financial regulations preceding the 2008–2009 crisis is a prime example of this phenomenon. While initially promoting growth, it exacerbated both labor and profit inequalities. The crisis laid bare vulnerabilities in the financial systems of Eurozone EZ countries, resulting in economic recession and worsening inequality domestically and internationally. This chapter first reviews the theoretical underpinnings of the impact of financialization on growth and inequality, followed by an examination of the components of inequality, including factor, labor, profit, and unemployment indices. Central to our discussion is the imperative of reducing inequality, considered fundamental for fostering growth, welfare, and social cohesion. The empirical investigation is conducted to assess the determinants of total inequality before and after the 2008–2009 financial crisis, with EZ countries categorized into three groups: Northern EZ countries, Southern EZ countries, and Newcomers. Conclusions and policy implications underscore the necessity of regulating the financial system to prevent crises, maintaining low unemployment rates, and ensuring equitable increases in income for both skilled and unskilled workers as for capital owners.
... Many fault lines converged into the global financial crisis and compounded it. These fault lines remain unaddressed, primarily due to entrenched interests (Rajan, 2011). ...
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The G20 can host a platform that leads to institutional mechanisms to ameliorate and buffer key issues pertaining to rare earths. India is presented as a linchpin in its potential efforts, being an empire which is steadily increasing its power across supply chains
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Since 2020, various natural (COVID-19 pandemic) and manmade crisis (Russia–Ukraine invasion) have significantly impacted financial markets, triggering information transmission or spillover effects between assets and markets. Stock markets being the barometer of any economy is impacted by several macroeconomic factors like inflation, interest rates, war, natural disasters, recession and exchanges rates to name a few. BRICS, a group of emerging countries accounting for 33% of global GDP,42% of the global population, and 17% of global commerce is an important pillar of the world order. This study focuses on the BRICS economies, investigating the dynamic correlation and volatility spillovers between exchange rates and stock markets during two critical global events: the COVID-19 pandemic and the Russian-Ukrainian war. Utilizing the DCC-EGARCH methodology and analysing daily data from October 29, 2018, to August 31, 2022, the research examines time-varying correlations, categorizing the data into pre-COVID, during COVID, pre-war, and during war sub-periods. The study aims to discern changes in the exchange rates-stock market return nexus, before and during these crises and explores potential variations in this relationship between natural events (such as COVID-19) and man-made outbreaks (Russia–Ukraine invasion). The findings indicate that COVID-19 and Russia–Ukraine war has minimal impact on the relationship between stock markets and exchange rates in all BRICS countries except Brazil. Notably, there are spillovers from exchange rates to the stock market in the long run only. Consequently, the study suggests that investors may find diversification opportunities in the short run during crises, as these events may not significantly affect spillovers in these markets. The notable impact on the relationship between stock markets and exchange rates in BRICS during the crises underscores the importance of tailored policy responses in these countries. Given the interconnectedness revealed in long-term spillovers, global economic policymakers may benefit from enhanced coordination to mitigate the impact of economic crises on exchange rates and stock markets.
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