To quipsters, economists represent the motley group that display admirable malleability in flipping opinions; people who sometime tweak reality to fit their theories and can linearise a non-linear world. To others, economists are masters at rear-view mirror driving, experts at predicting the past, and often coming up short in this pursuit. Yet others indict them of ignoring the things that count, and focusing on how things are counted. These hypotheses, arguably, are all theoretically possible, borrowing from economist-speak. In a world characterised by definitions, the value of economics, much like beauty, often lies in the eyes of the beholder.
It’s Not Over joins the growing list of literature devoted to dissecting the ongoing financial crisis. While some prefer the succulent tone of fiction to explore human frailties, It’s Not Over unleashes the formidable arsenal of scholarly lingua franca to make its case. To the book’s credit, it does not claim to cater to the keen but casually interested readership.
The US economy is the focal geography and the author provides a narrative of US economic growth over the past three decades, through the lens of wealth and debt. The early sections open with a discourse on wealth distribution and the trend of rising inequality. The past three decades have witnessed increased concentration in business and capital in the hands of a select few. These trends combined with the globalisation wave caused a regime shift — of power away from the working class — and within the income group to those at the top of the income distribution. This shift paralleled the development of financial markets and new instruments of capital, creating a situation where a financialisation wave came to occupy a central role in shaping the growth trajectory of economies.
The book’s key insight revolves around the role of asset markets in influencing economic growth. Rising asset prices like equity markets cause an increase in paper wealth, which allows consumers the capacity to assume ever increasing debt and utilise for more consumption. This apparently virtuous cycle provides a fillip to economic growth; which then feeds back into further rise in asset prices. Wealth and debt amplify economic cycles. Woes descend when the cycle switches into reverse gear. The Great Unwind leads to a period of exponential deceleration, which threatens to push economies into a period of stagnation, or worse, declining growth. When economic growth depends on wealth and debt, it becomes imperative to substitute one asset price bubble by another, in order to sustain progress.
The author highlights the contextual relevance of the above insight to today’s economic situation. The principal takeaway is that increasing financialisation makes economic growth beholden to some form of asset price inflation for its sustenance. This dependence amplifies economic and business cycles, leading to heightened volatility of economic growth. Finally, this scheme of things would impel governments to orient towards catering to the interests of capital.
This narrative is likely to chime well with Left-leaning readers, and the camps that look upon capitalism and the finance culture as the chief protagonists behind the world’s problems. The author, however, does not attempt to swing opinions one way or another, and sticks within the bounds of his academic framework. The book is technical, rich in numerical soliloquies and takes frequent excursions into the world of equations. Economics buffs are likely to appreciate the book’s academic bent.
— hemant.sreeraman@gmail.com