What do you think?
Rate this book
What We’ve Learned and Have Still to Learn from the Financial CrisisThe Shifts and the Shocks (Hardback) - Common
From the chief economic commentator for the Financial Times, a brilliant tour d’horizon of the new global economy and its trajectory We have been inundated with books about the “financial crisis.” Surely, there is little more to be said. Martin Wolf agrees. In fact, he argues, too much has been said about the purely financial aspects of the crisis, important though they are. The underlying problem is that the world economy is unable to cope with the major shifts it is rapid economic integration, competition from billions of new workers, technological revolutions, and the floods of capital across the world. These shifts have transformed relationships among economies and within them, creating new competitors, huge imbalances, and huge increases in inequality. With those shifts have come vast and largely unforeseen financial shocks. The breakdown of the financial system in the high-income countries of the West was a symptom of unsuccessful, incomplete, and misguided adjustments to the imbalances created by this new world. The shocks are partly the result of the financial system’s frailties, which must be remedied durably and radically. But they are also the consequence of deeper economic forces. To focus only on the financial breakdown is to mistake symptoms with causes. As important as improving the financial system is making the global economic system more stable.The Shifts and the Shocks is the tour d’horizon of the new world economy that only Martin Wolf could write. It cements his status as among our most farseeing and imaginative economic commentators. Wolf makes us see how partial and confused our view of the economic events of the last five years has been. No other book offers such a thoroughly global perspective, nor one that understands the connection between the macroeconomics and the financial system with Wolf’s level of sophistication and insight. It is not a book for those looking for a cheerful prognosis on the future of the European Union, or any number of other vital issues hanging fire, and it offers solutions that will seem extremely radical to some, but neither is it without hope. The new global economic order is lifting tens of millions of people out of poverty and creating new winners and losers at an unimagined scale and pace. It’s simply high time, indeed past time, for our economics to keep pace with our economy. Now, with The Shifts and the Shocks, it has.
Hardcover
First published August 25, 2014
113 people are currently reading
1963 people want to read
About the author
Martin Wolf
67 books124 followersMartin Wolf is associate editor and chief economics commentator at the Financial Times, London. He was awarded the CBE (Commander of the British Empire) in 2000 for services to financial journalism. Wolf won the Overseas Press Club of America’s prize for Best Commentary in 2013 and the 2019 Lifetime Achievement Award at the Gerald Loeb Awards. He was a member of the UK’s Independent Commission on Banking in 2010-11. Wolf is the author of The Shifts and The Shocks: What We’ve Learned— and Have Still to Learn—from the Financial Crisis.
Ratings & Reviews
Friends & Following
Create a free account to discover what your friends think of this book!
Community Reviews
Displaying 1 - 30 of 62 reviews
March 17, 2024
These days most economists are fantasists. Like nerdy teenagers they hide safe behind the doors of their academic bedrooms dreaming of bizarre ways to model the workings of the world, then giving their fantasies sensible sounding but ultimately meaningless names: “rational expectations",“expansionary austerity”and the rest.
And then, while the storms that they helped summon up of asset bubbles, global financial crises and mass unemployment, rage outside their window these pale individuals pull the bedroom curtains more firmly closed, dim the lights and carry on playing with their meaningless models as if nothing was happening.
Sadly, although most economists are fantasists some economists are also liars.
Some of these same nerdy teenagers have crept out of their academic hiding places to search for plutocratic uncles who will give them grants, conferences, highly paid jobs in think tanks and other rich men's presents on the simple condition that they give up any idealistic notions of "integrity" or "scientific objectivity" (not that they had much of that anyway) and instead peddle “free-market economics”, “flat taxes”, “the Laffer curve” and other ideologies that warm a billionaires heart to politicians who have whose understanding of economics is limited to knowing where their next campaign donation will come from.
That leaves us with a handful of honest economists who have some idea of how the world really works: Ha Joon Chang, Robert Schiller, Joseph Stiglitz and foremost among these Martin Woolf.
Martin Woolf stands out in this small club of honest economists by addressing global macro-economic issues rather than specialising in development economics like Ha Joon Chang or real estate and asset bubbles like Robert Schiller. He is more like Stiglitz with a European focus.
So we are fortunate that Martin Woolf has put the time in to write a book telling us eloquently and honestly where we stand with the world economy. Unfortunately the news is pretty much all bad, although things might get a little better around 2028.
Its all about the imbalances
There is a lot to learn from this book, starting with the importance of macroeconomic imbalances as a key driver of the “Global Financial Crisis” (GFC).
The environment of out-of-control finance, inequality and political expediency all helped these imbalances get out of control and propel us to an economic disaster which, as Martin Woolf reminds us more than once, is larger in terms of lost production than either of the last two world wars.
A root cause of the GFC was imbalances between creditor and debtor countries. It worked something like this:
Factories in creditor countries - mainly China and Germany - would work flat out producing "Stuff". They made more Stuff than their citizens could ever pay for, or at least not with their exploitative wages (relatively exploitative in the case of Germany).
So what to do with all this Stuff?
In China’s case the Stuff would be loaded onto ships sailing mainly to the USA, in a large part no doubt to end up on shelves in Wal-Mart.
Wal-Mart or other purveyors of cheap Chinese trash would send greenbacks back to the Chinese factory owner which he would trot round to the local branch of his Chinese bank in return for a nice handful of renminbi, allowing him to promptly celebrate with a banquet, party with his mistresses and even pass on some token amount of cash to his exploited workforce but mostly to stick back in the very same bank helping pay for China’s fabulous investment driven economic growth.
It get’s complicated
From here on the fate of those greenbacks, now in the hands of the Chinese bank, gets a little bit more murky for non-economists. It seems to work something like this:
The local chinese bank would take a bigger bagful of greenbacks deposited by the nearby factories it serves off to China’s central bank to swap for renminbi. The Chinese central bank would simply "return to sender", using them to pay for an enormous quantity US treasury bills - more than ever in history.
In theory the US government or US banks would now be in a position to use these greenbacks raised from the sweat of the Chinese or German workers brow to invest in the US economy.
What the Chinese probably never guessed was that these greenback would end up in the hands of some of the greediest, most deluded bankers that deregulation and regulatory capture had ever given birth to. Bankers who would, over the years up to 2007/2008 particularly, help the US participate very efficiently in its own financial destruction.
It starts to go horribly wrong
So the Chinese central bank gave up its hard earned greenbacks for US treasuries.
This left the sellers of those US treasuries - banks, insurance companies, pension funds - with loads of cash on their hands that had to be used one way or another. The US government also issued US treasuries to cover government spending, but that spending ended up in the pockets of individuals and companies, who would then have put the cash in the banks with the same end result: Loads of cash in the bank having to be invested somewhere useful.
So what did the banks do with all this extra cash? They made loans to help Build A Better America of course. Loans to help pay for crumbling US infrastructure, support US research and development, build schools, modernise US manufacturing industry and the rest of it.
Only joking of course. As you can well understand, the US banks did no such thing.
What they did was lend this spare cash to anyone with a pulse as long as the loan was backed by real estate, because real estate never goes down in value, right?
So was invented the “NINJA Loan” (for people with no income, no job) and the “Liar Loan” (for people who tell lies). Money flowed for leveraged buyouts, hedge fund speculation and all the rest of the socially useless activity finance has spent the last few decades perfecting to high art.
Of course the financiers needed impenetrable complexity, near fraud and actual fraud to keep this show in the road for as long as they did. Their reckless lending needed to disguise itself as AAA lending and spread itself around every corner of the globe to make sure maximum damage was done.
Luckily for the bankers, regulators like Alan Greenspan were too busy pulling it to old pictures of Ayn Rand to ever think anything bad was going on.
It goes horribly wrong
The political ground was ripe for this type of craziness: De-regulation played a part, but inequality played its role in the shadows. The great majority of the US population have seen their real wages decline for decades while the rich creamed off all the productivity gains,
Some of the US middle or working class were trying and keep up with the Joneses, borrowing a few drops from the ocean of practically free cash that the banks were creating secured against the every increasing value of their houses.
When the world finally woke up to the fact that the illegal Mexican immigrants who could barely speak English were unlikely to be able to repay their USD750,000 mortgage out of their salary as tomato pickers things started to really go wrong. In fact the world soon realised that it wasn't just Mexican immigrants but that most of the US middle class couldn’t repay their mortgages/student loans/car loans either, so house prices slumped, defaults rose and the whole fragile financial structure fell rapidly apart as the GFC kicked off.
Moralising about macroeconomics - the special case of the Eurozone and Germany
Germany and the Eurozone pretty much replayed the China vs US scenario, with Germany (and a few minor hangers on like the Netherlands) playing the role of China while the rest of the Eurozone played the role of the US.
The key difference seems to be that the Germans have to pretend to care, paying lip service to ideas of European unity. In contrast the Chinese can instead just chuckle quietly to themselves at how pathetically the US has managed to damage its economy, undermine its credibility and otherwise severely damage its standing in the world with only a little help from China.
But its only tough love from Germany. The whole macroeconomic debate in Europe is colored by spurious moralising about thrifty Germans and spendthrift latins, ignoring the truth that...
For every reckless borrower there is a reckless lender
What this book makes abundantly clear is that in the financial world for every asset there is a liability, for every credit there is a debit and for every trade surplus there is a trade deficit.
When Germany shifts the excess Stuff it has manufactured to the rest of Europe - those nice BMWs and Mercedes, those Bosch dishwashers - the Stuff has to be paid for.
And how is Stuff paid for? Ultimately by German savers lending to the Eurozone periphery countries through purchases of their sovereign or corporate debt or through cross border loans from creditor country banks.
Germany just doesn’t want to admit that it is the biggest beneficiary of the Euro through the benefits accruing to its export industry.
Germany also doesn’t want to admit that its reckless lending is as much to blame for the position the Eurozone finds itself in as is the reckless borrowing of Greece, Ireland, Spain and the rest. Rather Germany would prefer to moralise about spendthrift and lazy latins than think about its own role in the crisis.
Germany wants to force on to the periphery countries the whole burden of unemployment, deflation and general social misery required for structural adjustment while refusing to pay any cost itself. This is a recipe for an unhappy and increasingly politically divisive Europe with little hope for resolution.
Better by 2028, if you’re lucky
Long sections of Martin Woolf’s book address how to help solve some of the imbalances that continue to plague the global financial system and his suggestions sound very credible.
Unfortunately, as Martin Woolf himself admits at more than one point in the book, the political will to make any real changes without the spur of at least another and probably even bigger financial crises just isn’t there. Instead, muddling along while preserving an already fragile and failed system seems to continue to be the order of the day.
To sum up, prospects for the Eurozone continue to look very bleak and we can expect further financial crises and political turmoil. The position in Greece is far from resolved with the Eurozone at permanent risk of more economic turmoil when citizens in any of half a dozen European countries finally get sick of austerity and vote whichever particular party of bums is in power in their country out.
All in all, things are not going to end well.
And then, while the storms that they helped summon up of asset bubbles, global financial crises and mass unemployment, rage outside their window these pale individuals pull the bedroom curtains more firmly closed, dim the lights and carry on playing with their meaningless models as if nothing was happening.
Sadly, although most economists are fantasists some economists are also liars.
Some of these same nerdy teenagers have crept out of their academic hiding places to search for plutocratic uncles who will give them grants, conferences, highly paid jobs in think tanks and other rich men's presents on the simple condition that they give up any idealistic notions of "integrity" or "scientific objectivity" (not that they had much of that anyway) and instead peddle “free-market economics”, “flat taxes”, “the Laffer curve” and other ideologies that warm a billionaires heart to politicians who have whose understanding of economics is limited to knowing where their next campaign donation will come from.
That leaves us with a handful of honest economists who have some idea of how the world really works: Ha Joon Chang, Robert Schiller, Joseph Stiglitz and foremost among these Martin Woolf.
Martin Woolf stands out in this small club of honest economists by addressing global macro-economic issues rather than specialising in development economics like Ha Joon Chang or real estate and asset bubbles like Robert Schiller. He is more like Stiglitz with a European focus.
So we are fortunate that Martin Woolf has put the time in to write a book telling us eloquently and honestly where we stand with the world economy. Unfortunately the news is pretty much all bad, although things might get a little better around 2028.
Its all about the imbalances
There is a lot to learn from this book, starting with the importance of macroeconomic imbalances as a key driver of the “Global Financial Crisis” (GFC).
The environment of out-of-control finance, inequality and political expediency all helped these imbalances get out of control and propel us to an economic disaster which, as Martin Woolf reminds us more than once, is larger in terms of lost production than either of the last two world wars.
A root cause of the GFC was imbalances between creditor and debtor countries. It worked something like this:
Factories in creditor countries - mainly China and Germany - would work flat out producing "Stuff". They made more Stuff than their citizens could ever pay for, or at least not with their exploitative wages (relatively exploitative in the case of Germany).
So what to do with all this Stuff?
In China’s case the Stuff would be loaded onto ships sailing mainly to the USA, in a large part no doubt to end up on shelves in Wal-Mart.
Wal-Mart or other purveyors of cheap Chinese trash would send greenbacks back to the Chinese factory owner which he would trot round to the local branch of his Chinese bank in return for a nice handful of renminbi, allowing him to promptly celebrate with a banquet, party with his mistresses and even pass on some token amount of cash to his exploited workforce but mostly to stick back in the very same bank helping pay for China’s fabulous investment driven economic growth.
It get’s complicated
From here on the fate of those greenbacks, now in the hands of the Chinese bank, gets a little bit more murky for non-economists. It seems to work something like this:
The local chinese bank would take a bigger bagful of greenbacks deposited by the nearby factories it serves off to China’s central bank to swap for renminbi. The Chinese central bank would simply "return to sender", using them to pay for an enormous quantity US treasury bills - more than ever in history.
In theory the US government or US banks would now be in a position to use these greenbacks raised from the sweat of the Chinese or German workers brow to invest in the US economy.
What the Chinese probably never guessed was that these greenback would end up in the hands of some of the greediest, most deluded bankers that deregulation and regulatory capture had ever given birth to. Bankers who would, over the years up to 2007/2008 particularly, help the US participate very efficiently in its own financial destruction.
It starts to go horribly wrong
So the Chinese central bank gave up its hard earned greenbacks for US treasuries.
This left the sellers of those US treasuries - banks, insurance companies, pension funds - with loads of cash on their hands that had to be used one way or another. The US government also issued US treasuries to cover government spending, but that spending ended up in the pockets of individuals and companies, who would then have put the cash in the banks with the same end result: Loads of cash in the bank having to be invested somewhere useful.
So what did the banks do with all this extra cash? They made loans to help Build A Better America of course. Loans to help pay for crumbling US infrastructure, support US research and development, build schools, modernise US manufacturing industry and the rest of it.
Only joking of course. As you can well understand, the US banks did no such thing.
What they did was lend this spare cash to anyone with a pulse as long as the loan was backed by real estate, because real estate never goes down in value, right?
So was invented the “NINJA Loan” (for people with no income, no job) and the “Liar Loan” (for people who tell lies). Money flowed for leveraged buyouts, hedge fund speculation and all the rest of the socially useless activity finance has spent the last few decades perfecting to high art.
Of course the financiers needed impenetrable complexity, near fraud and actual fraud to keep this show in the road for as long as they did. Their reckless lending needed to disguise itself as AAA lending and spread itself around every corner of the globe to make sure maximum damage was done.
Luckily for the bankers, regulators like Alan Greenspan were too busy pulling it to old pictures of Ayn Rand to ever think anything bad was going on.
It goes horribly wrong
The political ground was ripe for this type of craziness: De-regulation played a part, but inequality played its role in the shadows. The great majority of the US population have seen their real wages decline for decades while the rich creamed off all the productivity gains,
Some of the US middle or working class were trying and keep up with the Joneses, borrowing a few drops from the ocean of practically free cash that the banks were creating secured against the every increasing value of their houses.
When the world finally woke up to the fact that the illegal Mexican immigrants who could barely speak English were unlikely to be able to repay their USD750,000 mortgage out of their salary as tomato pickers things started to really go wrong. In fact the world soon realised that it wasn't just Mexican immigrants but that most of the US middle class couldn’t repay their mortgages/student loans/car loans either, so house prices slumped, defaults rose and the whole fragile financial structure fell rapidly apart as the GFC kicked off.
Moralising about macroeconomics - the special case of the Eurozone and Germany
Germany and the Eurozone pretty much replayed the China vs US scenario, with Germany (and a few minor hangers on like the Netherlands) playing the role of China while the rest of the Eurozone played the role of the US.
The key difference seems to be that the Germans have to pretend to care, paying lip service to ideas of European unity. In contrast the Chinese can instead just chuckle quietly to themselves at how pathetically the US has managed to damage its economy, undermine its credibility and otherwise severely damage its standing in the world with only a little help from China.
But its only tough love from Germany. The whole macroeconomic debate in Europe is colored by spurious moralising about thrifty Germans and spendthrift latins, ignoring the truth that...
For every reckless borrower there is a reckless lender
What this book makes abundantly clear is that in the financial world for every asset there is a liability, for every credit there is a debit and for every trade surplus there is a trade deficit.
When Germany shifts the excess Stuff it has manufactured to the rest of Europe - those nice BMWs and Mercedes, those Bosch dishwashers - the Stuff has to be paid for.
And how is Stuff paid for? Ultimately by German savers lending to the Eurozone periphery countries through purchases of their sovereign or corporate debt or through cross border loans from creditor country banks.
Germany just doesn’t want to admit that it is the biggest beneficiary of the Euro through the benefits accruing to its export industry.
Germany also doesn’t want to admit that its reckless lending is as much to blame for the position the Eurozone finds itself in as is the reckless borrowing of Greece, Ireland, Spain and the rest. Rather Germany would prefer to moralise about spendthrift and lazy latins than think about its own role in the crisis.
Germany wants to force on to the periphery countries the whole burden of unemployment, deflation and general social misery required for structural adjustment while refusing to pay any cost itself. This is a recipe for an unhappy and increasingly politically divisive Europe with little hope for resolution.
Better by 2028, if you’re lucky
Long sections of Martin Woolf’s book address how to help solve some of the imbalances that continue to plague the global financial system and his suggestions sound very credible.
Unfortunately, as Martin Woolf himself admits at more than one point in the book, the political will to make any real changes without the spur of at least another and probably even bigger financial crises just isn’t there. Instead, muddling along while preserving an already fragile and failed system seems to continue to be the order of the day.
To sum up, prospects for the Eurozone continue to look very bleak and we can expect further financial crises and political turmoil. The position in Greece is far from resolved with the Eurozone at permanent risk of more economic turmoil when citizens in any of half a dozen European countries finally get sick of austerity and vote whichever particular party of bums is in power in their country out.
All in all, things are not going to end well.
September 5, 2014
In The shifts and Shocks: How the Financial Crisis Has Changed Our Future Martin Wolf, Chief Economics commentator at the Financial Times, expands on his FT commentaries in book form. He divided the book into three parts: Shocks, Shifts, and Solutions. The first part looks at how the financial crises that hit the world after 2007 made the world what it is today. The second part looks at the changes to the world economy and financial systems that led to the crises and their aftermath. The third part looks at how to achieve a better financial system and economy.
Each section addresses the "high income" countries, emerging countries and Eurozone countries. Wolf's view is that the underlying cause of the the interlinked global and Eurozone crises was what he calls a "global savings glut" driven by global trade and capital imbalances. China and the other emerging Asian countries, the oil exporting countries, Japan and Germany built up huge trade surpluses at the expense of the US and "peripheral Europe." In the US, this was partially a result of a dollar that was stronger than it ought to have been due to currency interventions against it by the exporters, and partially the result of Federal Reserve actions meant to equalize the imbalances and still maintain maximum employment. In "peripheral Europe" it was the result of being able to finance large current-account deficits at very low interest rates made possible by having the Euro as a common currency with the current-account surplus country of Germany. These imbalances were the result of long-term trends of increasing liberalization (freer markets), globalization,innovation, leverage and incentives toward greater risk taking within companies.
Wolf is skeptical that the voluminous reams of of newly adopted and proposed regulation will prevent another financial crisis. He points out the the most important legislation in response to the Great Depression was the Glass-Stegall Act of 1933 which ran 37 pages in it's entirety. The response to the 2007 crisis was the Dodd-Frank Act of 2010 which ran 848 pages BUT which requires nearly 400 pieces of detailed regulatory rules which have added an additional 8,843 pages to date and it's only 1/3 finished! He also points to thousands of pages of regulations currently being written in Europe and points out the inconceivability that something so complex can be understood and actually work. He instead calls for larger capital reserves and "macroprudential supervision" which means attempting to regulate the stability of the financial system as a whole. He acknowledges that this will not be easy and might not even be work, but thinks it needs to be tried.
He is also rather pessimistic about the survival of the Euro which he likens to a bad marriage. He proposes a banking union in which eurobonds would represent some percentage of the GDP of all the member countries with each individual country responsible for financing their debt above that level. Those eurobonds would then be very liquid and provide "safe" assets to back the system instead of relying on the bonds of Germany. He holds Germany culpable for the way they've handled the Eurozone and acknowledges that they are not willing today to accept the reforms that he proposes, but he thinks something must be done for the Euro to survive.
Wolf also doesn't believe that the current move toward government austerity was wise. He thinks there should have been more fiscal stimulus in order to keep the world's economy growing while the healing takes place.
The book is not an easy read since it deals with heavy subject matter and a lot of inter-related economic concepts. I have had to re-read some sections of it and feel I gained a better understanding of the material the second time around. The book is a take on the financial crises of the past few years that is different from anything else I've read. I think anyone with a strong interest in economics and markets will enjoy it.
Full disclosure: I received a free ARC of an uncorrected proof via a Goodreads First Reads giveaway.
Each section addresses the "high income" countries, emerging countries and Eurozone countries. Wolf's view is that the underlying cause of the the interlinked global and Eurozone crises was what he calls a "global savings glut" driven by global trade and capital imbalances. China and the other emerging Asian countries, the oil exporting countries, Japan and Germany built up huge trade surpluses at the expense of the US and "peripheral Europe." In the US, this was partially a result of a dollar that was stronger than it ought to have been due to currency interventions against it by the exporters, and partially the result of Federal Reserve actions meant to equalize the imbalances and still maintain maximum employment. In "peripheral Europe" it was the result of being able to finance large current-account deficits at very low interest rates made possible by having the Euro as a common currency with the current-account surplus country of Germany. These imbalances were the result of long-term trends of increasing liberalization (freer markets), globalization,innovation, leverage and incentives toward greater risk taking within companies.
Wolf is skeptical that the voluminous reams of of newly adopted and proposed regulation will prevent another financial crisis. He points out the the most important legislation in response to the Great Depression was the Glass-Stegall Act of 1933 which ran 37 pages in it's entirety. The response to the 2007 crisis was the Dodd-Frank Act of 2010 which ran 848 pages BUT which requires nearly 400 pieces of detailed regulatory rules which have added an additional 8,843 pages to date and it's only 1/3 finished! He also points to thousands of pages of regulations currently being written in Europe and points out the inconceivability that something so complex can be understood and actually work. He instead calls for larger capital reserves and "macroprudential supervision" which means attempting to regulate the stability of the financial system as a whole. He acknowledges that this will not be easy and might not even be work, but thinks it needs to be tried.
He is also rather pessimistic about the survival of the Euro which he likens to a bad marriage. He proposes a banking union in which eurobonds would represent some percentage of the GDP of all the member countries with each individual country responsible for financing their debt above that level. Those eurobonds would then be very liquid and provide "safe" assets to back the system instead of relying on the bonds of Germany. He holds Germany culpable for the way they've handled the Eurozone and acknowledges that they are not willing today to accept the reforms that he proposes, but he thinks something must be done for the Euro to survive.
Wolf also doesn't believe that the current move toward government austerity was wise. He thinks there should have been more fiscal stimulus in order to keep the world's economy growing while the healing takes place.
The book is not an easy read since it deals with heavy subject matter and a lot of inter-related economic concepts. I have had to re-read some sections of it and feel I gained a better understanding of the material the second time around. The book is a take on the financial crises of the past few years that is different from anything else I've read. I think anyone with a strong interest in economics and markets will enjoy it.
Full disclosure: I received a free ARC of an uncorrected proof via a Goodreads First Reads giveaway.
June 23, 2021
A Keynesian economist prescribing a Keynesian solution to a Keynesian crisis. Mr. Wolf gives the best description of the crisis and tries to explain the nuances of it in a very grad-school economics professor way. He tries to explain some of the terms and concepts, but it comes off as explaining a complex concept of economics to someone who has a solid, but not extensive, knowledge of economics. Not a good book to read if you have no idea what happened or have any clue about economics. However, he does suggest books to read if you do not which can be helpful to some.
Overall, a very economics-forward look at the two financial crises. While Mr. Wolf is against austerity and has a more Keynesian way of looking at the crisis, he also has new ideas that may not be 100% Keynes or 100% Austrian Economics. Solid read if you know what they are talking about.
Overall, a very economics-forward look at the two financial crises. While Mr. Wolf is against austerity and has a more Keynesian way of looking at the crisis, he also has new ideas that may not be 100% Keynes or 100% Austrian Economics. Solid read if you know what they are talking about.
November 5, 2018
Sometimes I think being completely ignorant of economics would ease by peace of mind. Seriously. During the financial crisis of 2007-8, I never had the impression that people around me had any idea that we were dancing on the ridge of the volcano, and that just one additional mistake on the top of all the others would have been sufficient to throw us right into the core.
I have "celebrated" the 10-year anniversary of the crisis with this excellent history by Martin Wolf of the Financial Times. OK, the book is already 4 years old, and the world has moved on, but the book remains highly topical. Wolf discusses the origins and the consequences of the crisis, and possible solutions.
The book is not easy reading, but Wolf has made it as accessible as possible to a non-economist who is interested in the topic (and is willing to lose his peace of mind).
I have "celebrated" the 10-year anniversary of the crisis with this excellent history by Martin Wolf of the Financial Times. OK, the book is already 4 years old, and the world has moved on, but the book remains highly topical. Wolf discusses the origins and the consequences of the crisis, and possible solutions.
The book is not easy reading, but Wolf has made it as accessible as possible to a non-economist who is interested in the topic (and is willing to lose his peace of mind).
May 15, 2015
I received this as a First Reads giveaway and can recommend it as a sweeping global overview of the financial crisis and its aftermath. I have always respected Wolf's writing because he is a pragmatic economist willing to solve problems practically than ideologically. In fact, he establishes his credibility from the introduction when he admits that he didn't see the severity of the crisis lurking from over leveraged banks and indebted consumers. He goes on to site Hyman Minsky's observation that we often fail to see these catastrophic events because of our failure to imagine. Wolf goes on to highlight how emerging economies were relatively spared from the global recession because of their net current account surplus (better to be a lender than a debtor), but doesn't have much optimism of Germany's management of the Euro. In fact, he is downright dour on its future unless Europe starts acting like a political union rather than a monetary union. He goes on to point out a rather remarkable statistic that there were less than 100 Triple AAA rated companies across the globe but thousands upon thousands of securitized debt instruments were given a AAA rating due to the securitization orgy that took place leading up to the crisis. Although not dismissive of regulation, he is less certain that anything that is coming out of the US or Switzerland will make finance an inherently safer system. Another interesting factoid is the 10s of thousands of pages of regulation that are being created to put in place some of these safety nets and I can only see more fines due to regulatory non-compliance but who is going to remember all these regulations cross borders. In the end there is some room from pragmatism, to be able to curb animal spirits and some Old Testament justice when needed but it seems based on Wolf's analysis the need for independent bankers who can push back against political ideology may be what keeps us from the next crisis until a truly safer banking system gets developed
October 22, 2014
Martin Wolf writes about global finance. I don't know of anyone who takes a more systemic approach to explaining how the financial markets in one country affect those in another, or how economies and financial markets interact. We're well past the point of any one economy operating in isolation and while this may seem obvious at some level, the implications for policy still aren't fully understood and certainly haven't been fully acted on.
February 2, 2015
I have been defeated.
Wolf makes sense as far as I can follow, but I think you have to live this stuff (work in finance or teach economics) to be able to plow through this one.
Wolf makes sense as far as I can follow, but I think you have to live this stuff (work in finance or teach economics) to be able to plow through this one.
March 22, 2020
A very well documented, written, and argued investigation into the 2008 financial crisis. Martin Wolf explains why it happened to cause the great recession, and what needs to be done to avoid another one, which he seems as vitally important for the continued progress of globalization and integration of the world economies.
A few good takeaways. One, most economic crises start with a financial crisis, caused by irresponsible behavior in the financial sector. Lenders need to take just as much responsibility for making bad debts and borrowers. Two, the flow of global capital went in the wrong direction for over a decade, from the developing world to the developed world, caused by the 1997 Asian financial crisis. And three, the European Union is a disaster, but breaking it up would be even worse, the only option is to improve the EU and monetary union.
A few good takeaways. One, most economic crises start with a financial crisis, caused by irresponsible behavior in the financial sector. Lenders need to take just as much responsibility for making bad debts and borrowers. Two, the flow of global capital went in the wrong direction for over a decade, from the developing world to the developed world, caused by the 1997 Asian financial crisis. And three, the European Union is a disaster, but breaking it up would be even worse, the only option is to improve the EU and monetary union.
January 4, 2016
Mr. Wolf is a smart guy. This is not for the casual reader, but there is some good stuff in here for guys with a bit of finance background/ a lot of persistence.
The flaws
The first part of the book is really dull and could have been ripped from a Krugman or Stiglitz book, namely the Euro is a marriage made in hell, a Catholic hell where divorce is not permissible (I think this is obvious to all) and offering the usual reheated Keynesian arguments about the handling of the crisis. These are as follows-
i. The global economy was starting to recover after the initial stimulus and austerity was a disaster
ii. Germany is bad for suppressing demand
iii. We have a global demand deficit/ savings glut
i. is predicated on two assumptions, neither of which I agree with-
a. continued government spending will eventually lead to a sustained recovery.
I have always found this a poor assumption not backed up by fact- in many cases increased government money is allocated to products or sectors which are not in demand by the private sector after the end of the stimulus (often to win short-term votes)- therefore indefinite deficit spending is needed which leads to foreign bond holders losing confidence. In the few cases where massive gov't spending took place and made the economy recover i.e. WWII, the spending needs to be seen against the guiding hand of the war which led to new technologies developed to fuel it i.e. jet engines, advances in telecommunications and education investment i.e. GI bill. Whether financial stimulus alone would ever result in such bold innovations is unlikely, also most of the low hanging R&D fruit have now been plucked.
b. foreign bond holders will support a government running such a deficit for a prolonged period and not sell their bonds.
In reality if we look at Britain in 1976 this simply is not a credible argument in an indefinite stimulus scenario as the pound is no longer the global reserve currency (and for all of the world other than the US).
ii. Re German surplus- Although he does look at both sides of this argument later in the book, he is very anti-German. While most of the Eurozone creditor-debtor imbalances are internal, net I think it's running a small deficit so even if German wages were allowed to rise the situation not continue indefinitely.
iii. Re-global demand deficit- He states the US corporate sector post-crash was in surplus, but doesn't really go in-depth as to why this is so (perhaps increased off-shoring of cash due to US taxes on cash repatriated to the US might give him an answer).
Overall I think there are two key problems underlying his analysis in the early part of the book. The first is a tendency for not criticizing the fact the Keynesian analysis is based on a (largely) closed system- Wolf is keen to point out internal debtors and creditors must net off to nil if foreign debtors and creditors are ignored (at least twice in the book). However, this is a fatuous comment, it is absurd to ignore foreign debtors and creditors in the globally connected world we live in- some weight is given to China but very little to the oil producing countries.
The second is that it focuses almost exclusively on conventional banking. There is little sustained analysis of the practical effects of the shadow banking system, or on how tax impacts corporate behaviour.
The triumphs
These issues aside, the book picks up and its later parts are in general very fine. There are some very interesting points brought out. In particular, five points I liked were-
-the idea of US being reserve currency limiting US Fed's room for fiscal manoeuvre. He cleverly links the 98 Asian crisis and Dotcom bubble, arguing as a result of 98, foreign creditors bought US dollars making export difficult. Consequently in the wake of the bursting of the dot com bubble and unemployment fears, the Fed was forced to stimulate the internal economy at all costs leading to the housing bubble.
-banks are reluctant to have a lower gearing ratio i.e. more equity due to fact equity would only go to other creditors on wind up. Outside of the tax advantage there is not reason to not have more equity (I think Wolf underplays this advantage, in the US you could be looking at a 40% corp tax rate and it explains quite a lot of the pref for debt).
-as increasingly banks are large listed entities, the shareholders are forcing banks to take increasingly risky moves to keep up with competition as they can only obtain high returns while being highly leveraged
-Fanny Mae and Freddy Mac (US govt mortgage lenders) actually had lower size of lending and lower default rate than other subprime lenders so were not largely responsible for the crisis (contrary to what some right-wing commentators argued).
- The obsession of central bankers in the UK and US with the metric of keeping inflation at a given rate (2% in the UK) actually made the system more fragile.
There is no silver bullet on offer as a solution, but some of these ideas do make you think. Definitely worth a read.
The flaws
The first part of the book is really dull and could have been ripped from a Krugman or Stiglitz book, namely the Euro is a marriage made in hell, a Catholic hell where divorce is not permissible (I think this is obvious to all) and offering the usual reheated Keynesian arguments about the handling of the crisis. These are as follows-
i. The global economy was starting to recover after the initial stimulus and austerity was a disaster
ii. Germany is bad for suppressing demand
iii. We have a global demand deficit/ savings glut
i. is predicated on two assumptions, neither of which I agree with-
a. continued government spending will eventually lead to a sustained recovery.
I have always found this a poor assumption not backed up by fact- in many cases increased government money is allocated to products or sectors which are not in demand by the private sector after the end of the stimulus (often to win short-term votes)- therefore indefinite deficit spending is needed which leads to foreign bond holders losing confidence. In the few cases where massive gov't spending took place and made the economy recover i.e. WWII, the spending needs to be seen against the guiding hand of the war which led to new technologies developed to fuel it i.e. jet engines, advances in telecommunications and education investment i.e. GI bill. Whether financial stimulus alone would ever result in such bold innovations is unlikely, also most of the low hanging R&D fruit have now been plucked.
b. foreign bond holders will support a government running such a deficit for a prolonged period and not sell their bonds.
In reality if we look at Britain in 1976 this simply is not a credible argument in an indefinite stimulus scenario as the pound is no longer the global reserve currency (and for all of the world other than the US).
ii. Re German surplus- Although he does look at both sides of this argument later in the book, he is very anti-German. While most of the Eurozone creditor-debtor imbalances are internal, net I think it's running a small deficit so even if German wages were allowed to rise the situation not continue indefinitely.
iii. Re-global demand deficit- He states the US corporate sector post-crash was in surplus, but doesn't really go in-depth as to why this is so (perhaps increased off-shoring of cash due to US taxes on cash repatriated to the US might give him an answer).
Overall I think there are two key problems underlying his analysis in the early part of the book. The first is a tendency for not criticizing the fact the Keynesian analysis is based on a (largely) closed system- Wolf is keen to point out internal debtors and creditors must net off to nil if foreign debtors and creditors are ignored (at least twice in the book). However, this is a fatuous comment, it is absurd to ignore foreign debtors and creditors in the globally connected world we live in- some weight is given to China but very little to the oil producing countries.
The second is that it focuses almost exclusively on conventional banking. There is little sustained analysis of the practical effects of the shadow banking system, or on how tax impacts corporate behaviour.
The triumphs
These issues aside, the book picks up and its later parts are in general very fine. There are some very interesting points brought out. In particular, five points I liked were-
-the idea of US being reserve currency limiting US Fed's room for fiscal manoeuvre. He cleverly links the 98 Asian crisis and Dotcom bubble, arguing as a result of 98, foreign creditors bought US dollars making export difficult. Consequently in the wake of the bursting of the dot com bubble and unemployment fears, the Fed was forced to stimulate the internal economy at all costs leading to the housing bubble.
-banks are reluctant to have a lower gearing ratio i.e. more equity due to fact equity would only go to other creditors on wind up. Outside of the tax advantage there is not reason to not have more equity (I think Wolf underplays this advantage, in the US you could be looking at a 40% corp tax rate and it explains quite a lot of the pref for debt).
-as increasingly banks are large listed entities, the shareholders are forcing banks to take increasingly risky moves to keep up with competition as they can only obtain high returns while being highly leveraged
-Fanny Mae and Freddy Mac (US govt mortgage lenders) actually had lower size of lending and lower default rate than other subprime lenders so were not largely responsible for the crisis (contrary to what some right-wing commentators argued).
- The obsession of central bankers in the UK and US with the metric of keeping inflation at a given rate (2% in the UK) actually made the system more fragile.
There is no silver bullet on offer as a solution, but some of these ideas do make you think. Definitely worth a read.
October 9, 2023
I have found this book very informative and perhaps the first one that really goes into details of 2008 financial crisis and clearly analyses both the reasons and prospects for the future.
There are already so many good descriptions of this book, so I just follow with a few notes :
The volume of world trade fell by close to 20 percent in the twelve month from April 2008, against around 10 percent over the twelve months from June 1929.
The introduction of Euro was expected to mae balance of payments irrelevant between the euro-area members. In fact, the events of 2008 shown that the balance of payments continues to matter just as much within a currency union as outside one.
The author argues that the 2008 crisis happened not only because of a failure of the financial system, but also because of huge shifts in the world economy.
The underlying cause was the emergence of a global savings glut. The response of policy makers in a number of high-income countries was to tolerate - even encourage - an unsustainable credit boom, which then led to the interlinked global and Eurozone crises.
Alan Greenspan in October 2008 accepted that the pursuit of self-interest, however beneficial in the economy, as a whole, does not necessarily lead to financial stability, because shareholders of financial institutions are either unaware of the risks their institutions are running or are prepared to let management make big gambles.
There are already so many good descriptions of this book, so I just follow with a few notes :
The volume of world trade fell by close to 20 percent in the twelve month from April 2008, against around 10 percent over the twelve months from June 1929.
The introduction of Euro was expected to mae balance of payments irrelevant between the euro-area members. In fact, the events of 2008 shown that the balance of payments continues to matter just as much within a currency union as outside one.
The author argues that the 2008 crisis happened not only because of a failure of the financial system, but also because of huge shifts in the world economy.
The underlying cause was the emergence of a global savings glut. The response of policy makers in a number of high-income countries was to tolerate - even encourage - an unsustainable credit boom, which then led to the interlinked global and Eurozone crises.
Alan Greenspan in October 2008 accepted that the pursuit of self-interest, however beneficial in the economy, as a whole, does not necessarily lead to financial stability, because shareholders of financial institutions are either unaware of the risks their institutions are running or are prepared to let management make big gambles.
September 5, 2019
A book that is, at the same time, readable like your favourite novel and yet able to tell a fairly complex financial and economic story. The Shifts and Shocks is an outstanding book, worth reading today by all. The narrative covers primarily the aftermath of the financial crisis taking the reader through the post-GFC wave of austerity and a near-death banking/sovereign debt crisis, whose shadow hangs over the European economy even today.
In evaluating the why of 2008, Mr. Wolf reviews a number of factors (e.g., false faith in inflation targeting as a tool of financial and economic stabilisation, regulatory & policy failures, etc.) but leaves us with a simple and clear answer, a weak financial system overwhelmed by a savings glut and low interest rates. Perhaps keeping our eyes on these variables is the policy message for the future.
In evaluating the why of 2008, Mr. Wolf reviews a number of factors (e.g., false faith in inflation targeting as a tool of financial and economic stabilisation, regulatory & policy failures, etc.) but leaves us with a simple and clear answer, a weak financial system overwhelmed by a savings glut and low interest rates. Perhaps keeping our eyes on these variables is the policy message for the future.
May 14, 2016
This is a fantastic book, but I think it's worth remembering that it's an illusion too. I'm a fairly well versed layman, did ok in Econ 101, got drunk and screwed up the final in Econ 102, but I've got an OK grip on the basics. Since college I've followed economic news with varying degrees of interest, and like all of us with much more interest since 2008. This book has added to my understanding immeasurably.
Wolf is fantastic at collecting the details of and the arguments about the financial crisis in one place. He also presents a very coherent world view that leaves virtually no one unscathed. This includes himself. I appreciated the way he reviewed his own failure to see the true extent of the problems in the run up to 2008. He does a great job of pointing out the pure insanity of what we were up to, and even more important, pointing out how little has changed.
The book deals with the details of finance and macroeconomics with ease. I had to re-read some passages, but there were very few instances where a re-read did not yield understanding. This book superlatively illustrates a simple point: Nobody really has any fucking idea what they're talking about when they talk about the economy. What we have is a sea of guesses. We've learned some things from experience. As flawed as the response to 2008 was, it DID succeed in averting another Great Depression. But now that the immediate crises have passed we've all reverted to our old explanations. The picture of general cluelessness is very compelling and extremely valuable.
A lot of people were absolutely convinced they knew how the world worked and almost all of them were wrong. The book is a case for humility on a grand scale. And it gets five stars on the basis of this alone. I'd give it ten if that were possible. I go with Wolf all the way here.
But it's also a case for action. And I go with Wolf most of the way on this as well. His diagnosis of the ills of the Euro area is compelling. The insistence on punishing the people or even the governments of countries like Greece or Spain for this crisis, when those countries are not truly sovereign is wrong, and even amoral. The simple fact remains that these countries have no control over their currency or their central bank. The Euro should not have happened, and everyone was guilty of its creation, especially the Germans. As unsympathetic as the Greeks can seem, the fact remains that they have gotten and continue to get a very raw deal. This was a bit of a revelation to me.
I'm also completely with Wolf in his condemnation of the banking industry. Its manifold lunacies are what brought us the 2008 crisis. We've changed nothing essential. If it goes unreformed it will bring us another crisis. This needs to be shouted from the roof-tops, and Wolf does exactly that.
Wolf is absolutely right that more and more creative action is needed. His interpretation is compelling, and some of the things he suggests absolutely must be tried. But I also found the book a bit disturbing. His confidence in his view of things is a bit too high. This book is a fantastic case for humility. A lot of people were absolutely convinced of things that simply weren't true. But Martin Wolf is absolutely convinced of many things as well. His discussion of things like current account deficits and surpluses in particular, and their absolute relations to each other seemed a bit glib.
"It's just basic math!" "If you don't see things this way, you're an idiot". He of course puts these sentiments in much cleverer ways, and with much more grace than I do, but that's the message. When he writes these things it just seems like common sense. But the Efficient Markets Hypothesis that brought us the crisis seemed to be common sense too. I lack the economics knowledge necessary to truly counter any of his arguments, but I think the main lesson of the crisis is that we should view all economic knowledge and expertise with more suspicion. Including Wolf's. This is not to say that his prescriptions shouldn't be taken seriously. Just that his faith in the value of figures like GDP and current accounts needs to be looked at more carefully.
There's a metaphor I often use to describe the study of economics. It's the study of medicine circa 1700 or so. Back then (very few) people were beginning to realize that the old Greek model of bleeding people to release the bad humors wasn't all that useful. That's where the study of economics is right now. We don't even have the accurate tools necessary to truly measure economic activity. How can we say anything with certainty? This is not to say medicine in 1700 was useless. They knew how to set a broken arm, and that a sick person needed rest. Consistently non-lethal surgery was just getting started. I think that's about the state of the modern knowledge of economics.
Anybody in 2016 who tells you that he has the right and true answers to economic questions is a snake oil salesman. That includes Martin Wolf.
That's too harsh. Martin Wolf is more of a LaMarckian or a Classical Physicist. He's very convinced that he knows what's right. His view of the world is probably much more accurate than the "More Bleeding Is the Answer!" folks running the central banks in 2016. But he's wrong as well. We need more people like Wolf, who are capable of advancing the conversation. But we shouldn't believe they have all the answers.
Wolf is fantastic at collecting the details of and the arguments about the financial crisis in one place. He also presents a very coherent world view that leaves virtually no one unscathed. This includes himself. I appreciated the way he reviewed his own failure to see the true extent of the problems in the run up to 2008. He does a great job of pointing out the pure insanity of what we were up to, and even more important, pointing out how little has changed.
The book deals with the details of finance and macroeconomics with ease. I had to re-read some passages, but there were very few instances where a re-read did not yield understanding. This book superlatively illustrates a simple point: Nobody really has any fucking idea what they're talking about when they talk about the economy. What we have is a sea of guesses. We've learned some things from experience. As flawed as the response to 2008 was, it DID succeed in averting another Great Depression. But now that the immediate crises have passed we've all reverted to our old explanations. The picture of general cluelessness is very compelling and extremely valuable.
A lot of people were absolutely convinced they knew how the world worked and almost all of them were wrong. The book is a case for humility on a grand scale. And it gets five stars on the basis of this alone. I'd give it ten if that were possible. I go with Wolf all the way here.
But it's also a case for action. And I go with Wolf most of the way on this as well. His diagnosis of the ills of the Euro area is compelling. The insistence on punishing the people or even the governments of countries like Greece or Spain for this crisis, when those countries are not truly sovereign is wrong, and even amoral. The simple fact remains that these countries have no control over their currency or their central bank. The Euro should not have happened, and everyone was guilty of its creation, especially the Germans. As unsympathetic as the Greeks can seem, the fact remains that they have gotten and continue to get a very raw deal. This was a bit of a revelation to me.
I'm also completely with Wolf in his condemnation of the banking industry. Its manifold lunacies are what brought us the 2008 crisis. We've changed nothing essential. If it goes unreformed it will bring us another crisis. This needs to be shouted from the roof-tops, and Wolf does exactly that.
Wolf is absolutely right that more and more creative action is needed. His interpretation is compelling, and some of the things he suggests absolutely must be tried. But I also found the book a bit disturbing. His confidence in his view of things is a bit too high. This book is a fantastic case for humility. A lot of people were absolutely convinced of things that simply weren't true. But Martin Wolf is absolutely convinced of many things as well. His discussion of things like current account deficits and surpluses in particular, and their absolute relations to each other seemed a bit glib.
"It's just basic math!" "If you don't see things this way, you're an idiot". He of course puts these sentiments in much cleverer ways, and with much more grace than I do, but that's the message. When he writes these things it just seems like common sense. But the Efficient Markets Hypothesis that brought us the crisis seemed to be common sense too. I lack the economics knowledge necessary to truly counter any of his arguments, but I think the main lesson of the crisis is that we should view all economic knowledge and expertise with more suspicion. Including Wolf's. This is not to say that his prescriptions shouldn't be taken seriously. Just that his faith in the value of figures like GDP and current accounts needs to be looked at more carefully.
There's a metaphor I often use to describe the study of economics. It's the study of medicine circa 1700 or so. Back then (very few) people were beginning to realize that the old Greek model of bleeding people to release the bad humors wasn't all that useful. That's where the study of economics is right now. We don't even have the accurate tools necessary to truly measure economic activity. How can we say anything with certainty? This is not to say medicine in 1700 was useless. They knew how to set a broken arm, and that a sick person needed rest. Consistently non-lethal surgery was just getting started. I think that's about the state of the modern knowledge of economics.
Anybody in 2016 who tells you that he has the right and true answers to economic questions is a snake oil salesman. That includes Martin Wolf.
That's too harsh. Martin Wolf is more of a LaMarckian or a Classical Physicist. He's very convinced that he knows what's right. His view of the world is probably much more accurate than the "More Bleeding Is the Answer!" folks running the central banks in 2016. But he's wrong as well. We need more people like Wolf, who are capable of advancing the conversation. But we shouldn't believe they have all the answers.
September 12, 2016
The Shifts and the Shock: How the Financial Crisis Has Changed Our Future by Martin Wolf, is a fantastic book on post-crisis economic and financial theory. Wolf is a an author from the United Kingdom, so the scope of the book is much broader than many US publications, as it covers the United States, Europe and emerging economies. The book starts off with a brief overview of the financial crisis, how it formed pre-crisis, the impact of shadow banking institutions, US mortgage backed securities, and a poor risk management framework. The book also details the following Eurozone crisis, with the near default of Greece and the subsequent weakening of the Irish, Spanish, Italian and Cypriot economies in the EU, and the massive crisis in Iceland's banking system. This is all pretty standard stuff, and Wolf does a good job keeping it brief and relevant to his later points.
The book gets interesting when it begins to offer critique both of pre-crisis and post-crisis macro-prudential policy, financial policy, macroeconomic theory, and so on. Wolf chronicles the different schools of economic thought, Austrian, Chicago, Keynesian, Chartalist/New Monetarism to offer a critiques. Some great ideas emerge from these differing schools, including 100% reserve banking, where all assets held by commercial banks are 100% backed up in Central Bank reserves. This would ensure a steady supply of money to the federal governments, reduce taxation, and allow governments to print money based on need - subsequent to a pre-determined growth rate which would need to be politically and socially acceptable (ie. how much should we fund certain welfare programs, how much should minimum wage be, what is an acceptable unemployment rate?).
Wolf examines the causes of instability as well. He goes into depth on the need for stronger macroprudential regulation, including structural reforms with banks relationships to hedge funds and other non-financial intermediaries reformation of international regulatory agencies that determine credit rating and the need to restructure banking reformation. He also posits changes to the way banks do business, by increasing the amount of equity banks hold in regards to debt, thus reducing the instability of banks with a high debt-equity ratio.
Wolf argues for a higher capital supply in the economic system as well, with societies driving how much risk they are willing to stomach, and subsequently how much we are willing to pay up when crisis hits. He also argues for the elimination of debt overhang as a financial incentive to shareholders. These overhangs, he argues, are good only for commercial banks, and have a negative effect on both shareholders and societies.
Wolf also argues against fiscal austerity, which he posits has actually slowed down the post-crisis recovery by reducing investment opportunities and missing the mark on the ready supply of construction equipment and assets that was available as the crisis began to wound down, due to a the obvious massive downswing in the housing markets of many high income countries. He argues for global rebalancing of surplus/deficit relationships between emerging and established economies as well.
Suffice to say, Wolf's book is complex and covers in detail much of what happened before, during and after the crisis, and how these issues can be fixed to prepare for a new crisis. As you will notice, Wolf argues that crisis and business cycles are intrinsic parts of the market-capitalist system, and as such regulators and legislators should not be caught with their heads in the clouds of exceptionalism, as happened during the pre-crisis boom. Wolf also seems to be in favour of radical heterodox changes to the economy, and wonderfully and eloquently describes Chicago economics and Chartalism in great detail. His knowledge of the schools of economics is intense, and his enthusiasm for explaining and describing their potential positive and negative impacts on an economy is fascinating.
Word of warning. Wolf does not often stop to catch you up. A basic understanding of economics and finance, as well as political theory and current events in the global economy is required to get this book. I struggled particularly with his sections on "fixing finance" which is highly theoretical and focuses on credit and savings gluts, something I struggle to understand. Even so, this is only a motivation to learn more, as Wolf's infectious exuberance for the subject takes hold.
All in all, this was a wonderful and in depth examination of post-crisis economic and financial theory. It may be difficult to understand in certain places, but this should not stop someone who is willing and interested in learning more on the subjects of macroeconomic and financial theory, especially its impact on politics and societies globally. This is a grand book, large in scope, and definitely a joy to read if you are into the subject matter. This one is highly recommended.
The book gets interesting when it begins to offer critique both of pre-crisis and post-crisis macro-prudential policy, financial policy, macroeconomic theory, and so on. Wolf chronicles the different schools of economic thought, Austrian, Chicago, Keynesian, Chartalist/New Monetarism to offer a critiques. Some great ideas emerge from these differing schools, including 100% reserve banking, where all assets held by commercial banks are 100% backed up in Central Bank reserves. This would ensure a steady supply of money to the federal governments, reduce taxation, and allow governments to print money based on need - subsequent to a pre-determined growth rate which would need to be politically and socially acceptable (ie. how much should we fund certain welfare programs, how much should minimum wage be, what is an acceptable unemployment rate?).
Wolf examines the causes of instability as well. He goes into depth on the need for stronger macroprudential regulation, including structural reforms with banks relationships to hedge funds and other non-financial intermediaries reformation of international regulatory agencies that determine credit rating and the need to restructure banking reformation. He also posits changes to the way banks do business, by increasing the amount of equity banks hold in regards to debt, thus reducing the instability of banks with a high debt-equity ratio.
Wolf argues for a higher capital supply in the economic system as well, with societies driving how much risk they are willing to stomach, and subsequently how much we are willing to pay up when crisis hits. He also argues for the elimination of debt overhang as a financial incentive to shareholders. These overhangs, he argues, are good only for commercial banks, and have a negative effect on both shareholders and societies.
Wolf also argues against fiscal austerity, which he posits has actually slowed down the post-crisis recovery by reducing investment opportunities and missing the mark on the ready supply of construction equipment and assets that was available as the crisis began to wound down, due to a the obvious massive downswing in the housing markets of many high income countries. He argues for global rebalancing of surplus/deficit relationships between emerging and established economies as well.
Suffice to say, Wolf's book is complex and covers in detail much of what happened before, during and after the crisis, and how these issues can be fixed to prepare for a new crisis. As you will notice, Wolf argues that crisis and business cycles are intrinsic parts of the market-capitalist system, and as such regulators and legislators should not be caught with their heads in the clouds of exceptionalism, as happened during the pre-crisis boom. Wolf also seems to be in favour of radical heterodox changes to the economy, and wonderfully and eloquently describes Chicago economics and Chartalism in great detail. His knowledge of the schools of economics is intense, and his enthusiasm for explaining and describing their potential positive and negative impacts on an economy is fascinating.
Word of warning. Wolf does not often stop to catch you up. A basic understanding of economics and finance, as well as political theory and current events in the global economy is required to get this book. I struggled particularly with his sections on "fixing finance" which is highly theoretical and focuses on credit and savings gluts, something I struggle to understand. Even so, this is only a motivation to learn more, as Wolf's infectious exuberance for the subject takes hold.
All in all, this was a wonderful and in depth examination of post-crisis economic and financial theory. It may be difficult to understand in certain places, but this should not stop someone who is willing and interested in learning more on the subjects of macroeconomic and financial theory, especially its impact on politics and societies globally. This is a grand book, large in scope, and definitely a joy to read if you are into the subject matter. This one is highly recommended.
February 5, 2016
For anyone tryiing to understand the basis of the financial crisis and its lingering aftermath, you're not likely to do better than this book by "Financial Times" Writer Martin Wolf. A word of warning, however: This is not for the easy-reading crowd. The book is complex, even difficult in places. It's loaded with charts and economic jargon. There are sections that read like a newspaper, and sections that read like a economics textbook, which can really slow things down.
The reward for the reading struggle, however, are insights so incredible I found myself underlining entire passages of the book while reading, something I haven't done since college. If you really want to dig into the story of world economic forces and gain a solid prognosis for the economic future (dicey, at best), this book will illuminate in a way few can.
This was solidly researched (the Reference section is 29 pages alone), with solid footnotes for every citation. Even without those, the book can be challenging and take time to digest. The end result, however, is a solid footing of the mistakes made, the solutions sought, and the likely economic landscape of the future for the developed nations of the Eurozone, UK, and US. Don't miss "The Shifts and the Shocks" if you want to understand what lies ahead for us all.
The reward for the reading struggle, however, are insights so incredible I found myself underlining entire passages of the book while reading, something I haven't done since college. If you really want to dig into the story of world economic forces and gain a solid prognosis for the economic future (dicey, at best), this book will illuminate in a way few can.
This was solidly researched (the Reference section is 29 pages alone), with solid footnotes for every citation. Even without those, the book can be challenging and take time to digest. The end result, however, is a solid footing of the mistakes made, the solutions sought, and the likely economic landscape of the future for the developed nations of the Eurozone, UK, and US. Don't miss "The Shifts and the Shocks" if you want to understand what lies ahead for us all.
June 16, 2018
I am a great fan or Martin Wolf so was keen to read his book and he didn't let me down.
The Shifts and the shocks is a well-constructed and concise summary of what really caused the GFC and takes the world's central bankers and financiers to task for their appalling lack of skill and judgement.
In doing so it also highlights how not much has changed since the GFC and how the world's financial system is extraordinarily fragile.
I got to the end and promptly re-read it. There's so much to take in and we'll be living with the consequences for decades to come. Low growth, stagnant/declining wages, dangerously high public and private debt, increasing disparity between the wealthy and poor. . . and so it goes.
The Shifts and the shocks is a well-constructed and concise summary of what really caused the GFC and takes the world's central bankers and financiers to task for their appalling lack of skill and judgement.
In doing so it also highlights how not much has changed since the GFC and how the world's financial system is extraordinarily fragile.
I got to the end and promptly re-read it. There's so much to take in and we'll be living with the consequences for decades to come. Low growth, stagnant/declining wages, dangerously high public and private debt, increasing disparity between the wealthy and poor. . . and so it goes.
November 12, 2014
An excellent account of the crisis, the deeper changes that gave root to it, and the consequences going forward. Occasionally repetitive as a number of sections were clearly compiled from previously written columns, it is still a forceful and original take that is worth reading.
December 20, 2014
If you are a finance or banking professional a must read. So a must read for me. I would have rated it four stars if the prose was not so dense and as a result the narrative had a difficult flow. If not a professional the several hours of reading probably better spent elsewhere.
March 2, 2018
Rather than being just another examination of the Crash of 2008, Martin Wolf provides analysis of important transformations within the global economy that led to the crash of 2008, and what we have to do to adjust from the catastrophe.
The shifts of the title are essentially the global transformations, and the shocks are the tipping points when the unsustainable paths eventually came to a head.
Comparing Wolf to other economic veterans writing on recent transformations, Wolf is by far more readable than many contemporaries, but by no means any less insightful or profound in his analysis. For the financial lay person, one may occasionally need to refer to the dictionary or wikipedia, but this is no more so than in any other book, nor an issue of The Economist or FT (for which Wolf is a regular columnist).
In short, one of the most commendable books on recent economic affairs, and worthy of a read, regardless of one's familiarity with finance or economics.
The shifts of the title are essentially the global transformations, and the shocks are the tipping points when the unsustainable paths eventually came to a head.
Comparing Wolf to other economic veterans writing on recent transformations, Wolf is by far more readable than many contemporaries, but by no means any less insightful or profound in his analysis. For the financial lay person, one may occasionally need to refer to the dictionary or wikipedia, but this is no more so than in any other book, nor an issue of The Economist or FT (for which Wolf is a regular columnist).
In short, one of the most commendable books on recent economic affairs, and worthy of a read, regardless of one's familiarity with finance or economics.
January 28, 2025
An insightful read albeit technical in places about the causes and consequences of the world financial crisis. A key premise is that it isn't economics that is at fault so much as a politico-financial power structure that privileges certain views of the economy at the expense of credible dissenting voices. The underlying questions remains: how can sound economic thinking be made politically operational. The author argues that 3 underlying factors: liberalisation, technological transformation and the aging of populations drove increased capital flows, rising inequality & shifts in investment patterns. These are the authors shifts. The shocks of the crisis lead to a premature turn to austerity which resulted in large fiscal deficits which were the consequence of the crisis, not its cause. Wolf describes the lobbying power of the financial industry as the corruption of a political process in which organised interests vastly outweigh the public interest.
February 15, 2019
On a third or fourth read, in hard copy, I suspect that I would be ready to pull a gun on the next banker I were to meet. As it is, from a single listen, I have to think that there really aren't very many smart people minding the financial store in the more developed countries. And in one sense that could be a good thing, because were we to give the really smart people all the levers needed they would likely still screw things up while they made the "really smart people" into the next class of very rich criminals. As it is, with regular sinful folks, the regular banking (crooks?) have managed to lift whole nations out of poverty. It is quite a deal with the devil we know.
July 14, 2019
This book was written a little over five years after the global financial crisis. While it is now another five years on, its warnings seem just as relevant and even more scary than when they were written.
For one, Wolf’s warnings about the consequences of the failure of elites to rein in an out-of-control globalised financial sector in the threat of a extremist, populist insurgency have proved uncannily accurate.
For another, his condemnation of an over-reliance of loose monetary policy at the expense of fiscal stimulus carries even greater weight now.
The new orthodoxy looks very much like the old orthodoxy.
For one, Wolf’s warnings about the consequences of the failure of elites to rein in an out-of-control globalised financial sector in the threat of a extremist, populist insurgency have proved uncannily accurate.
For another, his condemnation of an over-reliance of loose monetary policy at the expense of fiscal stimulus carries even greater weight now.
The new orthodoxy looks very much like the old orthodoxy.
August 4, 2019
This is a comprehensive analysis of the economic crises between 2007-2013 with a heavy focus on the GFC and the Eurozone crisis. Wolf also provides good coverage of the academic and technical background which underpins the relevant schools of thought. An important read for anybody with an interest in financial regulation and economic policy, however it might be a tough read if you approach it green on the topics covered. The recommendations for reform are probably the most valuable aspect, primarily due to the pragmatism in suggesting a blend of policy improvements. I’m really glad I read this, even if it’s a little dour and technical in parts.
November 26, 2017
Finished the book. It was written before Brexit, but it would have been interesting to see what the Brexit effect has on the Euro. I enjoy reading and learning about the Financial Crises, but this was pretty thick to take in.
My thoughts are similar to Jay:
Wolf makes sense as far as I can follow, but I think you have to live this stuff (work in finance or teach economics) to be able to plow through this one.
My thoughts are similar to Jay:
Wolf makes sense as far as I can follow, but I think you have to live this stuff (work in finance or teach economics) to be able to plow through this one.
January 13, 2019
Good book worth reading.
Looks at the history of the global economy and the financial crisis in the last 10 years in detail.
Covers both the aspects in a comprehensive way.
a) the macroeconomic changes that have hit the world for the last 10 years e.g a combination of deficit and surplus countries leading to global trade imbalances.
b) how did the missteps of the financial industry led to the 2008 crisis and what the world did to try and come out of it.
Looks at the history of the global economy and the financial crisis in the last 10 years in detail.
Covers both the aspects in a comprehensive way.
a) the macroeconomic changes that have hit the world for the last 10 years e.g a combination of deficit and surplus countries leading to global trade imbalances.
b) how did the missteps of the financial industry led to the 2008 crisis and what the world did to try and come out of it.
June 3, 2019
This is perhaps the most complete work that I have read on the Great Recession, and one of few that I have found available in the US that selves into Europe’s role in the crisis. The author proves his economic chops through complete, often dense descriptions of the shocks to the world economy. This will not be on anyone’s easy reading list, but it was full of good information even if many of the policy recommendations he gives are not well developed.
June 29, 2023
I would have to say that this is a really good book, but it was too complex for me to read and understand. I concepts and the illustrations were useful in trying to navigate through the Great Recession. I do appreciate how the author divided up his book and arguments with clear distinctions. I wish when I was reading this book that I can really understand it more.
February 23, 2024
Maybe the most comprehensive account of the Great Financial Crisis. I’ve read a ton of books on this subject and this one is very objective and widely scoped. Wolf is a very knowledgeable economist and really shows the struggle of coming to terms with problems with the dominant neoliberal ideology. Well written and comes to his views honestly.
March 13, 2020
Sometimes the crisis means the opportunity!!! Why don't we want to understand this simple fact??? Wealth Management Time book by Viktor O. Ledenyov and Dimitri O. Ledenyov explains everything in details!!!
November 7, 2017
On the technical side, and repetitive in blaming German surpluses for European problems. Worth the time for someone deeply interested in political economy.
August 19, 2018
While highly informative, I found this book much too technical and dry. I am very interested in the subject matter, but it was just too much for me.
Displaying 1 - 30 of 62 reviews