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Genre = Economics, Finance
Intriguing Connections = What Goes Into An Economic Crisis?
This book details the rise of finance in the U.S. since the early 1960. Each political and economic crisis carried with it a response, policies which facilitated an increase in financial activity. Krippner starts with explaining the financialization of the economy, to the major policy decisions which gave it more power. Rather than some deliberate decision to increase financialization, these policies were ad hoc responses to political and economic problems. The focus of this book are the government institutions whose policy response created an environment for finance to thrive.
Financialization reference to the ever-growing profits from the financial sector and the declining profit from the non-financial sectors. Krippner detailed how to measure it the financialization of the economy. From axiomatic accounts of corporate earning coming more from their financial activity than their production activity, to the general statistics of where profit comes from. Although the impacts of the financial sector are not given, as there are other books which cover the impacts, this book makes clear the power of the finance sector to dominate policy.
The crisis under observation are those of social, fiscal, and legitimation. The problems presented were that of scarce credit and inflation. Credit is and always be a scarce resource, with multiple uses for the same amount of available credit. Rather than find a proper allocation for competing services, the government deregulated Regulation Q which allowed for higher interest rate loans. Demand for fiscal services kept growing, for which government used the international community to finance the deficits. As more credit entered the economy, inflation began to be problematic. To contain inflation, the evolution of Federal Reserve policies is shown to have found transparency in their policies to help the stem inflationary expectations.
Each crisis was caused by a limitation but producing policies which enabled the growth of financial services. Rather than take accountability of the problem, and target the source of the problem, politics found a way move the decisions of allocation to the world of finance. How Krippner expresses the development of financialization as being ad hoc rather than planned makes this book a wonderful addition to the economic, financial, and political literature. Each topic which Krippner reasons is important in the history of the rise of financialization, has been written with all the complicity involved while making the event easy to understand.
Pages to read: 155
1st Edition: 2011
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