Executive Summary of Obama Transition Economic Policy Work: Hoisted from the Archives

Back in 2005, the very wise Raghu Rajan tried to warn the assembled economic policymakers of the world about the heightened risks of a financial meltdown. They did not listen: Raghu Rajan (2005): Has Financial Development Made the World Riskier? https://www.kansascityfed.org/publicat/sympos/2005/pdf/rajan2005.pdf: 'Risk never can be reduced to zero, nor should it be. We should be prepared for the low probability but highly costly downturn. In such an eventuality, it is possible the losses that emanate from a financial catastrophe cannot be entirely borne by current generations and are best shared with future generations. Some of the mechanisms for sharing such systematic risks with future generations, such as (defined benefit) social security, are being changed. While there are gains from doing so, and from ensuring their sustainability, we need to ensure that the intergenerational risk-sharing mechanism they offer is not overly weakened. We also need to continue improving the intrinsic flexibility of our economies, so as to better ride out the downturns that, almost inevitably, will occur...

#noted #2019-12-17