The financial crisis brought the world to the brink of economic breakdown. But now bankers’ bonuses are back, house prices are rising again and politicians promise recovery – all this while unemployment remains high, debts mount, frictions with China grow and the planet overheats.
Is this really sustainable – or do we need to change course?
In this incisive assessment of the post-crisis world, I look at what went wrong, and how to learn from past mistakes. Reporting first-hand from around the world – frozen Iceland, anxious America and Australia, invigorated India, bubbly Brazil and futuristic Shanghai – as well as from Britain, the book combines expert analysis with provocative opinion to warn of the dangers ahead.
- What are the risks of another housing bubble and financial crisis?
- What should governments do about their huge deficits and debts?
- Where will future growth come from?
- How should we respond to the rise of China and other emerging economies?
- As people increasingly move east as well as west, south as well as north, often for short periods, is the old concept of “immigration” outdated?
- What should we do about climate change?
Wide-ranging, brilliant and impassioned, Aftershock could not be more timely. While making an urgent call for reform, it presents the tantalising opportunities for a fairer, safer, richer and greener world that are well within our reach, if we care to grasp for them.
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Praise for Aftershock:
As the world economy tiptoes back from the precipice, there is a growing appetite for books that try to read the future. Two thoughtful studies—one by a former Economist journalist and commentator on globalisation, Philippe Legrain, and the other by Raghuram Rajan, once the chief economist at the IMF and now at the University of Chicago—aim at giving readers a deeper understanding of the forces that brought about the worst financial and economic crisis in at least half a century and look at what can be done to prevent the next one.
Mr Legrain’s book is the zippier read. In just a few chapters, he outlines the forces that brought the world to the brink of a bust: a house-price bubble boosted by runaway mortgage lending in the rich world, particularly America, a lightly regulated global financial system that found ever-more creative ways to speculate on rising house prices, and macroeconomic policymaking that was far too laid back about the dangers posed by asset-price bubbles.
None of this is new. But Mr Legrain has a gift for combining big numbers that offer a sense of the scale of the global build-up in things like household debt while zeroing in on what all this means for people like Thorvaldur Thorvaldsson, a proudly left-wing Icelandic carpenter and unlikely sometime property speculator. This makes his book a particularly good survey of what made up the unpleasant cocktail which the world has yet to digest…
Both books say it would be folly to eliminate the benefits of a more open, globalised world—including vastly improved standards of living for millions in the emerging world—because of disgust with the depredations of the financial sector. Mr Legrain cites innovative, entrepreneurial and peripatetic Swedes and Indians to drive home his central thesis that both rich and emerging countries stand to gain from the latter’s increasing economic dynamism. In particular, he makes a strong pitch for the freer movement of people across borders. Both authors would also like institutions like the IMF to be reformed in such a way that would allow them to play a greater role in sorting out the macroeconomic imbalances that underlay the crisis.
Mr Rajan, however, was the fund’s chief economist when it tried, with little success, to get a serious conversation going on this matter. For that reason, perhaps, his book, excellent though it is, has less of a “can do” feeling about it than Mr Legrain’s. Despite that, both deserve to be widely read in a time when the tendency to blame everything on catch-all terms like “globalisation” is gaining ground.
It’s nicely reported (Legrain travels widely) and has the clarity and the self-confidence of an Economist editorial – sometimes a little unnerving from a named author… There’s a huge amount of good sense, sharply conveyed here… Overall: the book deserves to do well, and I think it will.
Tim Harford, the Undercover Economist, Financial Times
Many of the books about the economic crisis have been descriptions of the dramatic events at Lehman Brothers, say, or of what it was like to be the US treasury secretary at the time of the crash; others have consisted mainly of recriminations about the folly of the capitalist system and open global markets, or of how macroeconomic policy was mismanaged. Rarer have been books that take a constructive approach, proposing an agenda for how things could be improved in the future. Philippe Legrain’s is one of these rare few.
Bill Emmott, former editor of The Economist, Survival, the magazine of The International Institute for Strategic Studies (IISS)
This is a book that is big in its breadth of content and vision, and refreshingly hopeful about the possibility of harnessing globalisation to the betterment of all mankind.
Book of the Day, Irish Times
Undoubtedly good work… huge detail, quality research and generous use of the soapbox… It will surely go down well with academics and researchers for its depth, analysis and scope.
David Clerkin, The Sunday Business Post, Ireland
Legrain, a visiting research fellow at the LSE, has that rarest of qualities in these troubled times: he’s an optimist. With meticulous reporting and interviews from Iceland to Australia, he sets out a blueprint for a new economic world order… Reform the banks, resist protectionism, embrace immigration and develop green businesses and we might — just might — have a chance of proving Roubini wrong.
John Arlidge, Sunday Times
A great account of the global financial crisis by one of the best economic writers of his generation. Lively, thought-provoking, evidence-based but with some sensible suggestions for policy makers.
Tim Harcourt, chief economist, Australian Trade Commission, author of The Airport Economist
Legrain’s occasionally radical proposals are sensible, provocative and intellectually sound… anyone who claims to have a view on the value or otherwise of globalisation, the need to punish bankers for causing the financial crisis, the problems of immigration, or indeed frankly anything to do with the global economy, simply must read these painstakingly crafted 395 pages. It is absolutely worth the effort.
Varun Chandra, Progress
Few writers feel comfortable either with developing a broad view of the global economy or relaying their arguments in accessible terms. Philippe Legrain’s skill at both helps make Aftershock one of the best books of its type.
Legrain has several advantages as an economics writer that make him well suited to the task. In terms of his writing style, the influence of his early job as a writer on international economics for The Economist is clear. As in that newspaper (The Economist prefers not to call itself a magazine), the emphasis in Legrain’s writing is on expressing difficult ideas as simply as possible.
Even more importantly, Legrain recognises that his readership is likely to be anxious about the state of the world: ‘Aftershock is aimed at a global audience, but in particular at people in rich countries who are fearful about the future’, he writes. Much of the thrust of the text is therefore aimed at showing the existence of practical solutions to pressing problems.
The global character of Legrain’s outlook is another central part of his work. He resolutely refuses to take a narrow nationalistic perspective on any question. Instead, his concern is to show how a flourishing of the world economy can benefit humanity as a whole.
Protectionism and curbs on immigration are particularly abhorrent to him. Legrain, whose previous book was on migration, sees both measures, quite rightly, as standing in the way of generating a more prosperous economy for all.
There is always room for debate on exactly which topics a book on the current world economy should cover, but Aftershock tackles many of the key areas. These include the troubles of the financial system, the rise of emerging economies, green technology, and the backlash against Chinese investment. The book ends, unusually in these pessimistic times, with a chapter about embracing progress.
For its global perspective and embracing of progress alone, this book is highly recommended. It is a great starting point for anyone seeking to start grappling with the problems of the world economy.
Daniel Ben-Ami, author of Ferraris for All, spiked