It is unclear whether current widespread product shortages are merely a temporary disruption or evidence of a global production meltdown. But today’s supply shocks offer striking parallels with the 2008 global financial crisis, and may require a similarly bold policy response.
CAMBRIDGE – In the period leading up to the 2008 global financial crisis, a few prescient voices warned of potentially catastrophic systemic instability. In a famous 2005 speech, Raghuram G. Rajan explicitly cautioned that although structural and technological changes meant that the financial system was theoretically diversifying risk better than ever before, it might in practice be concentrating risk. At the time, Rajan was mocked; former US Treasury Secretary Larry Summers was not alone in thinking him a “Luddite.”
CAMBRIDGE – In the period leading up to the 2008 global financial crisis, a few prescient voices warned of potentially catastrophic systemic instability. In a famous 2005 speech, Raghuram G. Rajan explicitly cautioned that although structural and technological changes meant that the financial system was theoretically diversifying risk better than ever before, it might in practice be concentrating risk. At the time, Rajan was mocked; former US Treasury Secretary Larry Summers was not alone in thinking him a “Luddite.”