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The Penguin Press



The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—from the Financial Crisis

Edited by Scott Moyers

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 undergoing: 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.



“Martin Wolf is as grand and important as an economic journalist can ever become…. The Shifts and the Shocks is extremely good at untangling the causes of the global financial crisis.” —Felix Salmon, The New York Times Book Review

“Martin Wolf has outdone himself. The FT’s chief economics commentator has written a book that not only explains the malaise in which we have been mired since 2008 but also—depressingly—provides a convincing analysis of why we are likely to remain so. Already, the crisis has spawned a plethora of titles examining what went wrong. The Shifts and the Shocks is among the first to address the absence of a robust recovery and it sets a high bar for those that will surely follow…One of the things that distinguishes Wolf’s analysis from so many others is that he sees the crisis as more than a financial crisis—an insight that is essential if we are to understand the failure to achieve a robust recovery…Wolf may have written the book to shake us out of our stupor.” —Joseph Stiglitz, Financial Times 

“Extended, learned, and well-informed…Since the new sort-of consensus is clearly much more realistic than the pre-crisis complacency, Wolf, the chief economics commentator of the Financial Times, has performed a very useful service by putting it all together in one readable book…Wolf argues rightly that a fuller picture requires paying attention to the wider world…The Shifts and the Shocks is an excellent survey of how we arrived at the mess we’re in, and Wolf’s substantive proposals at the end, especially for reform of the euro system—system-wide deposit insurance, higher inflation so that the burden of adjustment is better shared, among other reforms—are all worthy and laudable. But the gods themselves contend in vain against stupidity. What are the odds that financial reformers can do better?” —Paul Krugman, The New York Review of Books

The Shifts and the Shocks is a fierce indictment of the global economy and a call for radical reform…Mr Wolf’s contribution is comprehensiveness and a piercing logic in piecing the disparate elements together. He weaves the macroeconomic and financial elements of the crisis, its origins and aftermath, into an all-encompassing analysis. Along the way he demolishes many of the popular explanations—such as that the mess was due to greedy bankers or to loose monetary policy—as too simplistic. The result is convincing and depressing; there are no quick fixes…An important contribution that anyone involved in economic policy ought to read.” The Economist

“A surprisingly refreshing look at the biggest financial calamity since the Great Depression. Just when you thought everything that could be said about the crisis had been said, Mr. Wolf adds something new…Wolf deftly weaves together the components of the crisis, examining it from 10,000 feet up: globalization, monetary policy, banking architecture.” —Andrew Ross Sorkin, The New York Times

“[A] worthy and wise new book…A primer on the interaction between global macroeconomic forces and what Wolf dares to call ‘an increasingly fragile, liberalized financial system.’ And it never goes off the rational, pragmatic track toward order, fragile or not.” —Robert Lenzner, Forbes

“Profound, disturbing and prophetic… [Wolf’s] analysis is rigorous and deals fairly with opposing points of view. As a result, the proposals he presents for future action merit very close consideration.” Irish Examiner (UK)

“Unsettling to anyone who thinks the financial system is any more stable now…Wolf has, once again, written an erudite, brilliant and data-heavy book on global macroeconomics.” —

“Building on his earlier book, Fixing Global Finance, in The Shifts and the Shocks Martin Wolf provides an insightful and timely analysis of how global imbalances, international capital flows, and economic policies have helped create a financially fragile world.” Ben Bernanke

“Martin wolf is unsurpassed in the world of economic journalists. His superb book may be the best of all those spawned by the Great Recession. It is analytical and rigorous and without ever succumbing to fatalism or complacency. It should be read by anyone concerned with macroeconomic or financial policy going forward.” —Lawrence Summers

“In this important book, Martin Wolf demonstrates that the Eurozone crisis was due to the interaction between powerful global economic and financial forces and the inadequacies of its economic and political structure. He also demonstrates that the Eurozone has not eliminated these weaknesses. The crisis is not yet over.” —George Soros

“A masterly account of the financial crisis seen in its true international perspective.” Mervyn King

“The 2008 financial crisis was an economic disaster, but as Martin Wolf brilliantly argues the policy response has failed to address the fundamental drivers of instability—excessive debt creation, global imbalances and inequality. To think straight about causes and solutions we must reject orthodox assumptions that more finance and global financial integration are limitlessly beneficial. The Shifts and the Shocks does just that, providing an intellectually sparkling and vital account of why the crisis occurred, and of the radical reforms needed if we are to avoid a future repeat.” Adair Turner

“Martin Wolf has ranged more widely than perhaps any other author in trying to make sense of the global financial crisis and how to avoid its recurrence. Macroeconomics, finance, ideas, institutions, policy, politics; Europe, Asia, the US—they are all here. Whether or not one agrees with Wolf’s analysis and prescriptions, this book will help everyone work out what they think. A must read.” Paul Tucker, Senior Fellow, Harvard University

“In this powerful and important book, Martin Wolf exposes the forces that shaped our fragile financial system and brought harm to so many, with particular attention to the crisis in Europe. His insights and urgent call to prevent more harm must be heard.” —Anat Admati, Stanford University; co-author of The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It

“Martin Wolf has been the world’s leading commentator on the Global Financial Crisis and its economic consequences: now in The Shifts and the Shocks he demonstrates with compelling force that the essential response to financial fragility is to make banks boring: lots more capital, much lower prospective returns.” William H. Janeway, Warburg Pincus; University of Cambridge

Author Q&A


The past is a foreign country. Even the quite recent past is a foreign country. That is certainly true of the views of leading policy makers. The crisis that broke upon the world in August 2007 and then morphed into a widening economic malaise in the high income countries and huge turmoil in the eurozone has put not just these countries, but the world into a state previously unimagined even by intelligent and well-informed policy makers.

In a celebrated speech on what economists hubristically called the “great moderation,” Ben Bernanke talked about what now seems an altogether different planet—a world not of financial crisis and long-term economic malaise, but one of outstanding stability and superlative monetary policy. Moreover, claimed Mr. Bernanke, “improved monetary policy has likely made an important contribution not only to the reduced volatility of inflation (which is not particularly controversial) but to the reduced volatility of output as well.”

This now seems quaint. The economics establishment failed. It failed to understand how the economy worked, at the macroeconomic level, because it failed to appreciate the role of financial risks, and it failed to understand the role of financial risks partly because it failed to understand how the economy worked at the macroeconomic level. The work of economists who did understand these sources of fragility was ignored because it did not fit into the imagined world of rational agents, efficient markets and general equilibrium that these professors Pangloss had made up.

The subsequent economic turmoil has done more than make the economics of even a few years ago look as dead as the dodo. It has changed the world. The most obvious of all the changes is the transformed position of the financial system. The crisis established the dependence of the world’s most significant institutions on government support. It underlined the existence of institutions that are too big and interconnected to fail. It confirmed the notion that the financial system is a ward of the state rather than a part of the market economy. It demonstrated the fragility of the financial system. As a result of all this, it inflicted huge damage on the credibility of the market-oriented global financial system and so on the credibility of “Anglo-Saxon financial capitalism”—the system in which financial markets determine not only the allocation of resources but also the ownership and governance of companies. One consequence has been that the financial system has been forced through substantial reform. Another is that a debate about the proper role and structure of the financial industry became inescapable.

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