The financial crisis of 2008 incited a new way of thinking about the economy, and in Between Debt and the Devil, Adair Turner argues the crisis was a direct consequence of our addiction to private debt. He states that most credit is not essential for economic growth; instead, he argues debt leads to financial crisis and depression.
“This growth rang few alarm bells. Most economists, financial regulators, and central banks believed that increasing financial activity and innovation were strongly beneficial. More complete and liquid markets, it was confidently asserted, ensured more efficient allocation of capital, fostering higher productivity. Financial innovations made it easier to provide credit to households and companies, enabling more rapid economic growth. Empirical studies suggested that “financial deepening”—an increase in private-sector debt as a percentage of GDP—made economies more efficient. More sophisticated risk-control systems, meanwhile, ensured that complexity was not at the expense of stability, and new systems for originating and distributing credit, rather than holding it on bank balance sheets, were believed to be dispersing risks into the hands of those best placed to manage it.”
Thought-provoking and extensively researched, Between Debt and the Devil is perfect for anyone who wants to learn more about the underlying causes of instability and the interplay between debt and the economy.