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Finance and the Good Society by Robert J. Shiller

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Chapter 16

Policy Makers in Charge of Stabilizing the Economy

Financial capitalism is far from a perfect system, and one of its fundamental problems is that it is vulnerable to booms and busts, recessions and depressions. These events have happened so many times in the past that one can predict with certainty they will happen again. So it is widely appreciated that we need policy makers whose duty is to counteract such instabilities and reduce their impact.

But preventing these episodes presents a difficult problem: the reasons for them have never been well understood. The causes of economic booms or busts are multifaceted, and understanding them requires human judgment—judgment of people’s motives, of their patterns of thinking, and of the changing ...

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