Most of us learned about the fallacy of composition in our economics courses. In times of crisis, it is natural and logical for individuals, households and businesses to cut back on their spending where possible. This increases their reserves and improves the chances of weathering an unexpectedly severe setback without financial embarrassment.
For the system as a whole, however, this reaction can magnify an economic contraction and worsen financial stress. It is largely on this basis that govern
The week on Risk.net, November 17–24, 2017Receive this by email