In How Markets Fail, John Cassidy describes the rising influence of what he calls utopian economics, thinking that is blind to how real people act and which denies the many ways an unregulated free market can produce disastrous unintended consequences. He then looks to the leading edge of economic theory - including behavioral economics - to offer a new understanding of the economy, one that casts aside the old assumption that people and firms make decisions purely on the basis of rational self-interest.
Taking the global financial crisis and current recession as his starting point, Cassidy explores a world in which everybody is connected and social contagion is the norm. In such an environment, he shows, individual behavioral biases and kinks - such as overconfidence, envy, copy-cat behavior, and myopia - often give rise to troubling macroeconomic phenomena, such as oil-price spikes, CEO greed cycles, and boom-and-bust waves in housing. These are the inevitable outcomes of what Cassidy refers to as "rational irrationality" - self-serving behavior in a modern market setting.
Combining on-the-ground reporting, clear explanations of esoteric economic theories, and even a little crystal-ball gazing, Cassidy warns that in today's economic crisis, conforming to antiquated orthodoxies isn't just misguided - it's downright dangerous. How Markets Fail offers a new, enlightening way to understand the force of the irrational in our volatile global econ...
©2009 John Cassidy; (P)2009 Blackstone Audio, Inc.
"[A]n elegant, readable treatise on economics, swathed in current headlines....Cassidy writes with terrific clarity and a finely tuned sense of moral outrage, yielding a superb book." (Kirkus Reviews)
I loved this book. Did I think a book about the recent financial crisis and markets in general, written by an economist, would be riveting? No - but (and don't laugh) this is. It held my attention better than most fiction, and clarified for me (a non-economist for sure) all the forces that led, step by step, to the economic meltdown and the mortgage crisis. I thought I understood, and I did, on a surface level, but after listening to this book I'm much better able to articulate what went wrong. In fact I'm going to start the book over from the beginning to really cement the information in my mind. The narrator is excellent by the way. Not every voice or delivery would have been appropriate to the subject, without being dull. I really recommend this audio recording.
The bulk of this book is a chronology of market booms and busts and the great minds that shaped our economic policies. As it approaches present day however, some scathing criticisms surface. Greenspan for being too hands off when he should have been alerted by red flags in subprime lending. Bernanke and Paulson are faulted mostly for not doing enough to support the financial markets and protect the large institutions, thus allaying fears in the heat of the crisis. Overall, a great listen and very insightful.
I wonder, if it really was the weakness of these individuals that facilitated the collapse then, what of all other nations of the world? Surely we’re not responsible for their failures as well? And why no mention of oil? I still remember the unsettling feeling as the price of gasoline encroached $5.00 a gallon and fear about the future of discretionary spending. This and other books on the present day failures seem to overlook the impact of fuel costs during the summer of 2008.
The author scores one for Obama’s socialist economic policies as the game winner. He ends in October of 2009 using that month to justify his argument. But that’s like going to bed after your team has just rallied, assuming they won the game. In retrospect August 2009 turned out to be nothing more then a sugar rush as the economy tired soon after. Now that we are further along in the game many people are dissatisfied with the ineffective policies that have been set forth and the amount of debt that has been amassed to fund them.
Finally, one day, after affixing my ear plug and turning on my MP3 player, my wife asked “What are you listening to?”
“A very good story that tells all about what happened during the crises and what led to the economic collapse.”
“You don’t need a stupid book to tell you about that, I can tell you what caused it.”
“Oh yeah” I said “what was it?”
The beauty of logic is its simplicity. Oh well it was a good history lesson!
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