How Markets Fail

The Logic of Economic Calamities

By: John Cassidy

Narrated by: Ralph Cosham

Length: 13 hrs and 15 mins

Publisher's summary

Behind the alarming headlines about job losses, bank bailouts, and corporate greed, there is a little-known story of bad ideas. For 50 years or more, economists have been busy developing elegant theories of how markets work - how they facilitate innovation, wealth creation, and an efficient allocation of society's resources. But what about when markets don't work? What about when they lead to stock-market bubbles, glaring inequality, polluted rivers, real-estate crashes, and credit crunches?

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.

Critic reviews

"[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)

Excellent history of economics + a unique concept

The author starts with an analysis of all major economic theories to dig deeper into the concept of rational irrationality: why actions that are reasonable at the individual level can be disastrous for the society as a whole.

A Very Thorough Survey

An excellent overview by someone who has serious technical understanding, but hasn't consumed the Kool aid.

Best single volume on the credit crunch

Of all the books that have chronicled the credit crunch, this one is the best overall. As opposed to some other books, it focuses very little on personalities, and mostly on the problems in academic economics, finance, and policy that allowed trillions of dollars to vanish. Although the book is a model of clarity, it might be tough going for someone with no background in economics or finance. Nonetheless, if you really want to understand what happened, this is the best of the bunch!

A Superb History of Enonomic Thought

This audiobook was a delightful surprise for me. I have read numerous books on economics beginning with Adam Smith's "Wealth of Nations." I remember suffering through Samuelson's classic text - somehow I was uncomfortable with unrestrained free market capitalism without knowing exactly why. Smith's 'Invisible Hand" has never delivered on its promises. Even today economists such as Murray Rothbard of the Austrian School insist that government intervention has always prevented the "hand" from performing its magic.
Then, we have the Keynesians who recognize the need for some government intervetion to moderate the business and economic cycles. It, too, in its various versions such as the Neokeynesians
have failed to deliver.
To lead up to his main argument about the need for regulating banks, Cassidy has written a clear readable summary and history of economic thought. This, by itself, makes the book a must listen for everyone with interest in such things.
Cassidy goes on to explain why unfettered free market competition in the.financial world cannot work. With the passage of the bloated financial regulatory bill, we'll how things work out. To have some insight into history as it is happening, the book is an essential audit.

A serious analysis of the failures of laissez-faire economics

Warning— this is a nerd book not a light read. But it has an important message that resounds more than a decade after publication. The first two thirds of the book is a brilliant analysis of the evolution of economic theory. This is far superior to what I learned in graduate studies on economic history. But what it does is to discredit laissez-fairer approaches. He then applies his “reality economics” to show how the unwavering belief in free markets led to the 2008-9 Great Recession. If you studied economics , you likely got only part of the story on how markets work and fail. This should change your perceptions. So much of our current political turmoil is based on superficial understanding of supply and demand—in the end markets, particularly financial markets, can regulate themselves. We need fresh non-ideological thinking.

Lucid

Where does How Markets Fail rank among all the audiobooks you’ve listened to so far?

In the non fiction category, this is one of the best

What did you like best about this story?

Cassidy is a lucid writer explaining the many very complicated economic issues over the last 20 years; these culminated in the market crash of 2008, and he does a great job reviewing the background economics and how the conventional thinkers failed to see what was happening. He does this in a straightforward style easy for non economists like me to understand. This is very important stuff for all the rest of us to understand. Great job!

What does Ralph Cosham bring to the story that you wouldn’t experience if you just read the book?

Clear voice, well paced

If you were to make a film of this book, what would be the tag line be?

N.A.

Any additional comments?

This book enlightened me; I anticipate buying the print version to
have as a reference for future disasters

Good review of economics history

And different schools of though. Although the author clearly is partial to a particular point of view, he doesn’t belabor on it too much.

Good rear view mirror

The neo liberal view is interesting now, and although Trump is undoubtedly responsible for 50 years of economic mayhem( lol), one could almost see where socialists at the highest level might be assigned some blame. Cassidy didn’t indicate that in this well written piece, but might well have a different view now, were he not so deeply aligned with authoritarian government.

Rational irrationality explained

How Markets Fail promotes a view that I think ought to be common sense to Americans, but seems to get lost in today's climate of mindless, media-fueled political hysteria: that free markets, while they provide many benefits that can't be achieved through central planning, will malfunction without rules and external guidance. The 2008 housing crisis and subsequent market collapse was nothing less than a textbook failure of government to step in stop lenders and banks from playing a game that everyone paying attention knew was deeply risky, however profitable the bubble was for players in the short term. And the bailouts that followed were proof that allowing irresponsible pursuit of private gains can lead to socialized losses, the opposite of what free markets are supposed to do.

How Markets Fail is a book in three parts, each of which is geared towards readers who haven't had more than superficial exposure to the topics discussed -- if you have, you'll probably want to skip ahead. The first part is a condensed history of modern free market economics, introducing readers to influential figures like Adam Smith, Friedrich Hayek, Vilfredo Pareto, Milton Friedman, Robert Lucas, Cecil Pigou, and John Kenyes, then connecting them to present day economists like Alan Greenspan and Paul Krugman. If, like me, you lack formal training in economics, you'll find handy explanations of a few terms and ideas you might have heard bandied about before.

The second part of the book focuses on where utopian free market ideology breaks down, in light of game theory, behavioral psychology, and other modern, scientific fields of analysis. Cassidy does an admirable job of keeping his arguments balanced, putting forth sober talking points that don't assume villainous motives on the part of any group of people. Rational self-interest, while it often propels trading relationships that work to the mutual benefit of everyone involved, can also lead to behavior that’s destructive to the best interests of a community. Consider, for example, factory owners who know that installing environmentally-friendly machinery is better for everyone, but can't realistically risk committing to this expense if they don't expect that their competitors will. Or health care markets that incentivize insurance providers to jack up premiums for customers who aren't healthy. Or the tendency of large-scale businesses to overcome smaller ones, thus enabling a few elites to dominate markets and pay themselves exorbitant salaries while driving down wages for those beneath them. At least, Cassidy makes a convincing case that different markets have different patterns, and need to be thought about differently, with a reality-based view towards human needs and behavior.

Part three is an overview of the recent subprime mess, illustrating from a high level the chain of events that led to the meltdown, and the laissez faire policies that enabled them (which Cassidy blames primarily on Alan Greenspan, the one person he really criticizes). I thought this part was well-presented, and did a lot to hammer home the points in part two. Protecting individual foolish home buyers from themselves isn’t the government’s job, but stopping actions that fool a lot of people at once and lead to a national blowout *is* the government’s job.

Where the book fell a little short for me, though, was in its lack of coherent ideas on how to make government intervention effective. I'm rather skeptical of libertarian views and think it's impossible for governments not to intervene in markets and corporate activities that are global, whether ideology makes them do it sooner or later. However, as we know, Washington DC can be about as agile and precise as King Kong swatting at planes (or not, if they're bringing him gifts of bananas), and people determined to make a profit will always find a way to get around regulations, bend them in ways not intended, or even help write them, fooling the public with benevolent-sounding language while craftily selling out the public's best interests. What criteria should DC use to decide when to give economic matters serious attention and when to push issues it doesn't have the fine-grainedness to handle well back to markets? How do we deal with a world where some corporations have more clout than actual cities, states, or even countries? There aren't easy answers.

Acknowledging the problem is the first step, though, and I think that How Markets Fail will help many readers do that.

I Wish I Had This Book For First Year Economics

The reader is dry and a little boring, which is a shame because the book itself was fascinating. Although anyone with any background in economics may find the first two thirds of the book a repeat of economics 101. Having said that I wish I had this for my intro course, because it was much more concise than what I was given to read.

In the end I would recommend this to anyone who would like to understand what happened but who has no idea about the theories that the policy advisors were using, or why the banks would make some of the choices they did. Those who have that background may want to rethink buying it for as mentioned, it is only the last third (at most) where Cassidy moves beyond giving a background to economic theory and really talks about why and how markets fail.