Review
How Markets Fail: The Logic of Economic Calamities by John Cassidy
These are the inevitable outcomes of what Cassidy refers to as rational irrationalityself-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 todays economic crisis, conforming to antiquated orthodoxies isnt just misguidedits downright dangerous. In such an environment, he shows, individual behavioral biases and kinksoverconfidence, envy, copycat behavior, and myopiaoften give rise to troubling macroeconomic phenomena, such as oil price spikes, CEO greed cycles, and boom-and-bust waves in the housing market. He then looks to the leading edge of economic theory, including behavioral economics, to offer a new understanding of the economyone that casts aside the old assumption that people and firms make decisions purely on the basis of rational self-interest. For fifty years or more, economists have been busy developing elegant theories of how markets workhow they facilitate innovation, wealth creation, and an efficient allocation of societys resources. But what about when markets dont 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 economicsthinking that is blind to how real people act and that denies the many ways an unregulated free market can produce disastrous unintended consequences. 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. Cassidy writes with terrific clarity and a finely tuned sense of moral outrage, yielding a superb book. Cassidy delivers on the promise of his title, but he also offers a clear-eyed look at economic thinking over the last three centuries, from Adam Smith to Ben Bernanke, and shows how the major theories have played out in practice, often not well . .. Publishers WeeklyAn elegant, readable treatise on economics, swathed in current headlines . .. Both a narrative and a call to arms, [How Markets Fail] provides an intellectual and historical context for the string of denial and bad decisions that led to the disastrous illusion of harmony, the lure of real estate and the Great Crunch of 2008. Using psychology and behavioral economics, Cassidy presents an excellent argument that the market is not in fact self-correcting, and that only a return to reality-based economicsand a reform-minded move to shove Wall Street in that directioncan pull us out of the mess in which weve found ourselves. Kirkus Reviews (starred review)Behind the alarming headlines about job losses, bank bailouts, and corporate greed is a little-known story of bad ideas.