Synopses & Reviews
Behind the alarming headlines about job losses, bank bailouts, and corporate greed is a little-known story of bad ideas. 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. 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. 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 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. 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 todays economic crisis, conforming to antiquated orthodoxies isnt just misguidedits downright dangerous. How Markets Fail offers a new, enlightening way to understand the force of the irrational in our volatile global economy.
“A brilliant intellectual framework for the story of our economic collapse.” —Paul M. Barrett, New York Times Book Review
“Cassidy clearly knows a great deal of economics, and he tells his story extremely well . . . Many of his chapters—on the development of general equilibrium theory (how everything in the economy systematically depends on everything else), for example, or marginalism (why prices are determined by what were prepared to pay for the very last item of something we buy, rather than what the whole amount is worth to us)—would make useful supplementary reading in an undergraduate economics course.” —Benjamin M. Friedman, The New York Review of Books
“The most intellectually sophisticated account of what went wrong.” —Lucas Wittmann, The Daily Beast
“[A] wonderful book . . . The most concise and elegantly written account, among the many that have come out, of how we got into this mess.” —Liaquat Ahamed, The National Interest
“[How Markets Fail] brilliantly dissects much of what has passed for economic wisdom, and decries the lack of humility from those whose theories helped cause the disaster.” —Floyd Norris, The New York Times
“Highly readable . . . Cassidy offers a clear and occasionally colorful exposition of the evolution of relevant economic thought in a way that is accessible to non-economists.” —Richard N. Cooper, Foreign Affairs
“Fascinating and important.” —Eliot Spitzer, Slate
“An admirably lucid account of how ‘utopian economics drove us to disaster . . . This is a compelling synthesis that derives most of its narrative energy from the authors clarity of thought and exposition.” —James Pressley, Bloomberg.com
“An essential, grittily intellectual, yet compelling guide to the financial debacle of 2009.” —Geordie Greig, London Evening Standard
“The last major attempt of 2009 to make sense of what has become of the discipline of economics.” —Stefan Stern, Financial Times (Best Books of the Year)
“A well constructed, thoughtful and cogent account of how capitalism evolved to its current form.” —Edmund Conway, The Daily Telegraph
“[How Markets Fail] is more than just an account of the failures of regulators and the self-deception of bankers and homebuyers, although these are well covered. For Mr. Cassidy, the deeper roots of the crisis lie in the enduring appeal of an idea: that society is always best served when individuals are left to pursue their self-interest in free markets . . . An ambitious book, and one that mostly succeeds.” —The Economist
“An ambitious, nuanced work that brings ideas alive . . . Cassidy makes a compelling case that a return to hands-off economics would be a disaster.”—Chris Farrell, BusinessWeek
“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 economics—and a reform-minded move to shove Wall Street in that direction—can pull us out of the mess in which weve found ourselves.” —Publishers Weekly
“An elegant, readable treatise on economics, swathed in current headlines . . . 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 . . . Cassidy writes with terrific clarity and a finely tuned sense of moral outrage, yielding a superb book.” —Kirkus Reviews (starred review)
For fifty years, economists have been developing elegant theories or how markets facilitate innovation, create wealth, and allocate society's resources efficiently. But what about when they fail, when they lead us to stock market bubbles, glaring inequality, polluted rivers, and credit crunches? In How Markets Fail, John Cassidy describes the rising influence of “utopian economies”—the thinking that is blind to how real people act and that denies the many ways an unregulated free market can bring on disaster. Combining on-the-ground reporting and clear explanations of economic theories Cassidy warns that in todays economic crisis, following old orthodoxies isnt just misguided—its downright dangerous.
About the Author
John Cassidy is a journalist at The New Yorker and a frequent contributor to The New York Review of Books. He is the author of Dot.con: How America Lost Its Mind and
Money in the Internet Era and lives in New York City.