How Markets Fail The Logic of Economic Calamities

by Cassidy, John

• ISBN13: 9780374173203
• ISBN10: 0374173206
• Edition: 1st
• Format: Hardcover
• Copyright: 2009-11-10
• Publisher: Farrar, Straus and Giroux

Summary

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 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 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 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-- overconfidence, envy, copycat behavior, and myopia-- often 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 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 economy.

Author Biography

John Cassidy is a journalist at The New Yorker, a columnist at Condé Nast Portfolio, and a 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. He lives in New York City.

Table of Contents

Introduction	p. 3
Utopian Economics
Warnings Ignored and the Conventional Wisdom	p. 17
Adam Smith's Invisible Hand	p. 25
Friedrich Hayek's Telecommunications System	p. 37
The Perfect Markets of Lausanne	p. 49
The Mathematics of Bliss	p. 61
The Evangelist	p. 72
The Coin-Tossing View of Finance	p. 85
The Triumph of Utopian Economics	p. 97
Reality-Based Economics
The Prof and the Polar Bears	p. 111
A Taxonomy of Failure	p. 125
The Prisoner's Dilemma and Rational Irrationality	p. 139
Hidden Information and the Market for Lemons	p. 151
Keynes's Beauty Contest	p. 166
The Rational Herd	p. 177
Psychology Returns to Economics	p. 192
Hyman Minsky and Ponzi Finance	p. 205
The Great Crunch
Greenspan Shrugs	p. 221
The Lure of Real Estate	p. 235
The Subprime Chain	p. 251
In the Alphabet Soup	p. 268
A Matter of Incentives	p. 285
London Bridge Is Falling Down	p. 299
Socialism in Our Time	p. 317
Conclusion	p. 335
Notes	p. 347
Acknowledgments	p. 371
Index	p. 373
Table of Contents provided by Ingram. All Rights Reserved.

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