How Markets Fail The Logic of Economic Calamities

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  • Edition: 1st
  • Format: Paperback
  • Copyright: 11/23/2010
  • Publisher: Picador

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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 today’s economic crisis, following old orthodoxies isn’t just misguided—it’s downright dangerous.

“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 we’ve 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)

Author Biography

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.

Table of Contents

Introductionp. 3
Utopian Economics
Warnings Ignored and the Conventional Wisdomp. 17
Adam Smith's Invisible Handp. 25
Friedrich Hayek's Telecommunications Systemp. 37
The Perfect Markets of Lausannep. 49
The Mathematics of Blissp. 61
The Evangelistp. 72
The Coin-Tossing View of Financep. 85
The Triumph of Utopian Economicsp. 97
Reality-Based Economics
The Prof and the Polar Bearsp. 111
A Taxonomy of Failurep. 125
The Prisoner's Dilemma and Rational Irrationalityp. 139
Hidden Information and the Market for Lemonsp. 151
Keynes's Beauty Contestp. 166
The Rational Herdp. 177
Psychology Returns to Economicsp. 192
Hyman Minsky and Ponzi Financep. 205
The Great Crunch
Greenspan Shrugsp. 221
The Lure of Real Estatep. 235
The Subprime Chainp. 251
In the Alphabet Soupp. 268
A Matter of Incentivesp. 285
London Bridge Is Falling Downp. 299
Socialism in Our Timep. 317
Conclusionp. 335
Afterword: The Great Disconnectp. 347
Notesp. 363
Acknowledgmentsp. 389
Indexp. 391
Table of Contents provided by Ingram. All Rights Reserved.

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Customer Reviews

Highly recommended. April 15, 2011
Well written, with an initial historical foundation, this textbook is a "must read" for all interested in our economic system, It gives a very comprehensive and exhaustive review of the different ways markets do fail, also how this led to the recent global financial crisis.
It is one of the best textbooks about economy and financial markets. By its nature, this book cannot be "easy" reading. But those desiring a better understanding of the current Great Recession should start with "How Markets Fail". It's a cheap textbook but worthy, valuable, informative and a great one. Highly recommended.
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How Markets Fail The Logic of Economic Calamities: 5 out of 5 stars based on 1 user reviews.

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