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The Logic Of Economic Calamities
Farrar, Straus and Giroux
November 2009
On Sale: November 10, 2009
400 pages
ISBN: 0374173206
EAN: 9780374173203
Hardcover
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Non-Fiction
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.
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