Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World

by Jeff Madrick

A bold indictment of some of our most accepted mainstream economic theories—why they’re wrong, and how they’ve been harming America and the world.

Budget deficits are bad. A strong dollar is good. Controlling inflation is paramount. Pay reflects greater worker skills. A deregulated free market is fair and effective. Theories like these have become mantras among American economists both liberal and conservative over recent decades. Validated originally by patron saints like Milton Friedman, they’ve assumed the status of self-evident truths across much of the mainstream. Jeff Madrick, former columnist for The New York Times and Harper’s, argues compellingly that a reconsideration is long overdue.

Since the financial turmoil of the 1970s made stagnating wages and relatively high unemployment the norm, Madrick argues, many leading economists have retrenched to the classical (and outdated) bulwarks of theory, drawing their ideas more from purist principles than from the real-world behavior of governments and markets—while, ironically, deeply affecting those governments and markets by their counsel. Madrick atomizes seven of the greatest false idols of modern economic theory, illustrating how these ideas have been damaging markets, infrastructure, and individual livelihoods for years, causing hundreds of billions of dollars of wasted investment, financial crisis after financial crisis, poor and unequal public education, primitive public transportation, gross inequality of income and wealth and stagnating wages, and uncontrolled military spending.

Using the Great Recession as his foremost case study, Madrick shows how the decisions America should have made before, during, and after the financial crisis were suppressed by wrongheaded but popular theory, and how the consequences are still disadvantaging working America and undermining the foundations of global commerce. Madrick spares no sinners as he reveals how the “Friedman doctrine” has undermined the meaning of citizenship and community, how the “Great Moderation” became a great jobs emergency, and how economists were so concerned with getting the incentives right for Wall Street that they got financial regulation all wrong. He in turn examines the too-often-marginalized good ideas of modern economics and convincingly argues just how beneficial they could be—if they can gain traction among policy makers.

Trenchant, sweeping, and empirical, Seven Bad Ideas resoundingly disrupts the status quo of modern economic theory.

Genres: Economics, Nonfiction, Politics, History, Finance, Business, Audiobook

257 pages, Hardcover

First published September 30, 2014

Reviews

[Mehrsa · Rating 4 out of 5]

I met Jeff at a recent conference I attended and he was brilliant so I picked up and read this book. It's very good. The seven bad ideas can basically be boiled down to Milton Friedman/Chicago school free market orthodoxy in a bunch of iterations. This ideology has done so much damage and it's surprisingly easy to dismantle. All you need is facts and history, but sometimes theory and models and projections have even more salience and staying power than what actually happened.

[Patrik · Rating 5 out of 5]

Madrick's book Seven Bad Ideas is very thought-provoking and should probably be read by all economists. It is a well-written book and presents reasonable and persuasive arguments against neoclassical economics in general, and anything related to Milton Friedman in particular.

The book does not necessarily offer an alternative approach, except by arguing the "economics should allow for ambiguities, uncertainties, unknowns, and multiple explanations." This is fair enough as a general approach, but less useful in practice. The book does demolish economists' belief in rationality (the Invisible Hand and Say's Law) and often exclusive focus on markets.

Over the last few years I have increasingly questioned the notion that people are rational, certainly as rational as mainstream economics assumes. As an economist, this is a difficult position to take; e.g. it violates everything I learned in graduate school where I learned the finer points of real business cycles, rational expectations theory, and even monetarism (and where Keynesian policies were mostly used as the beginning of an argument). This religious (unquestioned) belief in rationality and the market mechanism, combined with the notion that the role of government should be minimized, has lead to some truly bad outcomes in the United States and around the world - hence the seven bad ideas.

Today we should know better; for example, psychology and behavioral economics have shown that people are not rational. We understand that society is more than the economy and institutions really do matter. And institutions cannot be merely understood in terms of economics (e.g. provide strong property rights so that the Invisible Hand can work its magic). Governments are needed beyond addressing obvious market failures. Community matters too; customs matter; history and circumstances matter. Unfortunately, these issues are hard to model mathematically, which means that these ideas cannot be published (and hence will not be researched).

Anyway, Madrick's seven bad ideas are (with very brief and incomplete explanations):

1. "The Beautiful Idea: The Invisible Hand" - this is a beautiful idea and one that explains how markets would work in a PERFECT WORLD. Unfortunately, we don't live in that world and hence using the Invisible Hand to explain and predict "everything" is not appropriate.

2. "Say's Law and Austerity Economics" - supply creates its own demand, and the reason is that prices will adjust to ensure it (and no government is needed). Prices often do not always adjust and a government is thus needed.

3. "Government's Limited Social Role: Friedman's Folly" - The only role of the government is to correct for market failures; the government should thus only complement free markets. Well, it is hard to determine market failures and the government plays other roles as well (equity, regulations, build community).

4. "Low Inflation Is All That Matters" - the central bank should focus on inflation targets (or maybe the growth of the money supply). If inflation is low, free markets will solve all our problems. Well, no. At the very least we must consider unemployment as well.

5. "There Are no Speculative Bubbles" - because all markets are efficient, see the Invisible Hand and Say's Law; the efficient market hypothesis rules. Never mind that we observe bubbles all the time.

6. "Globalization: Friedman's Folly Writ Large" - international trade is good (it really is), but blindly applying a "Washington Consensus" (a one-fit-policy) in all circumstances, without any consideration of space and time (culture, tradition, history) is not appropriate.

7. "Economics Is a Science" - thinking that economics is a science, just like physics, gives economic ideas more credibility than they deserve. Economics is a science in the sense that we use the scientific method, but our "laws" are not like gravity. When applying our results we must allow for ambiguities, uncertainties, and multiple explanations.

[Marks54 · Rating 3 out of 5]

This book attempts to list a series of "bad ideas" of mainsream economics and how their adoption by policy makers has led to poor and even disastrous results. It is better understood as some essays on how the bad policy adoption in overly specific instances of general economic ideas that were never intended to be adopted in such a manner have turned out badly. The author is a well trained economic writer who knows how to read the articles by academic economists and appears to have some common sense as well. The book is well written and engaging and the points made are generally good.

There are some issues. For example, the first idea is the "visible hand" and several of the other chapters seem to be variants -- so it isn''t really seven distinct ideas. More generally, the author is taking issue with the period of the "great moderation" when conservative theorists thought they could do away with government almost entirely and rely on monetary rather than fiscal poliicy if the economy needed any tinkering. This is a very good target and I do not object to the attack. The attacks are not that new, however, and Madrick would have been more effective focusing on his core points. He is not the only writer to do this, however, and it does not limit the books value in any significant way. This book is similar to Justin Fox's fine book on the problems of the Efficient Markets hypothesis. While Fox's book is more thorough, Mardrick's book covers much of the same terrain and is more accessible to general readers. Besides, the interested reader can always go to the source articles if desired. The book is especially good at critiquing the clueless attitude often shown by economists who take their abstractions to be more real that the world they are trying to understand..

[David Schwan · Rating 5 out of 5]

This book gives a great overview of how much of modern economic theory is built on wishful thinking--not on verifiable facts and theories--but rather is based largely on the philosophical ideas of Adam Smith with large regular injections of Libertarian-ism and other political theory.

The author provides many examples of how untested ideas have been accepted as dogma and how these ideas have been applied over and over failing to work as the originator intended--in the process leaving a series of damaged economies in the wake.

One big failing is how often correlation is mistaken for causation. One is left with the knowledge modern economists are quite happy cooking up a new model for something and then making us the subjects of their experiment most often to failing results. In spite of probably 50-60 years of failed experiments politicians continue to put faith in theories that support a conservative ideology--free unrestrained markets, small government, low taxes and debt, low inflation--all ideas tested in the real world and shown to not work.

[Chris · Rating 3 out of 5]

Enjoyable, educational, and clearly written. Understandable to the non-economist. This is the second book by Madrick which I have read, the other being Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present, which I really enjoyed.

Madrick discusses seven ideas bandied about by economists and discusses their origins, and their strengths and shortcomings. The ideas: 1) The "Invisible Hand", 2) Say's Law, 3. Milton Friedman's Limited Government, 4. "Low Inflation is all that matters", 5. "There are no speculative bubbles" aka Efficient Market Theory or EMT, 6. Globalization along set, uniform (laissez-faire, “Friedmanite”) terms, and 7. Economics is a science.

Many of these are interconnected, as Kruggers points out in his NY Times review: http://nyti.ms/1C4l7BV

While some of the discussions were quite technical, such as Say's Law on supply and demand, others I was able to follow (Invisible Hand, Efficient Market Theory, & economics as a science).

Illuminating reading for anyone who suspects that the wisdom put forth by economists, and the policymakers who wield it as scientific fact, is actually something more subtly and nebulously constructed.

For example, most people unquestioningly believe that high taxes and big government inhibit a country's economic growth. Economists have assured them so. It just isn't that simple, however. There are "no accepted statistical demonstration of the automatic dampening of growth by big government. High tax rates are not proven disincentives to work or investment, the best studies show. Big government does not deter growth, the best studies show." (p.200)

[Adam Ross · Rating 4 out of 5]

A great book on the problems with mainstream economics. Madrick argues that mainstream economics is too caught up in abstract theory and mathematical models that cannot account for the full complexities of human life and that it should not be approached like the physical sciences, in search of universally applicable laws equivalent to gravity. No, he argues that economics needs to become local and regional, that the specific needs of specific places must control what policies are put into action, rather than abstract "laws" believed to be universal. In particular, he argues, mainstream orthodoxy has been captured by the legacy of Milton Friedman, and that Friedman's followers have spread everywhere and caused serious harm to the US and global economies. Along the way, he shows that a number of our beliefs are wrong. Government intervention often helps economies while deregulation causes untold problems. The financial problems in Europe are not due to socialist or leftist policy, but because European economists are actually more rabidly and radically conservative than in America, and their policies have thrown Europe into a serious recession. Keynes, far from hating capitalism, was a capitalist out to save capitalism from itself. The book is replete with insight and historical analysis that shows, in the real world at least, the free-market ideology of Friedman and his heirs simply does not work.

[Kberger · Rating 3 out of 5]

This book is fairly short, general and good. The book is short and general, I think that if the author wrote a longer and more specific book, it would not be as good.

I'll give an example. The author makes the case that austerity creates more harm than good. I concede he has a point. I would counter with an argument that profligate spending on social programs is also a bad idea. Then the debate would go to how large should the government be and how much tax revenue should it collect, and that could get a little tedious and boring.

The book is ok, but I think reading Paul Krugman is more interesting and informative.

[William Nist · Rating 5 out of 5]

I have long thought that economists have lost their way with the turn to econometrics and the adoption of simple Monetarist economic theory (ala Milton Friedman). The problem is that there has been a “Washington Consensus” for over 30 years that the most important object of economic policy is inflation control and that everything else, including job creation, aggregate demand, externality considerations, and income/wealth inequality is secondary at best. We are now paying the price for such shortsightedness.

This excellent book maps out the fundamental mistakes that have led us to this juncture. The book talks about the mis-application of Adam Smith's 'Invisible Hand', the problems with 'Say's Law', the influence of ideology on adopted economic theory, the dark underbelly of 'globalization', and the problem with economic assumptions like complete rationality in economic (especially) financial markets.

No, you have not been crazy all these years. Bush was right. There is a lot of Voodoo economics in even the highest academic circles. Dig out your 'General Theory' --- Keynes lives on.

There is not much prescription here to cure us of this malady, but it is nice to know the diagnosis has not escaped you.

[Dave · Rating 4 out of 5]

Madrick provides plenty of arguments to use the next time somebody tells you that the "free market" will cure every economic ill, or that inflation or budget deficits are to be avoided at all costs. This book helped me see nuance in economics, and made clear just how devastating the reliance on the ideology of Milton Friedman has been for the entire world over the last 40 years.

Madrick has a simple thesis: the theories of most mainstream economists have little or no basis in empirical evidence, and are instead hypotheses grounded in belief in the "Invisible Hand." While beautiful in its simplicity, the Hand is incapable of accounting for countless complexities in real-world economics, such as irrational behavior, growing inequality, exuberant asset speculation, or the need for government to intervene in various ways.

If we want to see the rising tide truly lift all boats, we would do well to read this book and take its lessons to heart. Its one flaw might be that it is so engaged in tearing down the arguments of others that it is much less successful at building a coherent economic perspective that would adequately answer the questions that the Washington consensus has failed to answer.

[Steve · Rating 5 out of 5]

This is a terrific book that everyone should read. I had to return it to the library but will check it out again for a second time.
Joseph Stiglitz and Naomi Klein, among the authors I've read, have a very low opinion of Milton Friedman who is probably the most influential of the seven economists and economic theories Madrick talks about. Madrick doesn't like Friedman, either. The whole agenda of this group, ascendant since Reagan's election, was just what the Republicans had been waiting for, supplying the scholarly foundation for the very nasty policies the R's are so fond of promoting. I hope one day Reagan will be regarded as a disastrous president, one who set our country on a path that threatens everything from our economy to our civil discourse. No wonder so many of us are so frightened and angry and yet we keep electing the politicians who want to make it worse. Idealogy rules. The Republicans are a bunch of propagandists and too many us don't pay close enough attention to spot it. Too many others don't bother to vote.

[Kathleen Brugger · Rating 3 out of 5]

This is a good idea for a book: point out to the general reader the flaws underlying much of mainstream economic thought. Unfortunately, either Mr. Madrick is a poor writer (which seems unlikely given his writing career) or he needed a good editor, because the book seems unorganized and at times the writing is unclear. The book does communicate the basic idea, that orthodox economics is based on faulty assumptions and operates largely without any verification in the real world. Mr. Madrick asserts that there are unorthodox economists, but I wish he had listed them so the reader could access their writings and learn more about economic ideas outside the mainstream.

Seven Bad Ideas:

1. Invisible Hand—marketplace always produces ideal prices free from govt.
2. Say’s Law—economy will always reach perfect equilibrium
3. Milton Friedman’s Folly—limit government as much as possible
4. Low Inflation is all that matters
5. No Speculative bubbles—the market is always right
6. Globalization—a world free from government interference
7. Economics is a science

[Beth Gordon · Rating 4 out of 5]

When I was in college, I took economics classes at their word. After all, there were equations that made sense and pretty graphs. It all seemed so tidy. It was also the mid-1990s.

With two big recessions between now and then along with more life experience, I have thought about economics quite a bit. One of the basic tenets that I used to believe and now have thrown out the window is that people are rational decision makers. No, they are not. I have also thrown out Freidman's claim that the market is efficient and self-correcting. More and more I realize that government is needed.

The author obviously leans left, as do I. So he's preaching to the choir in this book. Still, I enjoyed reading his thoughts on economics. I thought his points could have been a bit tighter at points but still very interesting and educational.

[Sam Znaimer · Rating 2 out of 5]

Pointing out the flaws and unexamined assumptions behind conventional economic theory is an important exercise in a world where critical government policies are guided by a coterie of economic experts. So is Madrick’s convincing argument that an economist’s outlook tends to flow from his political leanings, rather than from an unbiased examination of empirical evidence. But much of Madrick’s writing is mushy and disorganized, and he often dismisses his targets on the basis of their political views rather than critically examining their ideas. Worth a read on an airplane, but not a weekend of deep study.

[Viktoria · Rating 4 out of 5]

Good topics on the past and current economic issues. Seven ideas make the book easier to read for those not savvy on the subject of economy. In the last chapter Madrick presents a question-raising argument on economics: "...If economics was truly a science, such efforts of reputable economists at good schools would not be ignored. Major findings in medical research or physics are not simply swept aside because most scientists have different views..." Little dry, but worth reading.

[Elizabeth · Rating 4 out of 5]

This book tackles seven of the "beautiful ideas" of economics and how they have led us astray - using in particular the example of the recent financial meltdown. It was a really interesting read. It discusses both the ideas themselves (so you don't have to know all about economics to read this) and then why they don't work the way economists once thought they did.

[Peter · Rating 4 out of 5]

I'm not convinced that he's right on all these questions, but I am convinced that those who disagree with him rely on an empirically thin foundation. He raises important questions, the answers to which should be debated, rather than simply assumed.

[James Bennett · Rating 1 out of 5]

I was interested in reading Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World by Jeff Madrick after reading Don Boudreaux's comments on it at Cafe Hayek, in which he quotes Madrick as saying:

On the other hand, prosperity hardly guarantees democracy and protection of human rights. Russia became wealthy in the 1930s but was a dictatorship until the 1980s [p. 26].

I wrote my senior thesis on Collectivization at the Jackson School, so I know about as much on this subject as anyone, so I wondered how anyone could honestly make this claim. Upwards of seven million people died from starvation alone, not to mention the millions who died from labor camps and other atrocities. "Wealthy" would be about the last way I would describe it. Is his next book going to praise the "wealth" of 1990's Somalia?

So I picked up a copy of the book from the library to find out. Unfortunately, he doesn't address the issue any further, other than in general to show his bias against free market economics (he spends most of the book railing against the "invisible hand"). Although some portions were interesting, I am actually rather sympathetic to his argument that economics is not as scientifically rigorous as it should be, the book on a whole is full of overly broad statements and strawman arguments. In fact in all honesty the book should be titled "Seven Bad Ideas: How I Misrepresent My Opponents Arguments and Thereby Defeat Them".

Madrick's central thesis is that modern economics has been taken over by "bad ideas", which are essentially free market economics, mostly those espoused by Milton Friedman, and that Keynesian economics has been banished from mainstream economic thought. This would be news to the faculties of just about every major university, as well as the publisher of every major macroeconomics textbook, since about, oh, 1935. In his view, with the exception of the first 2 years of the Obama administration, the US, as well as Western Europe, has been reduced to some sort of winner take all, no holds barred, unregulated economic free for all out of a Mad Max movie.

How does he support this argument? Well, that is hard to say. The book is largely devoid of analysis (although in his defense 226 pages is hardly enough space to look into a subject this large) and barely mentions any actual economic numbers at all. In the introduction, for example, he argues:

"In Clinton's last year in office, the level of federal public investment as a proportion of GDP was lower than in Ronald Reagan's last year in office, especially for physical infrastructure and education spending. It was substantially lower for research and development. The policy was part and parcel of the laissez-faire revolution."

He fails to actually state any numbers though, nor give any idea as to the scope of these supposed cuts. The end notes reference one of his own books, and then point the reader to an OMB Report. After perusing the report for a while, one does find, yes from 1988 to 2000, under the title "Table 9.1 —TOTAL INVESTMENT OUTLAYS FOR MAJOR PUBLIC PHYSICAL CAPITAL, RESEARCH AND DEVELOPMENT, AND EDUCATION AND TRAINING: 1962–2013" one does in fact find that spending decreased from 4.2% to 2.6% of GDP. This does not tell the whole story though, as almost all of this was in military spending, which decreased from 2.5% to 1.0%, a result of the famous, but short lived "peace dividend". Non-defense spending during that time decreased a barely perceptible 1.7% to 1.6%, and in fact nearly doubled in terms of constant dollars (2006) from $84.5 billion to $157.7.

And neither I nor Don Boudreaux have even left the introduction yet! In any case, to move along, Madrick then analyze Adam Smith's "The Invisible Hand" metaphor, and then basically goes on to argue that the theory is invalid if there exists any sort of market imperfection whatsoever, and acts as if he were the first person ever to discover asymmetrical information. He summarizes the chapter with:

"We assume away monopolies, business power, lack of access to information, the likelihood of of financial bubbles, economies of scale."

Except I don't know anybody who actually does that. Madrick essentially rests his argument on the 2007 financial crisis, which he blames entirely on the unregulated derivatives market (to his credit, he does state that it was Clinton who initially neglected to regulate the market, most liberal writers attribute some unidentified Bush deregulation as having caused this). He manages to make it the entire way through the book though, without mentioning a single time that the government, mostly through Fannie and Freddie, was intentionally encouraging banks to issue sub-prime loans to people who could not afford them. The only time they are mentioned at all, it is entirely the result of those "unregulated" banks. In his world, there is no such thing as a bad government decision in the world of economics.

Skipping on to another chapter, Madrick than argues that economists don't believe in speculative bubbles. He points out the various degrees of the Efficient Markets Theory, and then in a bizarre handwave dismisses the fact that there has been decades of debate on the subject, which he himself discusses, and falsely asserts that economists have en mass adopted the strictest interpretation of this. As evidence he cites Eugene Fama telling the New York Times (actually the New Yorker) "I don't even know what a speculative bubble means".

If you look up the actual interview though, Fama is much more nuanced.

"I guess most people would define a bubble as an extended period during which asset prices depart quite significantly from economic fundamentals. "
"That’s what I would think it is, but that means that somebody must have made a lot of money betting on that, if you could identify it. It’s easy to say prices went down, it must have been a bubble, after the fact. I think most bubbles are twenty-twenty hindsight. Now after the fact you always find people who said before the fact that prices are too high. People are always saying that prices are too high. When they turn out to be right, we anoint them. When they turn out to be wrong, we ignore them. They are typically right and wrong about half the time."

Much of the book is basically an attack on Milton Friedman, in fact he has two chapters named after him. "Governments Limited Social Role: Friedman's Folly" and "Globalization: Friedman's Folly Writ Large". This subject is way too in-depth for me to get into right now, but suffice to say he distorts and trivializes Friedman's argument (although not as badly as Naomi Klein thankfully). Friedman is described as standing for smaller government, bordering on anarchy, not as part of a philosophy to maximize human freedom and prosperity, but because he is simply an ideologue who doesn't care about other people. Ironically in the last chapter, Madrick mentions "Though reforming education would be expensive, it is more politically acceptable than many other social reforms, such as outright cash grants to the poor, especially those with children."[p209] He neglects to mention, however, who was one of the biggest proponents of this form of welfare, the aforementioned Milton Friedman.

The book ends with a chapter which in other contexts, I might like. "Economics is Science". Madrick argues that economics should not be treated as a science, like math or physics:

"Likely nothing has please some economists more than giving the impression that they rely almost solely on mathematics to explain economic relationships. Math is the language of universality, of enduring ideas that are appropriate in all contexts. Physics after all is essentially math, so why not economics? [p198]"

I would buy this argument, except the economists that he praises, namely Keynes, are the biggest proponents of this school! I have an MBA, and I could barely get through The General Theory of Employment, Interest and Money. It is virtually all quantitative He had to have known this, because he cite Robert Samuelson, a Keynesian, as an example of this overly scientific school. The economists he attacks on the other hand, namely Adam Smith and Milton Friedman, often read like philosophy. In fact Smith was a philosopher, the science of economics had not been invented yet. Madrick somehow manages to spend the entire book insisting that the entire economy be micromanaged by government policy makers, and then summarizes that these economists must base their decisions on something he insists is a pseudoscience. Even more amazingly, he manages to write this entire chapter without mentioning Frederich Hayek, the Nobel Laureate and free market economist who gave his Nobel lecture on this very subject!

"It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences - an attempt which in our field may lead to outright error. It is an approach which has come to be described as the "scientistic" attitude - an attitude which, as I defined it some thirty years ago, "is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed."1 I want today to begin by explaining how some of the gravest errors of recent economic policy are a direct consequence of this scientistic error."

In fact, he fails to mention Hayek a single time in the entire book, an oversight, which could not be accidental. Maybe our eighth bad idea should be intellectual dishonesty?

[David · Rating 4 out of 5]

The author's analysis is within the boundaries of what he believes would best moderate economic bumps, crashes and public discontent within the current economic system. There's much information within that context. However, from my perspective, this does involve "thinking inside the box." It did stimulate my thinking.

The "seven bad ideas" refer to premises of the predominant free market-oriented economic policies today. The seven have considerable overlap. It might be an exaggeration to say that they're just re-phrasing of the same idea expressed in different situations, but generally each says, "A free market is as close to perfect as can be! Use no government action unless it's needed by the rich!"

The book provides information on the history of these "free market" economic ideas, and various examples of historical economic cases which show the real world is not what "free market" economists claim. While Republicans are better known for implementing "free market" policies in the post-1960s era, the book shows the process began under Pres. Carter and continued under Pres. Clinton. (It wasn't absent under Pres. Obama, but the 2008 economic crisis affected policy.) The book tends to present this as the policies of various presidents, with little to say about the influence of big business on politicians. (Since politicians rarely have a background in economics, it seems unlikely it's "their" policies.)

Halfway through the book, the author says that progressives have tried to blame the change in economic policy on the growth of right-wing think tanks in the 1970s. He argues the fact that changes in economic policies occurred in a number of other countries shows this wasn't the case. I'll grant him the rise of US right-wing think tanks wasn't the first step. Factors led to big business going on the offensive at that time in various countries. The think tanks are merely a result of that or a reflection of it. But that's not the author's view.

Some of my thoughts while reading:

Madrick notes that, among other things, "the invisible hand" assumes that consumers are purely rational and have full information for making rational decisions - which isn't true. Madrick tends more to modify it than reject it. I accept that hunter-gatherer societies provide benefits for members despite having no formal laws or government. But that's the result of not being loners. Division of labor is economically advantageous, and that requires trading between makers of different items. My most fundamental objection to the "invisible hand" idea is that it says well-thought-out efforts to maximize the economy should be avoided. A planet-wise hi-tech, scientific civilization should just send the economy outside to play by itself?

There's more to running the goods and services in a society than how much is made at what price and such. Today, industrial production, mass-production agriculture, extracting natural resources, etc. can have impacts on the environment, climate, odors and sounds, and other issues. Globalization means transporting goods further distances, which means more impact on the environment and climate. "A good life" isn't just consumer goods, so these factors should be decided by an informed majority. The marketplace isn't the best place to decide such questions.

For more thoughts after reading the book read this blog

[William Schram · Rating 4 out of 5]

Initially, I felt this book lacked focus, but eventually, it all came into view. First of all, it is clear in this book that the author despises Milton Friedman and everything he stands for; he absolutely loathes Friedman. Seven Bad Ideas is written by Jeff Madrick. Madrick explores the consequences of seven terrible ideas put forth by mainstream Economists. Some of them have become so ingrained in our consciousness, that it takes some level of audacity to even question them, while others are somewhat confusing to me. Take the idea of Austerity Economics and Say’s Law; from my rough recollection, it basically says that if you build it, it will build demand. People aren’t buying cars? Build more cars. Too many houses on the market? Construct more houses. This seems like a ludicrous rule to me, but I didn’t write a book on anything so my opinion doesn’t hold that much weight to an economist.

The thing to take away from this book is that Economics is a mixture of Psychology and Mathematics. Economics makes too many assumptions to be useful to the real world. At least, this is what I took away from this book. It makes sense to me that this would be a problem. I mean, the main assumption given by Economics is that people act rationally; have you read the news lately? This is something that is obviously wrong. Then again, I don’t enjoy reading the news since there are always too many shootings and things.

So yeah, Economics is too much theory and people take it further than theory and it messes with the economy. That is what I learned from this book. It was alright, but it took a bit for the author to get to the point. Madrick’s writing is pretty good, and there are plenty of graphs and charts to look at. It shows the bubbles of the good old days and talks about other points of interest. The book was written in 2014 so it is slightly dated, but the points made still apply.

[Rhys · Rating 4 out of 5]

The book acts as a critique for what has become the mainstream economic orthodoxy, the Friedmanite Liberalism that has become 'Conservatism', from the U.S. to Australia (...and the rest of the West, et al.). Madrick makes some solid arguments about how the 'indisputable science of economics' simply because it is frequently mathematised can often be little more than an excessively reductionist, "childish" game of political ideology disguised as technocratic response. With a background in economics himself, he has authority in discussing crises over the last century and how economic ideas have been taken beyond their original context and used to excuse political decision-making.
My issue is that it can be read as a general argument for Keynesian economics. Though this is obviously a step in the right direction towards supporting social/government programs, this still does not address the underlying growth principle that is so damaging to our shared, threatened ecology. Keynesian economics is certainly not limited to supporting the Military-Industrial-Complex which can be used to 'stimulate the economy'; much in the same way as my unbridled frustrations at the broken-window fallacy. Towards the end, he generally argues for a less alienated and simplistic conception of the economy, in favour of understanding normative values and cultural understandings of the world; which is great. However, I would much prefer to be reading how world production and distribution is "true economics" against this orthodoxy, but this is not the basis of his argument, and I'm generally disappointed by that.

[Rhys · Rating 3 out of 5]

A solid critique of orthodox economics - its ideological biases and its failures, but mostly its reluctance to learn from failure, like the process of real science might. The book might have benefited by exploring the explanatory power of non-capitalist economists.

"But does the central claim of orthodox economics hold? Does the Invisible Hand alone—without a strong government of rules and prohibitions and a society with traditions of decency and community responsibility—lead to beneficial harmony? Does the Invisible Hand assure adequate investment in education, research, and transportation, sufficient regulation of business, and the fair distribution of income? Can we describe these unfulfilled needs as simple market failures that can be fixed, or does the idea of the market itself have fundamental weaknesses that must be constantly, not merely occasionally, addressed?"

"... But Mill insisted custom may be a great regulator as well, foreshadowing by a couple of centuries the criticisms I’ve offered here." Customs like: "Economies of scale, the growth of trade, the availability of natural resources, educational attainment, the quality of financial institutions, military spending, the rise of wages, the establishment of unions, welfare programs, the optimism of a people, varieties of attitudes toward materialism, the sense of community, marriage and families, the broadening of freedom ..."

[cadtoolenjoyer · Rating 5 out of 5]

For those interested in understanding why the world is the way it is, this book is essential. Madrick unpacks decades of economic policy in clear brevity, showing how the poor economic policies of the powerful in both US political parties have been largely unscientific and ignorant in pursuit of profits and corruption. He demonstrates how most mainstream economists are corrupted by political dogma and, to the world's detriment, use bogus science and doctored statistics to convince those in government to drink their Kool-Aid, knowingly or unknowingly, stifling the global economy from moving to a fair, just, and prosperous society.

[Ajay · Rating 5 out of 5]

If you suspect there is something wrong with mainstream economic theory, you must read Seven Bad Ideas. Jeff Madrick's book is a rigorous and compelling discussion of seven of the flawed myths that have changed our world for the worse.

1. The Invisible Hand
2. Say's Law
3. Government's Limited Social Role
4. Low Inflation Targeting
5. Speculative Bubbles
6. Globalization
7. Economics is a Science

This is a clear and compelling take on why mainstream theory is terribly flawed and dismantles the edifice that Milton Friedman built.

[Kinch · Rating 3 out of 5]

A good book, and essential reading for anyone still in the thrall of neoliberal economic orthodoxies. Reading it from a more radical perspective though I found it frustratingly narrow in its analysis — never stepping outside the basic assumptions of capitalist realism. Nevertheless, it’s a robust defence of Keynesian economics and a good primer for someone like me who hasn’t studied much mainstream economics.

[Martin Henson · Rating 3 out of 5]

There are so many books having a go at mainstream economics and economists - it's like shooting fish in a barrel nowadays. This one is neat and tidy, well organised and well written. Some of the targets have been well rehearsed by others (like the "invisible hand", Say's Law, and economics as (not a) science) but nonetheless decently argued. The best chapters (for me) were those covering the efficient markets theory (and its relation to speculation) and globalisation. There is a decent nod toward learning more from detailed and fine-grained empirical research (though not a great deal of specific discussion) - see for example the outstanding work of Wilkinson and Pickett (the Spirit/Inner Level books) and Heather Boushey ("Unbound") - a comment like "Some believe that inequality itself can reduce growth because high-income individuals don't spend enough of their money" (p. 196) is a pretty weak critique of inequality, given what is now known.

[Eric C Abrahamsen · Rating 4 out of 5]

Mixed feelings about this because he really didn’t say anything new to me but I came to many of his comments and insights independently myself using his same logic.

A lot of conservative beliefs are based on myths and lies and basic logic tells me that their numbers don’t add up. But this nonsense is what enough people buy because it is what others believe.

[Jennifer Jank · Rating 4 out of 5]

These are interesting critiques of the current state of economics from a left-leaning writer. Some of the contrarian opinions are a bit overblown, but the author includes enough examples to back up his arguments. Definitely food for thought for those of us interested in economic theory.

[Matthew Luttmann · Rating 3 out of 5]

Can't really recommend the book unless you're especially drawn to the topic. Madrick is correct in his essential criticisms, but I was hoping for more tangible examples and research; instead it reads like an extended editorial.

[Christian · Rating 3 out of 5]

Fascinating. I love all books that challenge dogma and underlying assumptions, just a shame at times there was serious dogma and evidence-less arguments of his own intermixed with some solid critiques.

[Liz Schasel · Rating 3 out of 5]

Infuriating read about how far mainstream economists have fallen from data-driven empirical research. Societies are being failed every single day by one-size-fits-all ideologies about globalization and the invisible hand that have been disproven over and over again.