How Markets Fail

by John Cassidy

Veteran New Yorker staff writer John Cassidy offers a provocative take on the misguided economic thinking that produced the 2008 financial crisis—now with a new preface addressing how its lessons remain unheeded in the present, as we're facing the worst economic catastrophe since the Great Depression.

A Pulitzer Prize Finalist
An Economist Book of the Year
A Businessweek Best Book of the Year

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 this updated and expanded edition of 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.

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

432 pages, Paperback

First published November 10, 2009

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.

Reviews

[Szplug · Rating 4 out of 5]

This is a timely, lucid, well-structured and well-argued book, perhaps the best of the half-dozen or so economically- and financially-themed tomes that I have read over the past several months. Cassidy, by structuring his work into three distinct parts, opted for what, in my opinion, served best to channel the disparate and historically deep, but quite relevantly interrelated, streams of analysis he has undertaken within. The crux of the entirety is the economic crisis of 2008, an example of drastic market failure whose development and repair were occluded and eluded by the systems of the dominant economic paradigm of the past three decades—what the author has labelled Utopian Economics. The timeframe, causality, and effect of this post-millennial crunch comes last amongst the book's tripartite ordering; an ideal positioning, as it allows Cassidy to first trace the evolution of the twentieth century Classical offshoots into this dominant Utopian school; and then undertake to deliver a similar process for the parallel theoretical development—primarily, but not exclusively, (Neo-)Keynesian—that the author believes to represent the antithesis to the first named: Reality-Based Economics.

Cassidy places the first part's economic maturation into the utopian camp for a number of reasons—in toto, the way in which it sought a unification of the macro and micro divisions of the economic whole by embracing what were, in their origin, abstract academic formulations and theories, stretching and spreading them through the application of complex and elegant mathematics such that they were presented as tested and ready for adoption within the real world. Impressive in their postulations of self-regulating and efficient markets that existed in equilibrium and rational human actors possessed of a perfect knowledge of prices and information as they operated within the latter, in the author's determination they elevated free market economics to the plane of the absolute, completely disregarding all of the messy—and enduring—human irrationalities, foibles, and impulsiveness that flavored a world marching ever forward into an uncertain, and ultimately unknowable, future. What's more, the author takes pains to illustrate that these Post-Classical utopian adepts saw the inherently infallible invisible hand of the market at work in specific markets and situations where its original formulators—Adam Smith, David Ricardo, John Stuart Mill—had explicitly not; had elided from their calculations all that those past-masters had cautioned about the potencies and potentialities within that incorporeal extremity.

Cassidy's presentation of this particular field of economic thought—increasingly dominant following the one-two counterpunching combination of Seventies' stagflation and Eighties' Communist collapse—struck me as being, for the most part, even-handed and well-informed, outlining and acknowledging both its successes and its attractive qualities, even as he endeavored to elucidate its growing detachment from the actual existing world in which we live and function. However, a coherent and consensus-bound system stands formidably against an opposition riven into different, and differing, outposts of dissenting thought; and such was the case for Utopian Economics as we headed into the new century.

These (increasingly thinly spread) pools of countervailing economic thought are mostly recounted as they formed in the decades after the Second World War. All serve, in some manner, as cautionary philosophies and theories, often derived from psychological considerations, set against a recurrence of those terrible failures of the first half of that century: the Great Depression, massive unemployment, vast wealth destruction, and the tendency for financial markets to blow speculative bubbles. This material was excellent and informative throughout, with its primary focus upon Keynes' rational irrationality, game theory—in especial the Prisoner's Dilemma—, disaster myopia, and Minsky's arguments about Ponzi Finance and his belief that stability is destabilizing. In their own fashion, and with considerable interlinking and cross-fertilization, they explore all of the myriad ways in which markets are not, in fact, perfectly efficient and self-clearing; their human participants far from perfectly endowed with information, from past, present, and future, to allow them to make überrational calculations. Instead, they attempt to determine how incentives become skewed, the public good harmed by individual rationality, markets distorted and such distortions obscured from market actors, and financial innovation endowed with extensive destructive capabilities, by the various irrationalities, unknowability, opacities, and systemic entropic tendencies that are inevitably brought to bear upon any capitalist system.

In essence, Cassidy reveals these various economic workings from the second section as being constructed from a realistic point of view, endeavoring to understand how our intricate economic systems operate—and us humans, with all of our human frailties, within them—in the existing world, to set them in contrast against those from the first that—their impressive results in certain areas and aesthetically elegant formulations notwithstanding—have chosen to examine markets and their actors as they might be in a perfect world, as test subjects operating in an isolated setting in which all of the parameters have been predetermined and brought accurately into the equations. It's a decidedly curious state of affairs, this utopian leaning amongst the Monetarists and Neo-Classicals, seeing as how their proponents have ranked amongst the most committed anti-communists, those most opposed to the utopian longings at work in the far left. To decry the claim to perfection by an opposing ideological viewpoint while setting up one's own doctrinal Eden can't help but take on the hue of absurdity; but, in the author's presentation, that is exactly what took place when a space was opened-up by the Keynesian failures of the final quarter of the twentieth century.

With all of this said, Cassidy saves his best for last: the third section, a detailed and brilliantly delineated exploration of the lead-up, development, and unfolding of the Crash of 2008, is the best such presentation I have read so far. Endeavoring at all stages to link the events taking place with the theories and systems detailed in the first two sections, using them as explicatory devices for what was transpiring, it brought the entirety into focus with a clarity that both was appreciated and served to persuasively highlight the applicability of his previously generated thematic structure. As Cassidy points out, the Utopian economists really do seem to be constructing their arguments based upon an academic textbook understanding of the economy: there is little in their calculations that takes into account modern networked systems and technologies; the evolution of financial instruments; the growth of the financial sector as set against the manufacturing and industrial components; the proliferation of monopolies and oligarchies in a vast globalized corporate environment; and the massive expansion of credit together with the loosening of lending standards.

As I've stated in prior reviews, I'm far from being any sort of economic expert, but on the basis of what I have come to understand, you can colour me convinced. By nature, I find myself inclined to align with those systems that appear to most take into account the workings of reality, to ground themselves in commonsense, in what they claim to apprehend; and, for the most part, that puts me in the camp of those who embrace Reality-Based Economics. I know that there are proponents of the Austrian School who aver that their system is actually the one most cognizant of reality, but I simply do not know enough about it sufficient to judge that claim whilst simultaneously maintaining, from that which I have ingested, a certain skepticism towards it; but if one of them could produce a book as excellently constructed, superbly written, and convincingly argued as Cassidy's outstanding effort, perhaps I just might find myself coming around.

[Katy · Rating 5 out of 5]

What a great read this has been for me. Some chapters are more interesting than others for me, but this book has changed how I view economics and increased my interest in the subject. Highly recommended.

[Rajesh Gajra · Rating 5 out of 5]

The 2007 and 2008 crisis in world economics and financial markets have spawned many books. This is one book that talks about the same crisis but perhaps in a much more insightful way than any other. Dwelling on the interplay between economic policies and financial markets this book is difficult to put down once you realise the enormous promise it holds when you read the 12 pages of the 'Introduction' chapter. That promise is not belied although John Cassidy, the author, could have been clearer and more elaborate in the solutions he offers.
Cassidy refers to the idea that a free market economy is sturdy and well grounded as an "illusion of stability". He calls this "Utopian economics". This forms the first of three parts of his book and includes eight fascinating chapters on the people and ideas that shaped it.
This section of the book first lays out in great detail how economic theories and economists came about to have a large sphere of influence in central banks' monetary policy matters and governments' economic policies. It describes how the "Chicago School" of economics, propagating free market economy with almost zero regulations, ended up enormously broadening their sphere of influence in the top echelons of the US Federal Reserve and the Treasury department of the US government. What follows is an excellent exposition of 10-12 most-influential economists including Adam Smith, John Keynes, Milton Friedman, Robert Lucas and Friedrich Von Hayek, as well as a couple of mathematicians such as Eugene Fama.
Taking the reader back and forth in time, Cassidy beautifully connects the conservative economists with the "neo" liberalists, mathematics with economics, and evangelist-led economic theories with existing practices in financial markets and governmental regulations.
The second part of Cassidy's book has him propagating "reality-based" economics. Cassidy believes that free market economists dangerously ignore the very possibility of speculative bubbles, leave alone the fact that market prices during a speculative bubble provide incentives for individuals and companies to "act in ways that are individually rational but immensely damaging to themselves and others". He even gives examples of market failures beyond financial markets, such as markets encouraging "power companies to despoil the environment and cause global warming", health insurers excluding "sick people from coverage and CEOs stuffing "their own pockets at the expense of their stockholders."
The second part is as elaborate, articulate and insightful as the first. Cassidy puts forth the economics-linked issues of "the prisoner's dilemma", "the market for lemons", "the beauty contest", "the rational herd" and "ponzi finance". Like in the first part Cassidy beautifully uses the works of important contributors to economics to illustrate their--and his own--arguments. For instance, on the subject of market externalities, Cassidy talks about a paper, presented at Harvard University in the mid-1980s by W. Brian Arthur, a applied mathematician from Northern Ireland, wherein Arthur argued that chance events and network effects can enable inferior technologies to beat out superior products and take over entire markets.
Cassidy, however, fails to convince, why monopolies should be forced to co-operate with budding competitors. He talks about Microsoft refusing to make its products compatible with those of its rivals but does not rationalise why that is such a good thing in a competitive scenario and how much of sustainable benefits it will provide to consumers.
In the third and last part of the book Cassidy turns to the real-life happenings in financial markets and economies in the last 20-30 years and how they led to the complete financial meltdown in 2007 and 2008. This is again a very exciting read as Cassidy elaborately criticises Alan Greenspan's blind eye to the speculative bubbles in the real estate market, fanatic reduction of interest rates to artificially pump up the economy after the 'dot com' bust in 1999-2000, and dangerously preventing regulators such as Commodity Futures Trading Commission from laying out capital adequacy and risk-containment measures for complex financial products like credit default swaps and other complex financial derivatives.
Cassidy lays out in good detail the history of mortgages, including the sub-prime chain, and the bubble in real estate prices. There are rare insights into how the securitisation of mortgages by banks and Wall Street firms grew in size and led to extreme risks that ultimately exploded in the face of every financial market participant. He also points to the failure of capitalism in that tax payers money had to be used to bail out the failures in the market.
While Cassidy is great in describing what happened he is very weak in pointing out appropriate solutions in much detail. He does, however, says that free markets should not be devoid of active government intervention when prices are going up and building into a bubble. But Cassidy should have been more sharp and pointed out that if firms get too big to fail then they should be too big to succeed in the first place. Or, if free markets are to be allowed without restrictions, then any failures should also be allowed to happen freely without government bailouts. If profits are made by everyone during a bubble then losses can also be borne by everyone when the bubble bursts.
He also fails to highlight enough the dangers of uncontrolled leverage in not just financial derivatives but also in complex financial structured products whether traded directly between counterparties or traded on a financial exchange.
But, on the whole, the book is a great read.

[Lynn · Rating 2 out of 5]

While the book gives a broad history of economic thought and of the 2018 financial crisis, it is not without serious flaws. Personally, I also take issues with many elements of the efficient market theory, rational expectations, and general equilibrium theory (what the author termed "utopian economics"), but those are not the sole justifications for the free market. Most capitalists I know (many are investors and entrepreneurs) recognizes that the market is not always efficient. Stock market prices can deviate from their value for prolonged periods of the time, causing irrational bubbles and crashes (Benjamin Graham's analogy of the manic-depressive Mr. Market). Two parties on the opposite sides of the trade often have differing information or expectations (that's why they entered into it in the first place, that's an inherent feature of the market), perhaps the real issue with "information asymmetry" is the problem of fraud, which often can be resolved through market solutions that provide independent verification of the product/service, or through contract law within the legal system (for example, investors who bought "junk" from misguiding sellers should have legal recourse to sue). The price signal distortions resulting from the expansionary monetary policies by Alan Greenspan leading up to the 2008 financial crisis has been heavily criticized by many Austrian school economists (in the tradition of notably F.A. Hayek and Mises, whom the author seem to group together with Milton Friedman in the Chicago school).

The current debate is not over whether the market is always perfectly efficient at all times (straw man argument), but whether government failures would outweigh market failures. Private markets and public governments operate under very different incentive structures, would government solutions necessarily be superior to possible market solutions in the long run? In the context of the financial crisis, were government policies part of the problem that contributed to the crash in the first place? In addition to the economic arguments, a key element of governmental action often involved coercion, whether those can be justified to realize a better outcome on utilitarian grounds, at the expense of certain individual rights is also a subject of debate that was not addressed.

That said, I think there are valuable contributions by the market failure literature in assessing situations where the key elements of a functional market are lacking (tragedy of the commons is a good example mentioned in the book in relation to environmental policies). I hope the author was more balanced in addressing the market vs. government debate. After all, there are no shortages of "utopian policies" by governments throughout history - remember The Great Leap Forward?

[Bart · Rating 5 out of 5]

This is another excellent addition to a library of very good books that came about after the official end of free-market capitalism on 9/18/08.

The mathematics of economics are the most surprising part at the beginning of this book, and you get the sense that John Cassidy introduces them to show he's serious; he's read the texts, he's examined the models; he has a much better grasp on the subject than the average CNBC viewer.

His basic thesis is that the last 30 of years economics have been a waste. The entire discipline has been more interested in the elegance of its models than the accuracy of their predictions. Market fundamentalists, those zealots who worship Smith's "invisible hand" and Friedman's monetarism and Greenspan's certainty that everything will just be fine once we rid ourselves of the regulators, treat the catastrophic circumstances of September 2008 as a mere anomaly - and they have models to prove it!

But what good is a model that fails at the very moment it is needed most?

That is the rhetorical question that Cassidy's book asks over and again. Don't take my word for it. Here's part of the last page of How Markets Fail:

"Note the phrase 'the efficiency properties of market outcomes'! What do you suppose that refers to? Builders constructing homes for which there is no demand? Mortgage lenders foisting costly subprime loans on little old ladies of limited education? Wall Street banks leveraging up their equity capital by thirty or forty to one? The global economy entering its steepest downturn since the 1930s? Of course not. What Mankiw (Harvard professor of economics) was referring to was the textbook economics that he an others have been teaching for decades: the economics of Adam Smith, Leon Walras, and Milton Friedman. In the world of utopian economics, the latest crisis of capitalism is always a blip."

This book works because it goes right at the sacrosanct models for which Nobel prizes have been foolishly awarded. It makes combat with the economists according to their own rules of engagement. Then it beats the hell out of them.

[thewestchestarian · Rating 3 out of 5]

“How Markets Fail” or what I learned whilst getting my economics degree. While billed as an explanatory review of the ongoing economic correction that began when the housing bubble began to seriously leak in 2006, John Cassidy’s book can be better understood as a somewhat in-depth treatise of economic thought from the late 1700’s to the day Bear Sterns died. Cassidy spends much of the book trotting out graduate school level depictions of all the economic biggies from Adam Smith to John Maynard Keynes to Alan Greenspan. After the opening sections of the book spent straight-forwardly introducing the luminaries, there is a long section where the author beats up on the ”let it be” Greenspan. To some degree Cassidy rightly takes The Maestro, who learned laissez faire economics at the feet of Ayn Rand, to task for failing to realize Smith’s ”invisible hand” of the market was effectively tied because market correcting mechanisms had become corrupted. In particularly, the credit rating agencies who would have tempered the excesses in another time were simply selling AAA designations. Standard & Poor’s, et. al., were hardly alone in jumping on the Titanic and it is this herding instinct that has and will continue to create massive bubbles unchecked in poorly regulated markets.

The book does a good job of name-checking far better authors that you should read instead – Dan Ariely, Nassim Taleb and particularly Kahneman and Tversky. Kahneman's latest book ( Thinking, Fast and Slow) presents a far more authoritative review of this material. Cassidy ends the book with the housing crash which crushed Lehman, Bear and Merrill largely from research mostly pulled from the Wall Street Journal. A number of other books, in particular Bethany McLean's All the Devils are Here: The Hidden History of the Financial Crisis present a far more gripping tale of this same material.

Cassidy's writing style suggests an academic leaning but he does not drift into excessively arcane language and keeps things relatively clear. The text is generally dry and the author doesn't invest it with a lot of emotion save for the sections attacking Greenspan whom he apparently feels betrayed by.

In short, a good, journeyman's review of ancient and modern economics but one eclipsed by other authors in this space.

[Russ · Rating 1 out of 5]

This is a political screed. That is unfortunate. The first part of the book offers Cliff Notes explanations of various economic theories. It is a fair presentation if any of the ideas are new to you. It is redundant if you're already familiar with the separate and competing theories. The next section becomes political - global warming, universal healthcare, environmental protection, etc. It becomes a full defense of Keynesian thought as currently practiced, not necessarily as believed by John Maynard Keynes. This part of the book becomes irritating in light of the bailouts of Wall Street, Fannie Mae, Freddie Mac, etc and the coming "trainwreck" of Obamacare not to mention the current scandals at the IRS. Unfortunately, it seems that current events debunk the author's supposition that more government involvement provides better outcomes. The last third gets less political in attempting to explain the stock market and housing bubbles since the Dot-com bubble. The author does not support any of his positions with facts or figures. This is an unsupported op-ed piece.

[Stetson · Rating 2 out of 5]

How Markets Fail by John Cassidy (as many others here on GR have described) is roughly a two-part book, where the first portion provides a summary of the history of market economics and then dives into an analysis of the 2008 housing market crash/credit crunch. The animating argument for the work is that the U.S. need to abandon the "utopian economics" of extreme laissez-faire capitalism and embrace "reality-based economics" where smart government regulations and monetary policy moderate boom-and-bust cycles and promote general stability in capital markets.

Although I am an aggressive champion of the free market, there are things to admire in Cassidy's work. First, he is eminently clear about the failures of centrally planned economies (i.e. communism, socialism, etc) and the immense power of markets to drive growth and flourishing. In short, he still is an advocate of capitalism (of course regardless of anyone's advocacy markets are going to persist anyhow). He is simply some flavor of neo-Keynesian. Second, Cassidy's historical summary of market economics (i.e. classical -> neo-classical -> Keynesianism -> Monetarism/neoliberalism) and criticisms of various assumptions of free market models (e.g. perfect information, many small firms, rationality) were reasonable and partially persuasive. Though, these criticisms are completely familiar to most people with some amount of college-level exposure to economics, but at least Cassidy does a reasonable job of detailing these situations. Cassidy presents a lot of the textbook examples of "market failure," including the tragedy of the commons (overfishing of public waters), the prisoner's dilemma (i.e. imperfect information and destructive incentives), and network externalities (e.g. Microsoft Word). Overall, it is useful that How Markets Fail contributes to popularizing more sophisticated understandings of economics that one will usually find in mainstream public discourse today.

How Markets Fail is also beset by several important flaws, which outpace its bright spots. The largest flaw appears to be a generalized overconfidence in the ability of government to effectively and efficiently regulate financial markets (Cassidy's criticism are mostly focused on financial markets). Cassidy doesn't detail the long history of regulatory failures and blunders (e.g. price controls, rent-seeking, zoning laws, sludge, crowding out, corruption, waste). There is no discussion of the morass of incentives that face public officials and bureaucrats (i.e. public choice theory) and how they may guide policy. He also flippantly dismisses the role policy itself played in the 2008 financial crisis (i.e. the spike in home purchasing relative to historical norms wasn't the doing of private economic choices alone). Despite Cassidy's recommendations, which are minimal and relatively vague, it is unclear he could provide a persuasive narrative for how the crisis could have been averted. It would just be ***hand-waving*** Glass-Steagall Act ***hand-waving*** Alan Greenspan ***hand-waving***.

Cassidy's work also completely lacks a discussion about what generates real productive growth in the economy. This is a huge omission, which I worry was intentional. I'm concerned that Cassidy chose to avoid this because it would compel a discussion of the trade off between stability and innovation/growth. Put overly simply, we can have a stable economy that doesn't really grow or we can have a dynamic economy that can explode in any direction. Cassidy decidedly chooses the former and much of American policy over the 20th and 21st century has steered us in that direction. However, Cassidy owes his audience a full discussion of what this means. Hint, there will be a lot more lose-win situations to navigate than win-win situations, which I think bodes less well for social tranquility and overall flourishing.

Of course, maybe it is too much to expect a serious but popular work of economics with an agenda to provide more sophistication and balance and to steelman arguments that conflict with the author's ostensible prior beliefs. But Cassidy's ideas should be subject to the same intense scrutiny he applies to the ideas of classical, neoclassical, neoliberal, Chicago school thinkers. This is a test his book fails.

[Quang Hưng · Rating 4 out of 5]

A pleasant academic book to read. If there is a second name for this book, it will be how “free” markets fail.
I particularly like the first two parts of the book.
They effectively revise and summarize all of the key economic theories that we’ve learnt during university. Actually the content is more than just a general revision, it allows me to connect bits and pieces of knowledge together to form a more solidified understanding on the economics foundation.
Unfortunately, by the time I had the chance to read this book, it has already been published for 11 years since the first edition, so most of ‘Part III’ has become common knowledge. However, this is still an excellent book as its overall content remains to be relevant in today’s times despite being published for quite a while.

[Sourya Pal · Rating 4 out of 5]

“Few ideas offer more appeal than a model that is simple, elegant and wrong” , John Cassidy quotes Ben Friedman, the Professor of Political Economy at Harvard University, towards the end of the book.

How Markets Fail is a book on the history of economic thought, with the book divided into three sections – Conservative Economics, Keynesian and Neo-Keynesian Economics (which Cassidy calls Reality-Based economics), and the Financial Crisis. Cassidy goes to great lengths to show the disconnect that exists between the complex mathematics used to predict the future of the economies and how the economies and the markets actually operate. Using the events leading up to the Great Recession of 2007-08, and the steps that were taken in the aftermath of the financial crisis, Cassidy reasons that the assumptions which act as pillars for the laws of Free-Market economics don’t hold at all times (especially not at times of crisis), and argues for greater regulation and oversight, and less dependence on the laissez-faire principles of markets being able to correct themselves.

This book took me eighteen months to read, and I was able to finish an MBA in that time-period. Although written for the average person interested in economics (Cassidy is no economist himself), several complex concepts (Hayek’s price signaling, Negative Externalities, Prisoner’s dilemma and Rational Irrationality) are discussed in the book with a fair amount of depth. Without going into the mathematical details of the concepts, Cassidy is able to present the big-picture view of the ideas, and how they manifest in the different schools of thought.

Cassidy’s personal views on fiscal policies and market operations are all too visible in the narrative, and his scathing comments Alan Greenspan and Ben Bernanke are well visible. However, it would be unfair to say that the views portrayed in the book are one-sided, as counterpoints are presented quite frequently. Cassidy’s core argument is just that – there is no one answer to how the markets operate and how they need to be monitored, there is no one theory which should say whether everything is okay. He advocates a case-by-case monitoring of financial situations, and greater emphasis on financial stability.

How Markets Fail was an excellent read, and is highly recommended to anyone interested in learning about the history of economics and how they fit into the reality of the Great Recession. On a personal level, this book will always be important for having kindled the love of economics in me.

[Mehrsa · Rating 5 out of 5]

I am going to assign this to all my students as required reading. Really basic explanation of financial crisis, but more importantly, it spans out and shows how we got here ideologically. Fantastic book.

[Ben · Rating 4 out of 5]

I really enjoyed this book.

I have been on a stint of financial crash and economics books, and this one was spectacular.

I enjoyed this book much more than Crashed: How a Decade of Financial Crises Changed the World

Also, a very timely read, even though it is like 10 years old.

Would recommend!

4.1/5

[JS Found · Rating 5 out of 5]

I am glad I did not major in economics. Four, six or eight years of economics study and I would have been taught erroneous information like the efficiency of the invisible hand and equilibrium theory. This book is about a major blindspot economists had: the theory that the market would work all the time, making everyone prosperous. When the Great Recession hit, this turned out to be not the case. Cassidy not only gives an engaging and informed history of the that calamity but guides us through an intellectual, theoretical and realistic study of modern economics. Where the theories that were used and ignored leading up the Great Recession came from. An explication of "free market economics" starting with the founder, Adam Smith, onwards to the 20th century with Hayek and Milton Friedman. And then the revolution we all ignored in the past couple of decades: the work o f J.M Keynes. Who is still not being listened to as nothing recently on Wall Street has changed; free market economics is still with us, and we are waiting for the next disaster.

[Tiffany Conner · Rating 4 out of 5]

This is officially the fourth book I've read about the market crises of 2008. I can probably tell you more about CDOS, ABS, MBS, and CDSs than you'd ever want to know and I'm not even an economics major. This particular book is a fantastic, insightful examination of the general, underlying theories of the efficient market hypothesis and how they have failed on many, many levels as was evidenced by the events of the last few years. Cassidy's writing is accessible, but not dumbed down.

[Randa Allam · Rating 5 out of 5]

Brilliant analysis of how we stick to limited theories(Utopian Economics) and repeat our mistakes ... we should allow ourselves to research and study all different Economic theories.

[Lucy · Rating 3 out of 5]

How Markets Fail is really two books in one: the first half is a solid comprehensive tour of macroeconomic theory from Adam Smith through Alan Greenspan (including game theory!); the second half is a subpar account of the making of the Great Recession. If you want to learn what happened in the Great Recession, skip this book.

I've never bothered to learn much if any Economics, so I learned a lot from the first section. Honestly, with everything I've read, it's hard not to think that Economics as a discipline is pretty much trash, more interested in fantasy worlds built on false axioms than in the messiness of our immediate world. I took some notes while reading so my goldfish brain won't immediately forget everything.

Adam Smith: 1776 Wealth of Nations. Specialization increases productivity. Move away from medieval economy (feudal privileges, restrictive labor guilds, government-imposed local monopolies, hostile attitudes towards moneylenders) toward laissez faire free market. The invisible hand of the market will make sure that all 34184709 market participants will correctly set prices and lead to the most efficient outcome.

John Stuart Mill and other Classical economists: believed that government had a duty to protect the public from financial swindles and speculative panics, esp. as caused by the financial system recklessly lending money to speculators. Victorian England ended welfare for the poor and abolished tariffs on imported corn.

Jeremy Bentham and other Utilitarians: government should maximize total utility. (Objection: how do we define 'utility'?).

Then, the Great Depression happens and everyone is ready to jettison the idea that laissez-faire is good. The idea that financial markets are rational and self-correcting has only been around for 40 years!

Macroeconomics: born as a distinct field in the 1940s by Keynes, who in order to solve the "paradox of thrift" (i.e. that if everyone saves more, firms will cut production and lay off workers, decreasing total savings), focused on aggregate (macro) concepts, such as economy-wide levels of consumption, investment, and government spending.

John Maynard Keynes: the only way to prevent mass unemployment (esp in the Great Depression) is for the government to invest heavily in public works and other projects, thereby managing the total demand in the economy.

Joseph Schumpeter: 1942 argued that capitalism itself was doomed and bureaucracy was its replacement.

Chicago school (1940s):

Friedrich Hayek: studied business cycles; found that slumps are the inevitable result of prior booms, and restore the balance between savings and investment (most British historians dismissed this theory of the business cycle because it couldn't help end the Depression). Described the market as a "system of telecommunications" that transmit a lot of info in prices. Declared market restrictions as akin to totalitarianism and was hailed as a visionary in the US. A 1974 Nobel Prize gave rise to political influence, esp. from Margaret Thatcher in the UK.

Leon Walras: (1876) began by studying a simple economy with 2 producers of 2 goods to suggest that the "marginal condition" determines how much of each good will be produced and at what price. Generalizing to the full economy produces a massive web of simultaneous equations, which should be solvable to yield a "general equilibrium," i.e. there should be a stable set of prices for the entire economy.

Vilfredo Pareto: (1906) a "Pareto improvement" is one in which at least 1 person is strictly better off while 0 people are strictly worse off. A "Pareto efficient" state is one in which every single change away will cause at least 1 person to be strictly worse off (i.e. a local maximum for utility). Objection: Pareto efficient can be wildly unequal / unjust.

First fundamental theorem of welfare economics: every free market outcome is Pareto-efficient.

Market socialism: state ownership of industry, market determination of prices, and more equitably distributed economic surpluses (by the state). The idea is to combine efficiency and equity, since capitalism causes inequality and recessions. Biggest proponents included Abba Lerner (firms should set prices to only cover "marginal costs" of production) and Oskar Lange (factories should operate as cheaply as possible while still breaking even).

Cowles Commission: mathematicians, statisticians, and natural scientists who thought of economics as interesting technical problems to be solved. However, made a whole bunch of unnatural assumptions.

John von Neumann: 1937 paper focusing on production (not consumption) and assuming constant rate of economic expansion, came up with a system of equations with guaranteed nonnegative solution (towards general equilibrium).

Kenneth Arrow: Arrow's impossibility theorem: it isn't possible to construct a "social" ordering of all economic possibilities given individual preferences. Proved rigorously that all competitive equilibriums are Pareto-efficient (1950).

Second fundamental theorem of welfare economics: with appropriate government redistribution of resources, a society can select any Pareto-efficient solution (and free market will generate the requisite prices). In theory, there is nothing preventing an economy from achieving a "bliss point."

Arrow-Debreau: 1952 paper used convex sets, game theory etc to prove the existence of a general equilibrium. However, made unrealistic assumptions (i.e. you can schedule delivery of a good at any point in the future; people don't spend more than half of their incomes; ignored economies of scale and other barriers of entry to production).

Robert Lucas: extended the efficient market approach to the entire economy. Theorized that Arrow's general equilibrium was unique and stable, with the assumptions of the "rational expectations hypothesis," i.e. that all people have perfect information, can correctly calculate expectations, and make rational decisions. In a Lucasian economy, unemployment is a matter of choice.

Efficient Market Hypothesis (1965): Eugene Fama (a student of Friedman); says that financial markets always generate the correct prices and take into account all available information
- "random walk" theory of finance: first written by Bachelier (a French mathematician) in 1900, and later popularized by Malkiel (a Princeton economist) in his book "A Random Walk Down Wall Street" (1973), which made index funds more popular.
- CAPM model (Markowitz)
- Black-Scholes option pricing

Benoit Mandlebrot: 2004 book "The Misbehavior of Markets" argues that financial price changes are not normally distributed, but have "fat tails." Further, daily changes are not independent of each other, as there exists "volatility clustering."

Milton Friedman: did the most out of anyone to resurrect laissez-faire ideas; in 4 major ideas:
(1) championed individual measures (e.g. reducing taxes, or deregulating industries);
(2) provided a revisionist explanation of the Great Depression, as one of government failure rather than market failure;
(3) strongly linked the ideas of economic freedom and political freedom -- to the extent of promoting economic freedom as an end in itself;
(4) criticized Keynesian demand management and instead promoted his own policy framework of monetarism, the idea that targeting the money supply would keep inflation in check and maintain economic stability. Friedman had good timing in that the stagflation of the 1970s discredited the Keynesian approach.

Real World Test Cases of Rational Expectations Macroeconomics:

1979-1982 Paul Volcker, Fed chairman, attempted to eradicate inflation by restricting the growth of the money supply. Theory suggested that workers would anticipate a large drop in economy and accordingly decrease wage demands, which would allow the economy to jump immediately to a new low-inflation equilibrium, without much of a change in output or unemployment. Instead, the economy plunged into deep recession (as predicted by Keynesian models), with short-term interest rates jumping from 10% to 19% and unemployment rising to 9.5%.

[Brian Yahn · Rating 4 out of 5]

How Markets Fail is an enlightening and easily digestible view into how financial markets work.

Like with Physics, we had Newton's Theory until we realized that was wrong, and then we had Einstein's Theory until we realized that didn't work in every case when we discovered Quantum Theory. Ever since, astrophysicists have been attempting to come up with a theory of everything.

In the economy, we had Laissez Faire and the Efficient Market Hypothesis, and then we had Keynes and the idea of business cycles and Game Theory, and recently Kahneman and Tversky brought us Behavioral Economics.

In the first two parts of the book, John Cassidy beautifully covers these ideas and the political backdrops that lead to them becoming popularized. He illustrates how most of these ideas can work or fail in different types of markets.

Finally, in part three, Cassidy spells out the surprising rationality behind the Subprime Mortgage Crisis and why it's likely to happen again.

It's a completely fascinating read!

[Michal Lipták · Rating 3 out of 5]

Great overview of evolution of free-market ideologies, but I'm not sold on Cassidy's view of history of economics as shaped primarily by ideas - which some Marxists would call "political determinism" - which at times takes a cartoonish shape where Greenspan appears as ultimate villain. Cassidy tries to mitigate this ideological approach in the conclusion, but it's too little too late. Still, it's very fine book (dated only to the degree that after decisive Fed's intervention in late 2008, Cassidy sees financial crisis as practically over - but one can easily separate this conclusion from his earlier presentation and criticism, which nonetheless should have guarded him against such complacency), but you'll do better to balance it with some "materialist" approach, like Kliman's Failure of Capitalist Production.

[Paul Eckert · Rating 4 out of 5]

Every once in awhile, a book comes along and changes the way you think. John Cassidy’s How Markets Fail is one of those books.

Though I stake no claims in the American political partisan system, I have always believed in the free market. It’s what I was taught in college. Other theories and models of our economy were presented, but usually as an historical context, as if to say “These models worked sometimes, but now they have been discredited.” In other words, the free market model was God, and the Invisible Hand was the holy spirit. While everyone worked in their own self-interest, they were also producing the best possible outcome for everyone. It just made sense, and it seemed to work in everyday life.

Thanks to the sub-prime mortgage crisis of 2007 and the recent housing bubble, we now know better. Everyone involved acted in their own self-interest, just like the free market hypothesis prescribed. The government encouraged the public to buy houses, the Federal Reserve kept the interest rate super low, people who couldn’t afford to purchase a house were suddenly offered low interest rate loans by banks, the banks hedged their risks by selling off their loans to be securitized, shifting the risk elsewhere, and financial institutions jumped on the credit default swap and residential mortgage backed security markets and made a ton of money. The only problem was, whenever each of these entities failed in their obligations, it affected not just themselves, but the whole economy. The pursuit of self-interest did not produce the best solution.

In How Markets Fail, Cassidy provides a detailed account of how free market ideology came to reign supreme, and how it transformed beyond economic theory into the realm of political ideology. We see this transformation through economists from Adam Smith to contemporary apostles of the free market, namely Alan Greenspan and Milton Friedman. The idea that free market capitalism has become so embedded in our political dialogue is particularly striking and timely, especially given the recent inane partisanship and rhetoric thrown around during the presidency of Barack Obama. Those that claim that government intervention is socialist and communist by default might want to read their Adam Smith a little closer. In fact, in certain cases, Smith actually favored government regulation.

Cassidy characterizes Greenspan-eque capitalism as “utopian economics” and presents as the alternative “reality-based economics”. Unlike utopian economics, reality-based economics has no hard and fast dictums or clever metaphors. Instead, it is based upon trying to figure out how free market economics can operate without falling into moral hazard, and when government could provide part of the solution. Essentially, it does not rule out other theorems by definition.

The last part of the book uses the history and theory that is discussed in the first three-fourths of the book to explain the housing bubble and sub-prime mortgage crisis of 2007. Cassidy uses the financial industry (and the government) as examples of how free markets can fail miserably. He uses the prisoner’s dilemma as a particularly striking example to show how the big players in the financial industry, working in their own self-interest, produced awful results because of the degree of industry-wide risk that was assumed and the failure that led to government lending billions of dollars to an industry that was supposed to be “too big to fail”.

What really struck me about this book was that too often, when something works as well as free market capitalism, we are quick to accept that is applicable in all areas of our social system, whether in the economy of politics. However, before accepting something blindly as The Truth to End All Truths, we should do as John Cassidy has done here and examine the history of our ideas. By doing this, we are able to learn the truths about our ideals, the good and the bad, and we can obtain a more inclusive knowledge without all the filters that may have been added over the years.

I listened to this book on audiobook, which sometimes proved to be difficult. The reader was good, and the writing was good, but often I found myself rewinding in order to fully grasp the technical information being discussed. It was definitely worth listening to on audiobook, but having a print copy would have been nice in order to underline and highlight informative passages. I will definitely be listening to this book again so that I can absorb the material that much better.

The only reason I didn’t give this book five stars is that I would have preferred examples of how capitalism and the free market work (or don’t work) in other countries, and what lessons can be learned from them. But as it is, How Markets Fail proves its point quite well: the idea of purely free market capitalism is a pipe dream and has been proven to fail, in turn necessitating government intervention. The quicker we accept this, the quicker we can put aside our outdated fears of government and begin a serious discussion about the best way to handle our current problems.

Recommended for those that have a intermediate understanding of economic basics and enjoy well illustrated reasoning.

[Giovanni Arellano · Rating 4 out of 5]

Great insight of the reckless money hunger of US banks and the unbelievable immunity of this corporation to any kind of punishment.
It was a little bit focused on the US market, but was a great view on how the world economy is strictly married with Wall Street

[George Bradford · Rating 4 out of 5]

This brilliant book explains our economic collapse. In painstaking detail John Cassidy articulates the history of economic thought, academic theories, marketplace realities and government failures that lead to the financial disasters of 2007 - 2009 (and continue to cripple our economy). Anyone interested in how we got into this mess should read "How Markets Fail" by John Cassidy.

It is not an easy read. The author does an excellent job of simplifying economic theories and financial models. But he does not oversimplify them. And I frequently had to re-read entire paragraphs in order to understand the idea he was explaining. (Disclaimer: This probably says more about me as a reader than it does about the author's writing.) But it was worth the effort.

The book is divided into three sections.

In section one, "Utopian Economics", Cassidy details the history of 'free market' economic thought. He surveys the most-influential economists including Adam Smith, John Keynes, Milton Friedman, Robert Lucas and Friedrich Von Hayek, as well as a couple of mathematicians such as Eugene Fama. And he explains how 'free market' economic theories and economists influenced central banks' monetary practices and governments' economic policies. Cassidy describes how the "Chicago School" of economics, advocating a 'free market' economy with almost zero regulations, ended up in the top echelons of the US Federal Reserve and the Treasury department of the US government. This section alone makes the book worth reading. And I'm sure I'll refer back to it in the future.

In section two, "Reality Based Economics", Cassidy introduces economists who criticize the 'free market' fallacies and rebut the "Chicago School" ideology. The author uses the works of important contributors to economics (including, but not limited to, game theorists John von Neumann and John Nash, economists Hyman Minsky, Richard Thaler and Daniel Kahneman, and psychologist Amos Tversky) to explain economic concepts of "the prisoner's dilemma", "the market for lemons", "the beauty contest", "the rational herd" and "ponzi finance". Cassidy shows how these concepts explain historical economic trends and events. In doing so, the author thoroughly discredits Milton Freedman and Alan Greenspan. And Hyman Minsky (who built on the works of Smith and Keynes) emerges as perhaps the most prescient economist of the 20th Century.

In section three, "The Great Crunch", Cassidy explains in excruciating detail how the economic road to ruin was paved over the last 30 years. The ideas, decisions and practices that lead to the dot.com crash of 1999-2000, the sub-prime crash of 2007 and the complete financial meltdown of 2008 are all laid bare. The responsible academics, policy makers, regulators and market participants are identified and indicted. And the economic disaster we currently find ourselves in is explained.

One of the many highlights of this book is how it explains that the "choice" between a "free market" and "socialism" is false. Cassidy advocates trans-formative change (not small alterations around the edges). But he is no socialist. And he rejects the false dogmatic "choice" governments pretend exists. On this point, Cassidy advocates for what the works of Adam Smith, John Keynes and Hyman Minsky suggest: The credit market is a social utility that needs tight government regulation to prevent the types of economic disasters we've experienced since 1999.

"How Markets Fail" is certainly not a "light" read. It's full of important ideas, complex theories and historical data. Reading it feels like taking a university level seminar on economics. I often found it difficult work. But if you are interested in learning how we got into the economic mess we are in (and how we might get out of it) "How Markets Fail" by John Cassidy is a good read.

[Andrew · Rating 5 out of 5]

How Market's Fail: The Logic of Economic Calamities, by John Cassidy, is a book about market failure. Cassidy does a wonderful job chronicling the systemic risk and systemic failures inherent in the modern economic systems that dominate the Western world, with particular focus on the 2008 credit crunch. However, this is not just another account of the 2008 recession, as Cassidy details both the theoretical cracks and the factual errors both in the market system as a whole, and among the big investment firms and banks on Wall Street, respectively.

The book details economic wisdom from Hayek and Keynes, to Minsky and Greenspan, with the logical assumptions behind each Economists theories, and the critiques offered by subsequent economic theorists. This becomes particularly fascinating as Cassidy ties each fallacy into the 2008 crises. Bankers who are aware of the Prisoners Dilemma and game theory, for example, but still ride the sub-prime mortgage bubble is just one fascinating example.

How Markets Fail does have a very strong bias toward Keynesian economics, with the author advocating for a strong government policy framework and oversight in the equity market, as well as a powerful Federal Reserve bank to cushion the market when times are rough. Even so, his arguments are authoritative and interesting. Cassidy offers critical insight into the world of economics, and the fallacy of what he calls "Utopian economics" or the belief that a self regulating market is the best answer to dealing with market failure. Indeed, he argues that a self regulating system is precisely the problem that ended in the 2008 financial crisis. Cassidy's thesis seems to be that the best way to run an economy lies somewhere in between Laissez-faire and government control, but has little time or patience for either extreme.

This was an excellent read on poor economic decisions, greed and ineptitude at the market level can have a massive impact on the entire macro-system. Cassidy writes an excellent book on market failures and the systemic issues that cause them to happen. He delves into both economic theory and reality to give the reader insight into the 2008 recession. This is not a book to read if you are looking to point the finger at one individual firm or one part of the system. Rather, it shows that the sum of all parts often comes up short of what was expected, and that this shortfall can lead to some serious issues for a nations economy. This was an awesome read, and I would highly recommend it.

[Badri · Rating 4 out of 5]

This is a lengthy book trying to generalize market failures. It is very informative : lots of 20th century history of economics is chronicled - Keynes, Minsky, Friedman and the Chicago school, Greenspan, what not. Of course, the goal is to explain the most recent financial market crisis. There is a brief description of the climax in fall 2008, but "The End of Wall Street" by Roger Lowenstein does a very thorough job of documenting that.

Cassidy's main argument is that free markets left to themselves (Adam Smith's "invisible hand") don't always work. What is perfectly rational from an individual’s point of view can result in a calamity for the market as a whole. The kicker is, the players (CEOs of financial firms, for instance) are forced to make such choices even if they recognize this peril. Prisonner’s Dilemma, basically. He calls this rational irrationality. That, and other issues like hidden information and bad incentives will always lead free markets to booms and busts, as Minsky pointed out.

Cassidy places a lot of the blame for the financial crisis of 2008-09 squarely on Alan Greenspan and his laissez faire (Ayn Rand) ideology. He dubs such faith in free markets as professed by the Chicago school (Friedman, et al) as “utopian economics”. Keynes, Minsky, et al, on the other hand are in the “reality based economics” gang.

As a history lesson on the economics of 20th century, this is a great read. The author being a journalist with background in economics helps. As a source for solutions to these issues, this book is a bit dubious - too much faith is put on governments to do the right thing.

[The Angry Lawn Gnome · Rating 3 out of 5]

Bowing and scraping before the altar of orthodox Keynesianism to an embarassing degree does not make you wrong. Nor does it make you right. It simply makes you irritating. Especially when the facts muddy your nifty theory, as when the author ignores several commentators who ALSO predicted a housing bubble and who think Keynesian economics is nothing but nonsense. (Peter Schiff, anyone? Michael Shedlock?) His work lost a LOT of credibility, at least in my eyes, by making an oversight I can only consider intentional. As both Schiff and Shedlock were all over the media predicting gloom and doom.

Pity he also didn't name names to the flip-side of Keynesianism, as with those surpluses governments are supposed to run when times are good. Which politician has ever done that again? (And, no, Bill Clinton didn't, despite the fairy tales spouted at HuffPo, etc.)

Okay, now that I've hacked up those hairballs, "Part 3" was superbly written and researched. Cassidy managed to capture Greenspan as both a deer in the headlights about how the crisis hit while still managing to (mostly) deny that any of it had anything to do with him. Also, a very solid job describing the creation of MBS's of all stripes, though he probably should have had more to say about AIG.

Please note that I am hardly offering any sort of defense for the administration of GWB, simply noting that there's a lot more out there than this book mentions.

[Anugerah Erlaut · Rating 2 out of 5]

The book starts by introducing the history of economic thoughts. Several names were referred to explain the journey of the economic thought we have today. In the beginning, it was easy to keep tab of the relation between the thoughts and names. With each turn of the page though, it becomes harder and harder.

Once one has passed the thick jungle of names and ideas, the book starts to explain the flaws in the current thoughts in economy. This includes introducing the famous game theory, and terms rational irrationality. Concepts introduced in will later be revisited as the author unfolds what goes on behind the market collapse.

After the lengthy introduction, comes the most interesting part; a narrative of the financial market collapse. For most readers who are not familiar to the financial world and common financial concepts in America (including me), this part may seem daunting in the beginning. Persevering through is rewarding though, as the mystery of the decade lays behind the final pages.

All in all, it was a rewarding read. The writer had tried to squeeze as much information into the book as possible, catering to those of us who are not familiar with the world of economy. When I borrowed the book from my friend, I was warned that the book was really daunting to read. He has not yet finished reading the book. I agree with him, but I chose to persevere. Slow but surely, I finished it :)

[David · Rating 4 out of 5]

The first half of the book is a fairly detailed historic review of economic theory relating to perspectives of lassie faire vs. intervention economics. He puts efficient market hypothesis under the microscope. He then lays out the series of events of the last economic debacle, concluding the EMH was proven wrong. He goes on to make a strong case that government intervention was essential, stating that even most conservatives with an understanding of economics would recognize that some level of government involvement was needed and save us from a full scale currency collapse (good luck with that). He places much of the blame for the Great Recession in the lap of Greenspan, where I concur some (but not all) of it rightly belongs. He then winds up the book expressing the value of regulation and an active government involvement in the economy—although not with specifics about degree. I thought Cassidy did an impressive job. Although he’s a journalist, not a trained economist, he went beyond pop economics, showing a good command of economic knowledge and a skillful analysis of facts, theory, and events to make a case that in many instances is hard, although not impossible, to refute.

[Andy · Rating 3 out of 5]

If you know nothing at all about economics or the 2008 crash, then you will get a lot of useful information out of this book.

I found it to be very tedious. Establishing that classical economics/efficient market theory is nonsense should not take multiple chapters. The author does do a good job toward the end of laying out the evidence for the culpability of Big Finance in creating the subprime meltdown. But it took too long to get to this part and the amount of detail was so great that the forest is somewhat lost for the trees.

A reader wanting the history of economics or an understanding of crashes may be better served by the following.

[Ruth Charchian · Rating 4 out of 5]

Great book. Well researched and historical describing how our free market economic policies have lead us through generations of bubbles, crisis, and other financial crisis. He reviews Adam Smith, Hayek, Milton Friedman and others. Cassidy is a journalist and economist who writes for the New Yorker. He contends that economics has evolved into an almost pure quantitative field that fails to consider how out of touch with reality the field has become. Flawed markets do not always generate good outcomes. (No kidding.) Individuals are not rational. Markets are not stable and predictable. (Again no kidding.) He blames Greenspan for the housing bubble because he kept interest rates too low too long encouraging over buying and because he believed the mortgage market was self regulating. He promotes Hyman Minsky's reality/behaviorial economic theory that the markets are inherently unstable and promote busts and bubbles. He believes as did Keynes and others that markets cannot regulate themselves and need to have government oversight.

[Prasanna · Rating 4 out of 5]

I started reading this a while back as an audiobook almost on a whim on a particularly bad traffic day on I-90. I'm finally done and I think I got what I was expecting to get out of the book. Perhaps my biases on economic philosophies line up with the author's, it was very interesting. I'd recommend this book as a way to get a broad view on the various school of economics. Broadly speaking, the first part of the book talks about what the author calls "Utopian view of Economics" and builds up the mathematical economics (or the Chicago school of Economics -- at least highly influenced by it). The second part advocates the Behavioral economics. The author believes that the inaccurate models designed for naive views of the world that get applied without the consideration of consequences are what are the core of why the markets failed in 2008 (and 1929, 1987 to a lesser degree).

Definitely a good read if you want to get an overview of the world of Economics without spending years learning it firsthand.

[Ram Kaushik · Rating 4 out of 5]

An excellently written economic history detailing the rise and fall of laissez-faire thinking. John Cassidy is a brilliant economic journalist and in the first part of this book, he traces the intellectual roots of "utopian economics" from Adam Smith through Friedman & Lucas. The second part of the book details the rise of reality-based economics with developments in behavioral economics and data-based study of economic crises. The third and final part describes the 2008 financial crisis and how Keynes went from pariah to hero again, along with practical demonstrations of why the entire financial world rides on fragile assumptions of value and psychology. Regulation of markets still is woefully inadequate, and future boom-bust cycles seem inevitable.

One criticism of the book may be that the connections between the three parts (along with the preface and epilogue) seem a bit disjointed.

Still, one of the better written economic history books I have read, recommended!