How Markets Fail: The Logic of Economic Calamities Epub



10 thoughts on “How Markets Fail: The Logic of Economic Calamities

  1. Szplug Szplug says:

    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 dra 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 , 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 berrational 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


  2. Katy Katy says:

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


  3. Rajesh Gajra Rajesh Gajra says:

    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 muchinsightful 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 a 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 muchinsightful 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 andelaborate 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 beensharp 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


  4. thewestchestarian thewestchestarian says:

    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 K 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 thelet it beGreenspan 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 sinvisible handof 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 farauthoritative 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 fargripping tale of this same materialCassidy 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 byIn short, a good, journeyman s review of ancient and modern economics but one eclipsed by other authors in this space


  5. Bart Bart says:

    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 wast 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 beeninterested 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


  6. Quang Hưng Quang Hưng says:

    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 isthan just a general revision, it allows me to connect bits and pieces of knowledge together to form asolidified understanding on the economics foundation.Unfortunately, by the time I had the cha 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 isthan just a general revision, it allows me to connect bits and pieces of knowledge together to form asolidified 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


  7. Sourya Pal Sourya Pal says:

    Few ideas offerappeal 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 thatFew ideas offerappeal 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


  8. Lynn Lynn says:

    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 pri 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 wasbalanced 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


  9. JS Found JS Found says:

    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 a 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


  10. Tiffany Conner Tiffany Conner says:

    This is officially the fourth book I ve read about the market crises of 2008 I can probably tell youabout 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.


Leave a Reply

Your email address will not be published. Required fields are marked *

How Markets Fail: The Logic of Economic Calamities [Reading] ➻ How Markets Fail: The Logic of Economic Calamities By John Cassidy – Natus-physiotherapy.co.uk How did we get to where we are John Cassidy shows that the roots of our most recent financial failure lie not with individuals, but with an idea the idea that markets are inherently rational He gives How did we get Fail: The Epub à to where we are John Cassidy shows that the roots of our most recent financial failure lie not with individuals, but with an idea the idea that markets are inherently rational How Markets PDF \ He gives us the big picture behind the financial headlines, tracing the rise and fall of free market ideology from Adam Smith to Milton Friedman and Alan Greenspan Full of wit, sense and, above all, a Markets Fail: The eBook ´ deeper understanding, How Markets Fail argues for the end of utopian economics, and the beginning of a pragmatic, reality based way of thinking.