Books like How Markets Fail: The Logic of Economic Calamities

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.