How Markets Fail

Just finished a very informative, enlightening book called "How Markets Fail" by John Cassidy. This book traced economic principles from the time of John Stuart Mill and Adam Smith as they developed to create the atmosphere that resulted in the great collapse & bubble burst that started in 2007 and continues to today.

Cassidy is highly critical of Utopian Economics, the influence of the teachings from the University of Chicago School of Economics and the policies that resulted & were implemented by the "Maestro" Alan Greenspan.

Principles such as game theory, rational irrationality, invisible hand, prisoner's dilemma, myopic behavior, excessive risk taking and opacity vs. transparency were all part of the narrative. Very educational, very interesting but a challenging read.

Cassidy's conclusions were that we should be pursuing a robust financial system not by seeking the most advanced but rather by implementing the most reliable methods. He proposes a blend of the free-market and reasonable government regulation. He asserts that there are places where the government is required and best placed to monitor the market influences that could run amok should pure self interest be allowed full reign.

The final message of this book is that Utopian Economics must be replaced with reality-based economics. However, he was not all that hopeful that this could occur as traditional economic training is counter-productive for such a result. Academics are most comfortable with their mathematical models and are ill equipped to teach the reality based lessons that must be understood for the growth of practical economics. As a result his prediction is that we are destined to not learn from history but rather it will be repeated. There will be new bubbles and more dire consequences in the future.

In fact, as I write this entry there are opinions being communicated that we are on the verge of another bubble even larger than that from which we have just emerged and that the consequences will be even graver than we are currently enduring. In fact the commentators at Business Week are calling it the Granddaddy of all Bubbles .