"How Markets Fail" by John Cassidy is but one of a growing number of books attempting to explain both the world of finance and its underpinnings and the resulting collapse of the financial markets. The book is exceptionally well written and deals with all of the critical elements of what got us where we are today. Yet it is worth considering the many issues he discusses in light of other factors.
The book is divided into three parts as presented by the author in the first Chapter. Part I is a review of the classic economists and up to the present. Part II is the behavioral economists and their influence in understanding herd dynamics and stickiness in the market. Part II focuses on the current crisis.
Much of what is written is written well albeit with a strong political bent. For example just out of the box the author states on p. 9 in his introduction of Part I that "Markets encourage power companies to despoil the environment and cause global warming; health insurers to exclude sick people from coverage; computer makers to force customers to buy software programs they don't need; and CEOs to stuff their own pockets at the expense of their stockholders." Now if that quote does not set the stage for all to come nothing else will. It is clear that the author has a strong bias against the free market and denies any personal responsibilities on the part of the individuals. It is a restatement of the victimization approach to economics. He believes that the market, whatever that may be, makes the decision to dump polyphenols from a GE plant into the Hudson. In reality it was the management, the people in GE who did that, not the market. Yet, this theme that capitalism is the forcing function or deus ex machine for all the evils of mankind seems to continue throughout the book.
On p.11 he states that "The subprime boom represented a failure of capitalism in the presence of bounded cognition, uncertainty, hidden information, trend following and plentiful credit." That is in part true but it was the legislation and the regulatory environment that stimulated this process and yes the greed and outright dishonesty of many who participated. Greed and capitalism are not a one to one mapping. Greed has existed in every environment, suffice it to say that it is one of the seven deadly sins.
On p. 12 he calls the problem that Prince had at Citi as an example of the Prisoner's Dilemma. Frankly it was not even close in a game theoretic sense. It was Rubin along with Prince working with the residual of the Sandy Weill collection of companies in a highly leverage state in a financial downturn that most likely led to their downfall.
On pp 17-18 the author speaks towards the issue of having knowledge but not having the ability to conceive of the consequences. He uses Pearl Harbor as an example. Frankly there were many such examples of how this was anticipated ranging from the Navy's War Plan Orange to the well read book by Hector Bywater, The Great Pacific War, detailed in the 1920s the actual plan of the Japanese. In fact the Japanese planning organization actually use the Bywater plan in its own effort. The same types of issues could be said about the attack on 9/11, data was there but "management" was clueless. In fact the collapse of 2008-2009 was presaged by the same market and housing and banking collapse of 1987. Then we had a 25% one day drop in the DOW, a 20-25% drop in housing, and the S&L collapse. The difference was that then people held a reasonable amount of equity in their homes and 401Ks were not as prevalent. The Government took the actions to move from a risky position to a riskier one. Thus it was not the Market but the Government whose hands are dirty. Cassidy seems not to consider that.
On p 23 the author starts his use of Galbraithian dicta. This in and of itself sets the tone. Galbraith in his three books for public consumption on his view of economics, American Capitalism, The Affluent Society, and The New Industrial State, makes the assumption that the battle is between the poor defenseless consumer and the massive impenetrable corporations. It requires the use of "countervailing power" to balance the interests and that is where the need is for all benevolent and all knowing Government is seen as the arbiter of fairness and justice in such transactions. Per Galbraith and the author, the Market is both inefficient and lacks a Rawlsian justice in its allocation of what is produced.
On p. 38 the author details how Hayek was considered a "right wing nut" when he was a student at Oxford in the early 1980s. Well it was Oxford, what more need be said. Hayek's proposition that markets are aggregators of information was an essential and critical observation as was his understanding that centralized organizations had problems dealing with the division of knowledge (p. 41). In fact one need look no further than to an entrepreneurial company versus a large corporation to see the effect of this gross inefficiency of central planning, and the best example is the old Soviet economy, centrally planned, yet incapable of functioning.
On pp 63-68 the author has an interesting and lucid discussion of Arrow's welfare economics. One should remember that Arrow is the uncle of Larry Summers, now in the White House, and once the Treasury Secretary. This discussion is used as a justification of redistribution economics. Namely the basis of the distribution of wealth generated by some is definable by some hypothetical utility function which in turn holds across all people. This utility function has certain mathematical characteristics that are assumed to reflect reality. The net result is that markets, namely free markets, can generate what are termed efficient outcomes, and that efficiency and equity, again a Rawlsian justice schema, can be achieved. Arrow's analysis is just that, and analytical schema. The results are just as good as the assumptions, thus one should beware that the assumptions are just that, assumptions.
On p 65 the author gives a somewhat backhanded compliment to Johnnie von Neumann, a man who amongst those who know and understand his magnificent contributions consider him one with few if any equals. The author calls him "some sort of genius". He was a genius, not "some sort of". He was brilliant and a true polymath with seminal contributions across the spectra of human knowledge. The author then goes on to characterize von Neumann's life as "loquacious and virulently anti-communist, he drank heavily, told off color jokes, was married twice, and died of cancer..." One is amazed as to the cavalier and heavy handed characterization of the life of a person who has so great respect and has made so great a number of contributions. This one statement is a classic example in my opinion of the less than fair, equitable and knowledgeable writing on the part of the author.
On p 78 the author begins to take focus at Friedman and his monetary theory analysis. He states "Friedman liked to invoke the ancient "quantity theory of money" which many of his critics considered hopeless out of date" Frankly the Friedman theory of money was not ancient, it was an new innovation. In fact the theory of money in and of itself was less than ancient, for economists as such had been around at best in some form since the 1650s.
On p 81 the author begins his critique of Friedman and uses the example of the elimination of Federal regulators. That was actually the work of Alfred Kahn and was documented in his classic work, The Economics of Regulation. It was in the Carter Administration that the antitrust suits against AT&T and IBM were started and it was Asst Atty General Baxter under Reagan who dismissed one and settled the other. AT&T was a monopoly and it had a strangle hold on the US telecommunications business. The explosion of entrepreneurial spirit and innovation in telecommunications and the information age was the direct and immediate result of its splitting.
On p 91 the author speaks of the Black Scholes model. He states: "Some of the mathematics used in these theories is pretty befuddling which explains why there are so many physicists and mathematicians working on Wall Street..." Well let me set the author straight, these equations arose from engineers, from the likes of Norbert Wiener and Rudy Kalman, from Stratonovich in Russia and Ito in Japan, and from my book written in the late 1960s, Stochastic Systems and State Estimation. They were used to model and design estimation and control systems. As engineers, we frequently warned people about the limits of models and the concerns of instabilities. Black and Scholes appear to have taken little heed of those issues resulting most likely in the collapse of Long Term Capital Management. One should note that the "equations" which were the underpinnings of the Black Scholes model were also used by the engineers who designed the navigation and guidance systems for the Apollo space missions. But as ones used by engineers they had engineered into them safety margins to assure against the instabilities of real life. Unlike the engineered solutions of Apollo, the Black Scholes approach were used by bankers who ran them to the edge, to the edge of the envelope if you will, and thus these models when applied suffered from the smallest of perturbations and instabilities and thus collapsed.
On p 193 he infers that Volker was the architect of the 19% interest rates. Actually they were the legacy of Nixon and the collapse of gold, Ford and the total lack of confidence, and finally Carter and his gross mishandling of the economy and the final oil crisis. Volker inherited these and then righted them, albeit with high unemployment.
On p 115 the author introduces the Pigou Club of Mankiw at Harvard. Simply this is the group which says that you tax the thing you do not want to happen. This is the way the economist thinks. Rather than solving the problem, you tax it. An engineer would try to find a way to remedy it. The result is the engineer's approach is lower cost, social and otherwise. One should wonder why China's senior officials are mostly engineers whereas we in the US have mostly lawyers with economists in the shadows.
On pp 118-124 the author tackles the Coase approach to life. Coase looked simply at the problem of unintended consequences, their costs, and the remedies thereto. For example a railroad company has tracks and the grass adjacent to the tracks catches fire and burns the wheat of a farmer. The courts may allow a law suit to be filed and the jury may rule in favor of the farmer who gets paid for the damage. If however the farmer loses the suit he may get together with other farmers and then they may pay the railroad to fix the problem. Either way there is a "free market" solution to the problem, yet the costs may flow one way or the other. The author clearly dislikes Coase and his free market approach. He uses the aforementioned GE and Hudson River example. He then follows Coase with the obligatory Global Warming issue on pp 123-124.
On p 128-133 the author starts looking at antitrust issues. Antitrust laws were there to protect competition and not competitors. They were designed to protect the system not the incumbents. The author speaks of Baumol and his view that monopolies did not need to be exposed to competition but the threat of competition. It was Baumol along with Willig who developed the theorem of interconnection pricing, the Baumol-Willing Theorem, which was an ad hoc propiter hoc argument to sustain the AT&T monopoly by allowing the incumbent to collect a "tax" from the competition based upon the premise that AT&T had more customers and that in and of itself had value as some externality. This was in many ways at the heart of the failure of the 1996 Telecom Act whose goal was to allow competition to exist. The author again returns to Galbraith and his book, The New Industrial State, which claims that corporations are dominant controllers of the economy run by technocrats. It is ironic that at most half of the companies Galbraith cites are even in existence today. Their "power" did not keep them from going out of existence. The entrepreneurs, the true engines of growth in the economy, came along and redefined the business under their feet. Consider the telecommunications equipment manufacturers, there is now not a single one in the US, they are just gone. He states Galbraith's claim, "the initiative in deciding what is produced comes not from the sovereign producer, through the market, ... rather, it comes from the great producing organization which reaches forward to control the markets that it is presumed to serve and, beyond, to bend the consumer to its needs..." This was Galbraith's view, and it reflects a 1960's mentality. It however has clearly been shown to have been broken by the mass development of new entrepreneurial businesses, from Microsoft, Apple, and Google.
On p 130 he states, "Then there is high technology sector, where monopoly is endemic." That is clearly false by example. The high tech market is very fluid with new entrants changing the landscape day by day. Yet Intel has a hold, but there is Qualcomm and many others who have disintermediated the broad base of semiconductors for uses well beyond just computation. He continues speaking about the concept of "network externalities" which means that having more users one gets to retain position. That is at best questionable. Just look at wireless versus wireline. The wireline side dominated the business until 2004 when wireless took over. This violates the Baumol-Willig Theorem and lets one see that externalities can be shifted again and again. They are not sustainable barriers to entry.
On p 137 he speaks of the Internet and uses the term "package switching (sic)" It is "packet switching". This was a seminal disintermediation introduced into the telecommunications world view. The story told by one of the Internet founders is that they tried to get AT&T to work with them but AT&T through its arrogance as a monopoly player wanted to control it all. AT&T did not understand that ARPA could reinvent communications, which it did, and this resulted in the never ending decline of the old AT&T.
On pp 158-159 he speaks of insurance and speaks of Arrow stating that the Government should run insurance. That is questionable. Well one should examine the Arrow paper more carefully. He states that health care is a service and as such is different. Ken Arrow, in his well read paper entitled Uncertainty and the Welfare Economics of Health Care, states the following special characteristics of health care in his view:
"A. The Nature of Demand The most obvious distinguishing characteristics of an individual's demand for medical services is that it is not steady in origin as, for example, for food or clothing, but irregular and unpredictable..."
My simple answer is that there are many people in such a service business, just look at the plumber. Look at the lawyer. Look at the electrician. There are lots of businesses out there that are the same in their demand characteristic as health care. Arrow continues:
"B. Expected Behavior of the Physician: It is clear from everyday observation that the behavior expected of sellers of medical care is different from that of business men in general. These expectations are relevant because medical care belongs to the category of commodities for which the product and the activity of production are identical."
Consider lawyers, they are service providers. There are hundreds of professions, accountants to name another, where the product and the activity are the same. The definition is the personal services industry, it even has an SIC code! But this was an 1963 article, in the days of Galbraith, where economists viewed the world as large corporations against the common man! Prof Arrow, in my opinion, is in error with this attempt at both generalizing and specializing. Arrow continues in his paper:
"C. Product Uncertainty: Uncertainty as to the quality of the product is perhaps more intense here than in any other important commodity. Recovery from disease is as unpredictable as is its incidence. In most commodities, the possibility of learning from one's own experience or that of others is strong because there is an adequate number of trials."
One need just go to a civil or criminal trial, especially with a jury, because the practice of law is similar, the outcome is always unpredictable.
The author makes many other statements and I chose just a few to counter. The writing is exceptionally good, smooth, and explanatory, but the twist in his presentation is an obvious and transparent attempt to justify his political position. Free markets do work, entrepreneurial behavior is the key element to our success, and the goal of the Government should be to take all actions as is necessary to defend and support that effort. This book seems to ignore that goal. Yet it is worth reading to gain insight, and the book is one of the best out there. My favorite book in this area is the recent one by Donald MacKenzie, An Engine, Not a Camera (MIT Press, 2008) which is a superb tale by a highly respected expert in the field. An Engine, Not a Camera: How Financial Models Shape Markets (Inside Technology) The two should be read side by side.
The book is divided into three parts as presented by the author in the first Chapter. Part I is a review of the classic economists and up to the present. Part II is the behavioral economists and their influence in understanding herd dynamics and stickiness in the market. Part II focuses on the current crisis.
Much of what is written is written well albeit with a strong political bent. For example just out of the box the author states on p. 9 in his introduction of Part I that "Markets encourage power companies to despoil the environment and cause global warming; health insurers to exclude sick people from coverage; computer makers to force customers to buy software programs they don't need; and CEOs to stuff their own pockets at the expense of their stockholders." Now if that quote does not set the stage for all to come nothing else will. It is clear that the author has a strong bias against the free market and denies any personal responsibilities on the part of the individuals. It is a restatement of the victimization approach to economics. He believes that the market, whatever that may be, makes the decision to dump polyphenols from a GE plant into the Hudson. In reality it was the management, the people in GE who did that, not the market. Yet, this theme that capitalism is the forcing function or deus ex machine for all the evils of mankind seems to continue throughout the book.
On p.11 he states that "The subprime boom represented a failure of capitalism in the presence of bounded cognition, uncertainty, hidden information, trend following and plentiful credit." That is in part true but it was the legislation and the regulatory environment that stimulated this process and yes the greed and outright dishonesty of many who participated. Greed and capitalism are not a one to one mapping. Greed has existed in every environment, suffice it to say that it is one of the seven deadly sins.
On p. 12 he calls the problem that Prince had at Citi as an example of the Prisoner's Dilemma. Frankly it was not even close in a game theoretic sense. It was Rubin along with Prince working with the residual of the Sandy Weill collection of companies in a highly leverage state in a financial downturn that most likely led to their downfall.
On pp 17-18 the author speaks towards the issue of having knowledge but not having the ability to conceive of the consequences. He uses Pearl Harbor as an example. Frankly there were many such examples of how this was anticipated ranging from the Navy's War Plan Orange to the well read book by Hector Bywater, The Great Pacific War, detailed in the 1920s the actual plan of the Japanese. In fact the Japanese planning organization actually use the Bywater plan in its own effort. The same types of issues could be said about the attack on 9/11, data was there but "management" was clueless. In fact the collapse of 2008-2009 was presaged by the same market and housing and banking collapse of 1987. Then we had a 25% one day drop in the DOW, a 20-25% drop in housing, and the S&L collapse. The difference was that then people held a reasonable amount of equity in their homes and 401Ks were not as prevalent. The Government took the actions to move from a risky position to a riskier one. Thus it was not the Market but the Government whose hands are dirty. Cassidy seems not to consider that.
On p 23 the author starts his use of Galbraithian dicta. This in and of itself sets the tone. Galbraith in his three books for public consumption on his view of economics, American Capitalism, The Affluent Society, and The New Industrial State, makes the assumption that the battle is between the poor defenseless consumer and the massive impenetrable corporations. It requires the use of "countervailing power" to balance the interests and that is where the need is for all benevolent and all knowing Government is seen as the arbiter of fairness and justice in such transactions. Per Galbraith and the author, the Market is both inefficient and lacks a Rawlsian justice in its allocation of what is produced.
On p. 38 the author details how Hayek was considered a "right wing nut" when he was a student at Oxford in the early 1980s. Well it was Oxford, what more need be said. Hayek's proposition that markets are aggregators of information was an essential and critical observation as was his understanding that centralized organizations had problems dealing with the division of knowledge (p. 41). In fact one need look no further than to an entrepreneurial company versus a large corporation to see the effect of this gross inefficiency of central planning, and the best example is the old Soviet economy, centrally planned, yet incapable of functioning.
On pp 63-68 the author has an interesting and lucid discussion of Arrow's welfare economics. One should remember that Arrow is the uncle of Larry Summers, now in the White House, and once the Treasury Secretary. This discussion is used as a justification of redistribution economics. Namely the basis of the distribution of wealth generated by some is definable by some hypothetical utility function which in turn holds across all people. This utility function has certain mathematical characteristics that are assumed to reflect reality. The net result is that markets, namely free markets, can generate what are termed efficient outcomes, and that efficiency and equity, again a Rawlsian justice schema, can be achieved. Arrow's analysis is just that, and analytical schema. The results are just as good as the assumptions, thus one should beware that the assumptions are just that, assumptions.
On p 65 the author gives a somewhat backhanded compliment to Johnnie von Neumann, a man who amongst those who know and understand his magnificent contributions consider him one with few if any equals. The author calls him "some sort of genius". He was a genius, not "some sort of". He was brilliant and a true polymath with seminal contributions across the spectra of human knowledge. The author then goes on to characterize von Neumann's life as "loquacious and virulently anti-communist, he drank heavily, told off color jokes, was married twice, and died of cancer..." One is amazed as to the cavalier and heavy handed characterization of the life of a person who has so great respect and has made so great a number of contributions. This one statement is a classic example in my opinion of the less than fair, equitable and knowledgeable writing on the part of the author.
On p 78 the author begins to take focus at Friedman and his monetary theory analysis. He states "Friedman liked to invoke the ancient "quantity theory of money" which many of his critics considered hopeless out of date" Frankly the Friedman theory of money was not ancient, it was an new innovation. In fact the theory of money in and of itself was less than ancient, for economists as such had been around at best in some form since the 1650s.
On p 81 the author begins his critique of Friedman and uses the example of the elimination of Federal regulators. That was actually the work of Alfred Kahn and was documented in his classic work, The Economics of Regulation. It was in the Carter Administration that the antitrust suits against AT&T and IBM were started and it was Asst Atty General Baxter under Reagan who dismissed one and settled the other. AT&T was a monopoly and it had a strangle hold on the US telecommunications business. The explosion of entrepreneurial spirit and innovation in telecommunications and the information age was the direct and immediate result of its splitting.
On p 91 the author speaks of the Black Scholes model. He states: "Some of the mathematics used in these theories is pretty befuddling which explains why there are so many physicists and mathematicians working on Wall Street..." Well let me set the author straight, these equations arose from engineers, from the likes of Norbert Wiener and Rudy Kalman, from Stratonovich in Russia and Ito in Japan, and from my book written in the late 1960s, Stochastic Systems and State Estimation. They were used to model and design estimation and control systems. As engineers, we frequently warned people about the limits of models and the concerns of instabilities. Black and Scholes appear to have taken little heed of those issues resulting most likely in the collapse of Long Term Capital Management. One should note that the "equations" which were the underpinnings of the Black Scholes model were also used by the engineers who designed the navigation and guidance systems for the Apollo space missions. But as ones used by engineers they had engineered into them safety margins to assure against the instabilities of real life. Unlike the engineered solutions of Apollo, the Black Scholes approach were used by bankers who ran them to the edge, to the edge of the envelope if you will, and thus these models when applied suffered from the smallest of perturbations and instabilities and thus collapsed.
On p 193 he infers that Volker was the architect of the 19% interest rates. Actually they were the legacy of Nixon and the collapse of gold, Ford and the total lack of confidence, and finally Carter and his gross mishandling of the economy and the final oil crisis. Volker inherited these and then righted them, albeit with high unemployment.
On p 115 the author introduces the Pigou Club of Mankiw at Harvard. Simply this is the group which says that you tax the thing you do not want to happen. This is the way the economist thinks. Rather than solving the problem, you tax it. An engineer would try to find a way to remedy it. The result is the engineer's approach is lower cost, social and otherwise. One should wonder why China's senior officials are mostly engineers whereas we in the US have mostly lawyers with economists in the shadows.
On pp 118-124 the author tackles the Coase approach to life. Coase looked simply at the problem of unintended consequences, their costs, and the remedies thereto. For example a railroad company has tracks and the grass adjacent to the tracks catches fire and burns the wheat of a farmer. The courts may allow a law suit to be filed and the jury may rule in favor of the farmer who gets paid for the damage. If however the farmer loses the suit he may get together with other farmers and then they may pay the railroad to fix the problem. Either way there is a "free market" solution to the problem, yet the costs may flow one way or the other. The author clearly dislikes Coase and his free market approach. He uses the aforementioned GE and Hudson River example. He then follows Coase with the obligatory Global Warming issue on pp 123-124.
On p 128-133 the author starts looking at antitrust issues. Antitrust laws were there to protect competition and not competitors. They were designed to protect the system not the incumbents. The author speaks of Baumol and his view that monopolies did not need to be exposed to competition but the threat of competition. It was Baumol along with Willig who developed the theorem of interconnection pricing, the Baumol-Willing Theorem, which was an ad hoc propiter hoc argument to sustain the AT&T monopoly by allowing the incumbent to collect a "tax" from the competition based upon the premise that AT&T had more customers and that in and of itself had value as some externality. This was in many ways at the heart of the failure of the 1996 Telecom Act whose goal was to allow competition to exist. The author again returns to Galbraith and his book, The New Industrial State, which claims that corporations are dominant controllers of the economy run by technocrats. It is ironic that at most half of the companies Galbraith cites are even in existence today. Their "power" did not keep them from going out of existence. The entrepreneurs, the true engines of growth in the economy, came along and redefined the business under their feet. Consider the telecommunications equipment manufacturers, there is now not a single one in the US, they are just gone. He states Galbraith's claim, "the initiative in deciding what is produced comes not from the sovereign producer, through the market, ... rather, it comes from the great producing organization which reaches forward to control the markets that it is presumed to serve and, beyond, to bend the consumer to its needs..." This was Galbraith's view, and it reflects a 1960's mentality. It however has clearly been shown to have been broken by the mass development of new entrepreneurial businesses, from Microsoft, Apple, and Google.
On p 130 he states, "Then there is high technology sector, where monopoly is endemic." That is clearly false by example. The high tech market is very fluid with new entrants changing the landscape day by day. Yet Intel has a hold, but there is Qualcomm and many others who have disintermediated the broad base of semiconductors for uses well beyond just computation. He continues speaking about the concept of "network externalities" which means that having more users one gets to retain position. That is at best questionable. Just look at wireless versus wireline. The wireline side dominated the business until 2004 when wireless took over. This violates the Baumol-Willig Theorem and lets one see that externalities can be shifted again and again. They are not sustainable barriers to entry.
On p 137 he speaks of the Internet and uses the term "package switching (sic)" It is "packet switching". This was a seminal disintermediation introduced into the telecommunications world view. The story told by one of the Internet founders is that they tried to get AT&T to work with them but AT&T through its arrogance as a monopoly player wanted to control it all. AT&T did not understand that ARPA could reinvent communications, which it did, and this resulted in the never ending decline of the old AT&T.
On pp 158-159 he speaks of insurance and speaks of Arrow stating that the Government should run insurance. That is questionable. Well one should examine the Arrow paper more carefully. He states that health care is a service and as such is different. Ken Arrow, in his well read paper entitled Uncertainty and the Welfare Economics of Health Care, states the following special characteristics of health care in his view:
"A. The Nature of Demand The most obvious distinguishing characteristics of an individual's demand for medical services is that it is not steady in origin as, for example, for food or clothing, but irregular and unpredictable..."
My simple answer is that there are many people in such a service business, just look at the plumber. Look at the lawyer. Look at the electrician. There are lots of businesses out there that are the same in their demand characteristic as health care. Arrow continues:
"B. Expected Behavior of the Physician: It is clear from everyday observation that the behavior expected of sellers of medical care is different from that of business men in general. These expectations are relevant because medical care belongs to the category of commodities for which the product and the activity of production are identical."
Consider lawyers, they are service providers. There are hundreds of professions, accountants to name another, where the product and the activity are the same. The definition is the personal services industry, it even has an SIC code! But this was an 1963 article, in the days of Galbraith, where economists viewed the world as large corporations against the common man! Prof Arrow, in my opinion, is in error with this attempt at both generalizing and specializing. Arrow continues in his paper:
"C. Product Uncertainty: Uncertainty as to the quality of the product is perhaps more intense here than in any other important commodity. Recovery from disease is as unpredictable as is its incidence. In most commodities, the possibility of learning from one's own experience or that of others is strong because there is an adequate number of trials."
One need just go to a civil or criminal trial, especially with a jury, because the practice of law is similar, the outcome is always unpredictable.
The author makes many other statements and I chose just a few to counter. The writing is exceptionally good, smooth, and explanatory, but the twist in his presentation is an obvious and transparent attempt to justify his political position. Free markets do work, entrepreneurial behavior is the key element to our success, and the goal of the Government should be to take all actions as is necessary to defend and support that effort. This book seems to ignore that goal. Yet it is worth reading to gain insight, and the book is one of the best out there. My favorite book in this area is the recent one by Donald MacKenzie, An Engine, Not a Camera (MIT Press, 2008) which is a superb tale by a highly respected expert in the field. An Engine, Not a Camera: How Financial Models Shape Markets (Inside Technology) The two should be read side by side.
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