Review by Choice Review
It is only a slight exaggeration to claim that Madrick, a knowledgeable economics journalist for Harper's and the New York Times, has fashioned a straw man that he then demolishes. In this book, he lumps together economists and their fundamental conceptions, such as faith in market outcomes, with the polemic that most economists believe in applying these concepts blindly. The author condemns economists for ignoring the abstract nature of sophisticated models without realizing that they are not descriptions of reality. Hence, when recommending economic policies, he asserts in the book's subtitle that mainstream economists have damaged America and the world. Though one can agree that economists are not always on target and understand that economic policy is hardly independent of political ideology and expediency, few would condemn economists as pernicious. Even Milton Friedman, who receives the lion's share of Madrick's anti-economist diatribe, was a true believer in free markets and a smaller role for government partly because regulatory interventions often made things worse. Madrick accepts the latter point, especially with regard to the 2007-09 global financial crisis, but he finds few economists whom he can admire. This is a shame. Summing Up: Not recommended. --Jonas Prager, New York University
Copyright American Library Association, used with permission.
Review by New York Times Review
THE ECONOMICS PROFESSION has not, to say the least, covered itself in glory these past six years. Hardly any economists predicted the 2008 crisis - and the handful who did tended to be people who also predicted crises that didn't happen. More significant, many and arguably most economists were claiming, right up to the moment of collapse, that nothing like this could even happen. Furthermore, once crisis struck economists seemed unable to agree on a response. They'd had 75 years since the Great Depression to figure out what to do if something similar hap pened again, but the profession was utterly divided when the moment of truth arrived. In "Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World," Jeff Madrick - a contributing editor at Harper's Magazine and a frequent writer on matters economic - argues that the professional failures since 2008 didn't come out of the blue but were rooted in decades of intellectual malfeasance. As a practicing and, I'd claim, mainstream economist myself, I'm tempted to quibble. How "mainstream," really, are the bad ideas he attacks? How much of the problem is bad economic ideas per se as opposed to economists who have proved all too ready to drop their own models - in effect, reject their own ideas - when their models conflict with their political leanings? And was it the ideas of economists or the prejudices of politicians that led to so much bad policy? I'll return to those quibbles later, but Madrick's basic theme is surely right. His bad ideas are definitely out there, have been expressed by plenty of economists, and have indeed done a lot of harm. So what are the seven bad ideas? Actually, they aren't all that distinct. In particular, bad idea No. 1 - the Invisible Hand - is pretty hard to distinguish from bad idea No. 3, Milton Friedman's case against government intervention, and segues fairly seamlessly into bad idea No. 7, globalization as something that is always good. As an aside, this sometimes makes Madrick's argument more disjointed than I'd like, with key propositions spread across nonconsecutive chapters. But there is an important point here, and Madrick has clarified my own thinking on the subject. Adam Smith used the phrase "invisible hand" only once in "The Wealth of Nations," and he probably didn't mean to say what most people now think he said. But never mind: Today the phrase is almost always used to mean the proposition that market economies can be trusted to get everything, or almost everything, right without more than marginal government intervention. Is this belief well grounded in theory and evidence? No. As Madrick makes clear, many economists have, consciously or unconsciously, engaged in a game of bait and switch. On one side, we have elegant mathematical models showing that under certain conditions an unregulated free-market economy will produce an efficient "general equilibrium," in the sense that nobody could be made better off without making anyone worse off. Yet as Madrick says, these assumed conditions - including the assumption that people "are rational decision makers, and that they have all the price and product information they need" - are manifestly not met in practice. What, then, do the elegant models tell us about the real world? Well, in a different chapter Madrick recalls Milton Friedman's dictum that economic models should be judged not by the realism of their assumptions but by the accuracy of their predictions. This lets general equilibrium off the hook, sort of. But has the proposition that free markets get it right ever been vetted for predictive accuracy? Of course not. Friedman's own polemics on behalf of free markets consist mainly of "assertions based on how free markets may work according to the Invisible Hand," Madrick writes, with hardly any evidence presented that they actually work that way. In other words, economists arguing for free markets and limited government try to have it both ways: They claim that their doctrine is a deep insight derived from first principles, but dismiss as irrelevant the overwhelming evidence that these assumed principles don't hold in practice. MATTERS ARE EVEN worse when it comes to the performance of financial markets. Here the proposition that markets should get it right - that major speculative bubbles can't happen (bad idea No. 5) - doesn't just depend on conditions that clearly don't hold in practice, but is directly contradicted by evidence on herd behavior and excess volatility. Yet "efficient markets theory" has maintained its academic dominance. Eugene Fama of the University of Chicago, the father of efficient markets, still denies that financial bubbles even exist - and last year he shared a Nobel in economic science. Still, all of these failings of mainstream economics were obvious long before the 2008 crisis. What has really come as news is the seeming inability of economists to agree on a policy response to mass unemployment. And here is where my quibbles with Madrick get louder. No. 2 on Madrick's bad idea list is Say's Law, which states that savings are automatically invested, so that there cannot be an overall shortfall in demand. A further implication of Say's Law is that government stimulus can never do any good, because deficit spending by the public sector will always crowd out an equal amount of private spending. But is this "mainstream economics"? Madrick cites two University of Chicago professors, Casey Mulligan and John Cochrane, who did indeed echo Say's Law when arguing against the Obama stimulus. But these economists were outliers within the profession. Chicago's own business school regularly polls a representative sample of influential economists for their views on policy issues; when it asked whether the Obama stimulus had reduced the unemployment rate, 92 percent of the respondents said that it had. Madrick is able to claim that Say's Law is pervasive in mainstream economics only by lumping it together with a number of other concepts that, correct or not, are actually quite different. Now, it's true that the relative handful of economists claiming that stimulus can't possibly work, or that slashing government spending is actually expansionary, have a much higher profile than their numbers or their influence within the profession warrants. Why? Partly, the answer is that the news media - especially but not only partisan media like The Wall Street Journal's editorial page - have promoted the views of economists they like for political reasons. Partly, also, it's because politicians listen to economists who tell them what they want to hear. I'm not saying that mainstream economists bear none of the blame; the decades-long retreat from Keynes has undoubtedly allowed old fallacies to make a comeback. But austerity mania has to a large extent spread despite mainstream economics, not because of it. I'd make a further observation here: Academic economists have much less influence in Europe than they do in America. Yet the policy response to the crisis, while poor on this side of the Atlantic, has been much worse on the other. Politicians don't need bad advice from economists in order to go off the rails. Such quibbles aside, "Seven Bad Ideas" tells us an important and broadly accurate story about what went wrong. Economists presented as reality an idealized vision of free markets, dressed up in fancy math that gave it a false appearance of rigor. As a result, the world was unprepared when markets went bad. Economic ideas, declared John Maynard Keynes, are "dangerous for good or evil." And in recent years, sad to say, evil has had the upper hand. Was it the ideas of economists or the prejudices of politicians that led to so much bad policy? PAUL KRUGMAN is professor of economics and international affairs at Princeton University and an Op-Ed columnist for The New York Times.
Copyright (c) The New York Times Company [September 28, 2014]
Review by Booklist Review
*Starred Review* The very fact that so few economists saw the 2008 economic collapse coming indicates how out of touch they were (and are) with economic realities. Enamored with the idea that capitalism is self-correcting, they failed to heed ample warnings of severe imbalances and risky behavior caused by lack of regulation of the financial markets. Financial journalist Madrick draws on the works of several well-regarded economists, including John Maynard Keynes and Milton Friedman, as well as philosopher-economist John Stuart Mills and others to examine the shortcomings of contemporary economics. Madrick offers an overview of how economic thinking has evolved from Adam Smith's invisible hand concept, taking aim at seven major ideas that have driven economists in the past 30 years and led to enormous harm. He explores the contradictions in economic theories as economists square off over philosophical beliefs about the proper role of government in the economy, the relative merits of deficits, and government economic stimulus. Debunking many of the ideas of orthodox economics, he laments how little consideration economists give to social justice and human rights or even history. Madrick argues strongly that government support for the nation's infrastructure is as important to the economy as private capital investment. This is a highly accessible look at the dismal science and why it's important to understand the philosophy behind the science of economics.--Bush, Vanessa Copyright 2010 Booklist
From Booklist, Copyright (c) American Library Association. Used with permission.
Review by Publisher's Weekly Review
Madrick (Age of Greed) takes aim, in dense but readable prose, at mainstream economic thinking: the ideas that are so commonly accepted that they're now taken as gospel. Focusing on the 2008 recession, he presents a thorough exegesis of this accepted wisdom and its effect on the economy, starting with Adam Smith's "Invisible Hand"¿ theory, which describes how buyers and sellers decide a good or service's ideal price. Madrick goes on to examine Say's Law and austerity economics, John Maynard Keynes's theories on interest rates, and Milton Friedman's theories of free markets. He also addresses the question: where did we go awry? Mainly, he says, when we started treating economics as a perfect science, thereby giving "economic ideas more credibility than they often deserve."¿ Moreover, modern thought has led us to believe that the government is almost always bad and the markets almost always good. Those bankers and economists who failed to avert the crisis aren't evil, according to Madrick, just misguided, particularly in oversimplifying major economic shifts. This book is an attempt to inject the complexity back in. As a result, it's a tough read for the nonacademic reader, but one well worth the effort. (Oct.) (c) Copyright PWxyz, LLC. All rights reserved.
(c) Copyright PWxyz, LLC. All rights reserved
Review by Kirkus Book Review
For the crash they failed to predict, for the Great Recession that followed and for the piddling recovery, a longtime economics journalist blames the wrongheaded theories of orthodox economists. By "orthodox," Harper's columnist Madrick (Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present, 2011, etc.) means the right and center-left economists who've taken their cues for the past 40 years from Milton Friedman, "the godfather" of the laissez faire revolution. The author marvels at how Friedman and his disciples have escaped censure for policy recommendations accounting for our current mess and takes a stick to the profession for its insularity, trendiness and refusal to abandon theory in the face of stark, real-world facts. Their litany of error, Madrick insists, stems from reliance on Adam Smith's Invisible Hand theory: that, without any outside interference, buyers and sellers will reach a just accommodation. This 18th-century insight, writes the author, was descriptive rather than prescriptive and surely an incomplete model of modern markets. Its simplicity encouraged the modern era's move toward widespread deregulation. From the Freidmanites' horror at the prospect of government intervention flowed other bad ideas: that "supply creates its own demand" and economies will self-adjust; that government is useful only for correcting occasional market failures; that targeting inflation is all that really matters; that markets are highly rational, unsusceptible to fashion or speculative bubbles; that globalization will somehow triumph, and free trade will lift all boats. Madrick hammers mainstream economists for their insistence that economics is a science rooted in mathematics, unaffected by political bias. We'd do better, he argues, to make room for sociology, psychology, history, philosophy and theology to better account for real-world uncertainties and ambiguities. Economics, he insists, "is a set of value judgments," and notions of decency and community are every bit as relevant as "the special knowledge" held by the high priests. A readable, useful economic text. Somewhere, John Maynard Keynes is smiling. Copyright Kirkus Reviews, used with permission.
Copyright (c) Kirkus Reviews, used with permission.
