Shaking the Invisible Hand

The chances of another cycle of optimism, overconfidence, hubris, panic and a long period of pessimism are high.

Issue: Mar-Apr 2010

John Cassidy, How Markets Fail: The Logic of Economic Calamities (New York: Farrar, Straus and Giroux, 2009), 400 pp., $28.00.

J. Bradford DeLong and Stephen S. Cohen, The End of Influence: What Happens When Other Countries Have the Money (New York: Basic Books, 2010), 176 pp., $22.00.

Richard A. Posner, The Crisis of Capitalist Democracy (Cambridge, MA: Harvard University Press, 2010), 408 pp., $25.95.

Carmen M. Reinhart and Kenneth S. Rogoff, This Time is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009), 496 pp., $35.00.

Joseph E. Stiglitz, Freefall: America, Free Markets, and the Sinking of the World Economy (New York: W. W. Norton & Company, 2010), 361 pp., $27.95.

 

THOUGH IN some sense all financial crashes are by definition unexpected, in retrospect, perhaps the oddest thing about the recent economic calamity was that it should have taken so many people by surprise. Different this time was not that disaster came out of the blue, but that in the lead-up to it so many people thought it simply could not happen. A financial crisis of this magnitude in an advanced economy was a thing of the past, a disease like smallpox-still found in poorer countries, but essentially eradicated from the developed markets of the West.

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