Field of Science

The writings of John Cassidy

For the last several weeks I have been enjoying John Cassidy's "How Markets Fail". I am almost done with the volume and have to say that it is one of the best and most balanced critiques of markets that I have read. Cassidy who was educated at Oxford and certainly knows his economics carefully documents the history of how academic mathematical theories like Arrow's impossibility theorem and Robert Lucas's theory of rational expectations came to be mistaken as practical rules for application to the free market when they were really supposed to be not much more than ideal mathematical constructs. He also documents very well how most free market theorists did not include the behavioral economic approaches pioneered by psychologists.

Even more enlightening is Cassidy's series of interviews with Chicago school economists like Richard Posner, Gary Becker and Eugene Fama. It is heartening to see how most of these people who were once die hard free marketeers are now taking a more moderate stance towards the world and accepting the limitations of things like rational expectations and the efficient market hypothesis. All except Eugene Fama, who in his interview appears to be as much of a stubborn free market "fundamentalist" as anyone else, the last man manning the fort, keeping a brave face and clinging to the flag known as the efficient market hypothesis, with smoke and mirrors being his main weapon of combat. Behavioral economists who were once despised at Chicago are now part of the establishment there.

Very enlightening and more than a little gratifying. I would strongly suggest especially the interviews and also the book.

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