• How Markets Fail

  • The Logic of Economic Calamities
  • By: John Cassidy
  • Narrated by: Ralph Cosham
  • Length: 13 hrs and 15 mins
  • 4.4 out of 5 stars (815 ratings)

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How Markets Fail

By: John Cassidy
Narrated by: Ralph Cosham
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Publisher's Summary

Behind the alarming headlines about job losses, bank bailouts, and corporate greed, there is a little-known story of bad ideas. For 50 years or more, economists have been busy developing elegant theories of how markets work - how they facilitate innovation, wealth creation, and an efficient allocation of society's resources. But what about when markets don't work? What about when they lead to stock-market bubbles, glaring inequality, polluted rivers, real-estate crashes, and credit crunches?

In How Markets Fail, John Cassidy describes the rising influence of what he calls utopian economics, thinking that is blind to how real people act and which denies the many ways an unregulated free market can produce disastrous unintended consequences. He then looks to the leading edge of economic theory - including behavioral economics - to offer a new understanding of the economy, one that casts aside the old assumption that people and firms make decisions purely on the basis of rational self-interest.

Taking the global financial crisis and current recession as his starting point, Cassidy explores a world in which everybody is connected and social contagion is the norm. In such an environment, he shows, individual behavioral biases and kinks - such as overconfidence, envy, copy-cat behavior, and myopia - often give rise to troubling macroeconomic phenomena, such as oil-price spikes, CEO greed cycles, and boom-and-bust waves in housing. These are the inevitable outcomes of what Cassidy refers to as "rational irrationality" - self-serving behavior in a modern market setting.

Combining on-the-ground reporting, clear explanations of esoteric economic theories, and even a little crystal-ball gazing, Cassidy warns that in today's economic crisis, conforming to antiquated orthodoxies isn't just misguided - it's downright dangerous. How Markets Fail offers a new, enlightening way to understand the force of the irrational in our volatile global econ...

©2009 John Cassidy (P)2009 Blackstone Audio, Inc.

Critic Reviews

"[A]n elegant, readable treatise on economics, swathed in current headlines....Cassidy writes with terrific clarity and a finely tuned sense of moral outrage, yielding a superb book." ( Kirkus Reviews)

What listeners say about How Markets Fail

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  • Overall
    4 out of 5 stars

Three books in one.

Both this book and Alan Greenspan's book "Age of Turbulence" have some stories that blend economics with politics. However, this author and Alan have different economic views. If you are new to economics then I recommend reading or listening to Alan's book first since it is an easier read. Both books touch on Adam Smith's "invisible hand" and John Maynard Keynes' idea of government spending during recessions.

This book is like reading three books in one. The first four hours covers some economists and how their ideas have influenced economic thinking. The next four hours covers examples like spillovers, the prisoner's dilemma, the market for lemons, and Keynes beauty contest. The rest covers musical chairs, the Millennium Bridge, and some of the major events that surround the current housing bubble. For me, I found the middle to be the most enlightening.

Our government has run between the extremes of de-regulation of the airline industry and the "nationalization" of Fannie Mae and Freddie Mac. This book is not a history of bubbles and crashes. While the latest crash is not in tulip bulbs, the ability of governments since then to smooth out the bubbles and crashes appears to be limited.

20 people found this helpful

  • Overall
    5 out of 5 stars

Way more than I expected

I bought this book thinking it would be another book on the current financial crisis; after all, there are so many. I was pleasantly surprised when after a few chapters I realized that this was not at all what the book was about. It does not chronicle the crisis or even how markets have failed catastrophically in the past. Rather it articulates various ways in which free markets can fail to produce efficient outcomes. If you want a history of the current crisis, read "Too Big to Fail" by Andrew Ross Sorkin. It's essentially a blow by blow chronology and a comprehensive one at that. It's worth reading. But this book very skillfully presents a case for how markets are not always the best solution to economic problems. I've learned more from this book than I have from anything I've read in quite a while. I plan to purchase a physical copy and read it again at least once.

16 people found this helpful

  • Overall
    5 out of 5 stars

Best single volume on the credit crunch

Of all the books that have chronicled the credit crunch, this one is the best overall. As opposed to some other books, it focuses very little on personalities, and mostly on the problems in academic economics, finance, and policy that allowed trillions of dollars to vanish. Although the book is a model of clarity, it might be tough going for someone with no background in economics or finance. Nonetheless, if you really want to understand what happened, this is the best of the bunch!

9 people found this helpful

  • Overall
    4 out of 5 stars
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    4 out of 5 stars
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    4 out of 5 stars

Rational irrationality explained

How Markets Fail promotes a view that I think ought to be common sense to Americans, but seems to get lost in today's climate of mindless, media-fueled political hysteria: that free markets, while they provide many benefits that can't be achieved through central planning, will malfunction without rules and external guidance. The 2008 housing crisis and subsequent market collapse was nothing less than a textbook failure of government to step in stop lenders and banks from playing a game that everyone paying attention knew was deeply risky, however profitable the bubble was for players in the short term. And the bailouts that followed were proof that allowing irresponsible pursuit of private gains can lead to socialized losses, the opposite of what free markets are supposed to do.

How Markets Fail is a book in three parts, each of which is geared towards readers who haven't had more than superficial exposure to the topics discussed -- if you have, you'll probably want to skip ahead. The first part is a condensed history of modern free market economics, introducing readers to influential figures like Adam Smith, Friedrich Hayek, Vilfredo Pareto, Milton Friedman, Robert Lucas, Cecil Pigou, and John Kenyes, then connecting them to present day economists like Alan Greenspan and Paul Krugman. If, like me, you lack formal training in economics, you'll find handy explanations of a few terms and ideas you might have heard bandied about before.

The second part of the book focuses on where utopian free market ideology breaks down, in light of game theory, behavioral psychology, and other modern, scientific fields of analysis. Cassidy does an admirable job of keeping his arguments balanced, putting forth sober talking points that don't assume villainous motives on the part of any group of people. Rational self-interest, while it often propels trading relationships that work to the mutual benefit of everyone involved, can also lead to behavior that’s destructive to the best interests of a community. Consider, for example, factory owners who know that installing environmentally-friendly machinery is better for everyone, but can't realistically risk committing to this expense if they don't expect that their competitors will. Or health care markets that incentivize insurance providers to jack up premiums for customers who aren't healthy. Or the tendency of large-scale businesses to overcome smaller ones, thus enabling a few elites to dominate markets and pay themselves exorbitant salaries while driving down wages for those beneath them. At least, Cassidy makes a convincing case that different markets have different patterns, and need to be thought about differently, with a reality-based view towards human needs and behavior.

Part three is an overview of the recent subprime mess, illustrating from a high level the chain of events that led to the meltdown, and the laissez faire policies that enabled them (which Cassidy blames primarily on Alan Greenspan, the one person he really criticizes). I thought this part was well-presented, and did a lot to hammer home the points in part two. Protecting individual foolish home buyers from themselves isn’t the government’s job, but stopping actions that fool a lot of people at once and lead to a national blowout *is* the government’s job.

Where the book fell a little short for me, though, was in its lack of coherent ideas on how to make government intervention effective. I'm rather skeptical of libertarian views and think it's impossible for governments not to intervene in markets and corporate activities that are global, whether ideology makes them do it sooner or later. However, as we know, Washington DC can be about as agile and precise as King Kong swatting at planes (or not, if they're bringing him gifts of bananas), and people determined to make a profit will always find a way to get around regulations, bend them in ways not intended, or even help write them, fooling the public with benevolent-sounding language while craftily selling out the public's best interests. What criteria should DC use to decide when to give economic matters serious attention and when to push issues it doesn't have the fine-grainedness to handle well back to markets? How do we deal with a world where some corporations have more clout than actual cities, states, or even countries? There aren't easy answers.

Acknowledging the problem is the first step, though, and I think that How Markets Fail will help many readers do that.

7 people found this helpful

  • Overall
    5 out of 5 stars

Best on the fallacies of economic thought

This book is simply the best work I have read (heard) on economic thought and the problems inherent in the basic premises regarding how people behave. This book is best read (heard) after Mark Skousen's "The Making of Modern Economics". This latter book is a thorough introduction to the glory of free-market thinking from Adam Smith up through Milton Friedman. "How Markets Fail" is the antidote to the smugness with which free-marketers often address the rest of us. These two books together should provide the thoughtful person with a great basis for understanding how we come to be where we are today.

5 people found this helpful

  • Overall
    5 out of 5 stars

Good comprehensive overview

I thought the author did a great job taking a huge amount of information - about the history of economics all the way from Adam Smith to the recent financial crisis - and put it into one overarching context. It is quite clear from his word choices ("Utopian Economics" vs. "Reality-based economics") which side he is going to come down on, but this is a subject that warrants an opinion rather than dry analysis.

What I liked most about the book was that it answered some of the stray questions that I've had when reading other accounts of what happened during the financial crisis, while putting it all into context.

5 people found this helpful

  • Overall
    5 out of 5 stars

My Pick for Best Book, 2010

The book explains the history of economic though about market stability in significant depth. Like all good histories it is organized around a story, the story of two competing ideas.

The first idea is Keynesian economics which recognized that some markets possess positive feedback, which is inherently unstable. The Keynesian model suggested that a central role for governments was to intervene in order to partially stabilize these markets. However, this failed in part because market participants could adapt to the government intervention far faster than the government could adapt to market changes. The resulting combination of government intervention and a market that anticipates and accounts for government intervention is even more unstable, and has the added problem that wealth is sucked out of the government, to savvy market players.

The narrative suggests that the competing idea has been something that I will call ???Friedmonian??? economics, which argued that markets are nearly perfect information machines. This model leads naturally to a policy of extreme government abstention in all economic matters, which, leads to a kind of lawlessness. Perhaps you can???t (yet) bulldoze your competitor???s factories in the dead of night, but the economic equivalent of this is increasingly endorsed. This had led to a series of bubbles, where a savvy few (often in collusion) have bilked and swindled the economy as a whole. These frauds tend to actually destroy wealth, not just transfer it, so the result is decidedly not good for the whole, even in the statistical sense.

In the shadow of thesub-prime bubble, the two main economics schools are nearly wholly discredited.

The author is clearly somewhat sympathetic to the Keynesian theory; I???m too young to think of Keynesianisum as truly distinct from astrology. But I think that the idea of market efficiency is at least as silly, and I'm glad he's willing to say so.

4 people found this helpful

  • Overall
    5 out of 5 stars

Good explanation of economics

Was very pleased to find this audio book very comprehensive on economics. Going forward from where we are today: This book also makes a valuable point very well - Stop the risky financial behaviors of the past... Make more use of our very knowledgeable economic regulators and ramp-up our overseeing of financial instruments and institution dealings on a much wider scope and in more depth, (a more wise moving forward from our recent financial troubled times). I some how feel this audio book may not be popular with many financial institutions.... (if there were to be many more banking and stock market security regulations created).

4 people found this helpful

  • Overall
    5 out of 5 stars

Excellent book

As an unabashed supporter of free markets, I have looked everywhere for a book to provide an argument for alternatives. This is the first book I’ve encountered that provides an intellectually solid and potent argument in favor of limited government interventions where markets have arguably failed to provide optimal solutions, if any at all.

In and of itself, this is a great feat and the reason why everybody should read this book. However, the book does not offer any solution for times when government interventions have gone wrong. In my view, that is a core weakness.

Government policies can arguably influence markets to provide good solutions, even perhaps, for a long time. The issue has always been, once they’re no longer useful, it’s hard to overturn those policies. Constituencies have formed that benefit from them at the expense of general public and fiercely resist any change. Nevertheless, the book is a fun listen and has a great narration. I highly recommend it.

3 people found this helpful

  • Overall
    5 out of 5 stars

A Superb History of Enonomic Thought

This audiobook was a delightful surprise for me. I have read numerous books on economics beginning with Adam Smith's "Wealth of Nations." I remember suffering through Samuelson's classic text - somehow I was uncomfortable with unrestrained free market capitalism without knowing exactly why. Smith's 'Invisible Hand" has never delivered on its promises. Even today economists such as Murray Rothbard of the Austrian School insist that government intervention has always prevented the "hand" from performing its magic.
Then, we have the Keynesians who recognize the need for some government intervetion to moderate the business and economic cycles. It, too, in its various versions such as the Neokeynesians
have failed to deliver.
To lead up to his main argument about the need for regulating banks, Cassidy has written a clear readable summary and history of economic thought. This, by itself, makes the book a must listen for everyone with interest in such things.
Cassidy goes on to explain why unfettered free market competition in the.financial world cannot work. With the passage of the bloated financial regulatory bill, we'll how things work out. To have some insight into history as it is happening, the book is an essential audit.



3 people found this helpful