How Markets Fail [book]

It looks like John Cassidy's latest book, How Markets Fail: The Logic of Economic Calamities, is worth checking out. According to Cassidy, it was blind faith in the markets that caused the recent financial meltdown. He argues that we can avert future calamities via 'reality-based economics'—grappling with market failures, disaster myopia, speculative frenzies, and other economic complexities. In this sense Cassidy can be called a Keynesian; it was John Maynard Keynes, after all, who fathered economic-crisis management.

A quote from the Business Week review:

Cassidy agrees with free-market advocates that the market performs wonders, but he believes its reach is limited. In that spirit, he favors greater government regulation of the financial-services industry. Although he doesn't dwell much on practical ideas for reform, he argues that it's necessary to tame Wall Street now that financiers have learned they can privatize profits during good times and socialize losses in bad. He admires the changes that came out of the Great Depression, such as the Glass-Steagall Act, which separated banking from investment banking. Even if current legislators aren't willing to go that far, banks must be required to keep more capital on hand and be given limits on how much debt they can accumulate, he says. He considers the proposed Financial Product Safety Commission a sensible idea. "The proper role of the financial sector is to support innovation and enterprise elsewhere in the economy," he writes. "But during the past 20 years or so, it has grown into Frankenstein's monster, lumbering around and causing chaos."

Essentially, Cassidy is suggesting that a return to hands-off economics would be a disaster. His views mirror my own, namely the suggestion that, left to its own devices, and without oversight, blind market forces will eventually eat itself.

Strike another victory against the advocates of market libertopianism.