Why America Is Not in Decline

On June 15, 2012, in economic theory, by admin

Daniel Gross. Better, Stronger, Faster: The Myth of American Decline . . . and the Rise of a New Economy. Free Press, 2012, pp. 260, $26.00 Is the United States is economic decline? There certainly have been enough commentators and pundits who have made this point in one form or another. Even a cursory glance [...]

Daniel Gross. Better, Stronger, Faster: The Myth of American Decline . . . and the Rise of a New Economy. Free Press, 2012, pp. 260, $26.00

Is the United States is economic decline? There certainly have been enough commentators and pundits who have made this point in one form or another. Even a cursory glance at the news would lead most observers to conclude that this country faces some entrenched, systemic, and nearly unsolvable economic problems. In June 2012 alone, news outlets have reported that the trade deficit is at its highest in the past three years, employment for 16-to-19 year olds is at the lowest level since the Second World War, and that foreclosures are on the rise. All of this data hardly inspires optimism about America’s ability to recover from the Great Recession. In addition, there is a growing worldwide perception that China is a stronger economic power than the United States.

Despite this doom and gloom, however, one economics writer has chosen to see past the constant pessimism that seems to pervade the nation’s policy discourse. In Better, Stronger, Faster, Daniel Gross (Yahoo! Finance) seeks to challenge what he perceives as the conventional wisdom that the United States is in a state of economic decline. According to Gross, many on the political left and right, as well as those in the center, have succumbed to economic declinism. While Keynesians consider President Obama’s response to the economic crisis as too passive, the Tea Party sees the current occupant as the White House as a socialist. All the while, academics published works detailing how American glory days are over.

Gross refuses to accept the narrative of American decline and challenges it at every turn. Indeed, the vast majority of the information presented in Bigger, Stronger, Faster is intended to build the case against declinism. The title of the author’s most recent work is an allusion to The Six Million Dollar Man, the 1970s television show in which doctors rebuilt the character Steve Austin, an injured astronaut, as the world’s first bionic man. In the show’s opening credits, it was stated that the doctors could rebuild the wounded Austin, played by Lee Majors as better, stronger, faster.

“And like Steve Austin,” writes Gross, “the U.S. economy can bounce back from its catastrophic wipeout. In fact, the process has already started.” This is the central thesis of Gross’s work, and one which he goes to great lengths to support. He marshals a vast array of evidence in the form of both statistics and anecdotal observations. Significantly, in his point of view, when trying to understand why things may not be as bad as they first appear, American Exceptionalism matters. “The reality-based case for optimism rests in large measure on an understanding of America’s core competencies and competitive advantages; attitudes, habits, and capabilities that, even in this age of globalization remain unique.” In the American context, adaptability is key.

Gross delineates three internal factors that, in his estimation, lend credence to his argument against declinism: policy decisions, including the bailouts and stimulus, which, in the author’s estimation, succeeded in preventing a second Great Depression and laying the groundwork for a recovery; the speed by which the private sector responded to the crisis by restructuring; and a move toward efficiency. That said, Gross considers that external forces matter even more than internal ones. “And while these efforts [government policy decisions, business restructuring, and efficiency] were vital and useful, the main forces that have helped propel growth came from external sources, not internal ones.” The United States, Gross reminds us, ranks first in foreign direct investment (FDI) and is the world’s top exporter, including in service exports.

In the book’s conclusion, Gross does rightfully concede that the United States does indeed face some daunting challenges. “There’s no question,” he writes, “the United States has a very long way to go to make up for the lost ground in the economy at large, in housing, and in jobs.” But he also contends that the United States has experienced “a huge comeback.” There is nothing necessarily inaccurate about Gross’s thesis that we are on our way to an economic recovery.

Better, Stronger, Faster does provide ample evidence against the declinist faith. But the more salient question might be what the American economy would look like today but for the Great Recession? Coming back from the brink of disaster is one thing; having avoided the debacle in the first place is a different thing entirely.

In my estimation, Gross, in his zeal to prove the declinists wrong, somewhat overstates his case. Although he does acknowledge the debt and the deficit, he gives them short shrift. In addition, nary a word is said about the plight of the Millennials, many of who are in debt, are living back at home with their parents after graduation from college, and have bleak job prospects outside of unpaid internships. The American economy may have recovered better, stronger, and faster, but this means very little to those saddled with tens, if not hundreds, of thousands of dollars in non-dischargeable student loans.

In conclusion, Better, Stronger, Faster is a largely accessible and an engaging study that seeks to combat the pervasive narrative that the United States is in economic decline. Whether one agrees with the author’s thesis is perhaps situational, in the sense that a graduate-educated, gainfully employed technology professional in Silicon Valley would agree that things are getting better, while an underemployed college graduate in the Sun Belt saddled with student debt would think Gross highly mistaken. Whatever the case may be, the debate about whether or not America is in economic decline likely will continue to rage throughout the next year.

Jonathan Eric Lewis (c) 2012

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Finance as a Positive Force

On May 15, 2012, in banking, executive compensation, by admin

Robert J. Schiller. Finance and the Good Society. Princeton University Press, 2012, pp. 288, $24.95 The financial sector has gotten a bad rap of late. Indeed, as referenced in this recent work, the emergence of both the Tea Party, which argued against the massive taxpayer bailouts of large financial institutions, and the Occupy Wall Street [...]

Robert J. Schiller. Finance and the Good Society. Princeton University Press, 2012, pp. 288, $24.95

The financial sector has gotten a bad rap of late. Indeed, as referenced in this recent work, the emergence of both the Tea Party, which argued against the massive taxpayer bailouts of large financial institutions, and the Occupy Wall Street movement, which condemned the capitalist system, signified that large segments of the American populace are not happy with Wall Street and investment professionals. As the economy has shown signs of improvement, the public anger has seemed to lessen. That said, it is still too soon to tell whether the news about J.P. Morgan’s losses will have the effect of rejuvenating the public’s distrust of Wall Street and of finance, in general.

In Finance and the Good Society, Robert J. Schiller (Yale University) argues that the world of finance, in its best incarnation, has the potential to improve peoples’ lives. “What I want most for my students . . . to know is that finance truly has the potential to offer hope for a more fair and just world, and that their energy and intelligence are needed to help serve this goal.” Schiller is cognizant of the problems in our current financial system. The solution to these problems, however, is not to castigate financial capitalism as a system for producing wealth, or to denigrate the profession of finance in which many Americans make their living.

The financial crisis, contends the author, cannot easily be blamed “on a sudden outbreak of malevolence” on the part of those employed in the financial sector. The causes of the crisis can be traced to “fundamental structural shortcomings in our financial institutions,” rather than to greed or dishonesty. Schiller further posits that the post-crisis legislation and regulations have not solved our financial system’s real problems. That said, he does not think the answer to our current woes is to restrain finance.

In fact, he believes the opposite to be true. “It seems a paradox that the very financial system that is the facilitator of some of our greatest achievements can also implode and create such a disaster. Yet the best way for society to proceed is not to restrain financial innovation but instead to release it.” In order to reduce the likelihood of future financial crises, contends Schiller, we need “better financial instruments, not less activity in finance.” Indeed, as he rightly acknowledges, there does not appear to be a realistic alternative to financial capitalism.

An expanded and further democratized financial system will allow more people to benefit from finance’s ability to improve people’s lives. Indeed, Schiller, as the title of the book suggests, believes that finance can help build a good society. Finance, he argues, is “the science of goal architecture—of the structuring of the economic arrangements necessary to achieve a set of goals and of the stewardship of the assets needed for that achievement.”

Finance, which is not a goal in itself, can help allow for the creation of the good society, a philosophical notion regarding an aspiration goal for an egalitarian society in which all people are valued. The implication is that finance should not be synonymous with greed. Rather, it is a mechanism which, when working correctly, allows for prosperity. As examples, Schiller cites the funding of a new medical research project and the construction of a new subway system as two goals that finance can help achieve.

Finance and the Good Society is divided into two distinct parts. The first, “Roles and Responsibilities,” details the various careers in finance. He devotes chapters to, among other careers, chief executive officers, lawyers and financial advisers, and regulators. The book’s second section, “Finance and Its Discontents,” borrows its title from Sigmund Freud’s 1930 work, Civilization and its Discontents, in which the famed Austrian-Jewish psychologist noted that many seemed to be discontented with civilization as it existed, but that ultimately it was not so easily improved. Schiller contends that we cannot go back to a simpler time; we can only move forward.

While there is a plethora of interesting material in Finance and the Good Society, there remains something uneven about the work as a whole. Perhaps this is due to the fact that the book is divided into thirty distinct chapters, some of which are only several pages long. It could also be due to the (overly?) ambitious nature of the book, in which Schiller interweaves finance with history and philosophy. For instance, in his discussion of speculative bubbles, he posits China’s Great Leap Forward to have been an “investment bubble that took place in the absence of financial markets” and that “World War I was in a sense a bubble.” These arguments, while thought provoking, are ultimately unconvincing.

In conclusion, Finance and the Good Society is a further edition to the vastly growing corpus of scholarly literature on the financial crisis and the role of finance in society. In many ways, this could prove to be an excellent introduction to the subject of finance for liberal arts-oriented undergraduates. This is particularly true given the fact that many current undergraduates may be skeptical of pursuing careers in finance.

Jon Lewis (c) 2012

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Science and the Stock Market

On March 27, 2012, in economic theory, by Jon Lewis

George G. Szpiro, Pricing the Future: Finance, Physics, and the 300-Year Journey to the Black-Scholes Equation. Basic Books, 2011, pp. 298, $28.00 In the wake of the financial crisis of 2008, economists and pundits alike have questioned what went wrong. Some put the blame squarely on Washington, singling out both the Federal Reserve’s near-zero interest [...]

George G. Szpiro, Pricing the Future: Finance, Physics, and the 300-Year Journey to the Black-Scholes Equation. Basic Books, 2011, pp. 298, $28.00

In the wake of the financial crisis of 2008, economists and pundits alike have questioned what went wrong. Some put the blame squarely on Washington, singling out both the Federal Reserve’s near-zero interest rate policy and a deeply flawed federal housing policy. Others look toward Wall Street, with many rethinking if a largely unregulated and non-transparent derivatives market has been serving the public interest. While there is certainly some validity to questioning whether complex financial instruments should have been better regulated, it must not be forgotten that the same advances in economics and mathematics that allowed investment banks to create risk-transferring derivatives also have allowed us to better understand how financial markets work. When it comes to economics and finance, math matters.

In Pricing the Future, a recent work that does not deal specifically with the recent financial crisis, the author takes the reader on a fascinating intellectual journey in exploring the origins, and development of, the Black-Scholes options-pricing equation. Written by George Szpiro, Ph.D., “a mathematician-turned-journalist” and the Israel correspondent for the Neue Zürcher Zeitung, a Swiss newspaper, Pricing the Future is an engaging study in the history of ideas. More importantly, perhaps, it is a study of the personalities behind the mathematical and scientific discoveries that created this financial model.

The problem solved mathematically by the Black-Scholes equation, eponymously named after Fischer Black and Myron Scholes, is how to price options, defined succinctly by the author as “contracts that give the right, but do not entail the obligation, to buy or sell something, usually a good or a security, at a certain date or a certain price.” Options can be used in commodities themselves, such as when a farmer decides to purchase an option to buy a certain amount of grain for a certain price not in the present, but in the future. They are used regularly in the world of finance to hedge risk, such as when an investor buys the right, but not the obligation, to purchase stock in a given publicly-traded corporation at a certain price in the future. In other words, one can pay a premium today for the right, but not the obligation, to buy or to sell a security in the future. The Black-Scholes equation, which won the two men a Nobel Prize (note that, because the Nobel Committee does not give awards posthumously, Robert Merton did not receive the prize and, unfortunately, his name is not on the equation), gives a “mathematically precise value” to options.

One particularly compelling aspect of the Black-Scholes options pricing formula was the discovery “that the value of options does not depend upon the investors’ attitude toward risk.” This, in many ways, is counterintuitive. One would think that an investor’s wariness about the potential risk of a security should factor into how much said investor should be willing to pay for the option either to purchase or to sell a security at a given point in the future. As Black, Scholes, and Merton discovered, however, “the volatility of the underlying stock plays a crucial role and that the investors’ attitude toward risk plays none.” The value of an option, it turns, out, depends upon five variables. They are as follows: “the price of the underlying stock, the option’s exercise price, the time to maturity, the risk-free interest rate, and the variability of the stock’s price movements.”

The Black-Scholes equation, of course, did not materialize out of thin air. Numerous people and their discoveries and theories, at times both flawed and groundbreaking, paved the way for the options-price formula. In Pricing the Future, Szpiro discusses how the lives and works of such diverse personalities as Jules Regnault, Louis Bachelier, Robert Brown, and Kiyoshi Itō, among other notable scholars, all laid the intellectual foundations for what was to become the Black-Scholes equation. The reader learns, for instance, that Regnault, in nineteenth-century France, “was the first person to try to understand the workings of the stock exchange in mathematical terms.” Although his work was flawed, he did presage the intriguing fact that “stock prices do move in proportion to the square root of time.”

The most important character in the narrative, however, may be the English doctor and botanist, Robert Brown, after whom Brownian motion is named. In 1827, Brown conducted a scientific experiment in which he suspended pollen in water and observed it under a microscope. What he saw was nothing short of amazing. The particles were continuously moving, engaging in a “‘rapid oscillatory motion’.“ This rapid, continuous movement became known as Brownian motion. Albert Einstein, as well as Marian Smoluchowski would discover that “when particles hit the particle from random directions, the probability of a certain displacement of the particle would be governed by the normal distribution.” This connection between randomness and the normal distribution was important. Furthermore, the Japanese mathematician, Kiyoshi Itō would, through his work on stochastic calculus, allow for the understanding of Geometric Brownian motion, which would aid economists in understanding how the stock market, which cannot fall in value below zero, works. Probability theory, statistics, and mathematical economics, including the work of Paul Samuelson, plays a significant role in this work of intellectual history.

Szpiro discusses how Merton and Scholes, through their work at the Long-Term Capital Management (LTCM), sought to apply their models to the financial sector. LTCM, of course, held billions in assets, relied highly on borrowed money, and eventually had to be bailed out, albeit by private banks. The reader also learns what is perhaps one of the more fascinating aspects of how the stock market works. “The really interesting things in the stock market, like booms and busts, are not described the figure’s central parts, but by its tails. And this is where the normal distribution leads us astray.”

In other words, be wary of unexpected and largely unpredictable events. They matter more than one might initially expect them to. “The conclusion,” writes the author, “is that the normal distribution is not a good description of stock price movements. More weight must be given to extreme events; the distribution of stock price movements obviously has fatter tails than the normal distribution.” That said, Szpiro does not believe in making Black, Scholes, and Merton out to be villains. In fact, he equates blaming them and their work for “aberrations” such as the LTCM crash, the financial crisis, and Lehman Brothers “would be like accusing Newton and the laws of motion for fatal traffic accidents.” This is something worth consideration, especially since it is not likely that academic economics and finance will become divorced from mathematics anytime soon.

Because Szipro’s work is filled with both personal anecdotes and detailed scientific theory, it is difficult to encapsulate fully the richness of this recent contribution to the growing corpus of literature on the interaction between math, statistics, and finance. For those readers interested in learning about randomness, mathematical modeling, and how those models, when applied by real people in the real world, do not always work exactly as envisioned, Pricing the Future is an excellent choice.

Jon Lewis (c) 2012

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The Banking Dead

On January 10, 2012, in banking, Federal Reserve, monetary policy, moral hazard, by Jon Lewis

Zombie Banks: How Broken Banks And Debtor Nations Are Crippling the Global Economy. Yalman Onaran. Bloomberg Press, 2012, pp. 184, $34.95 Over the past several years, both the Tea Party and Occupy Wall Street (OWS) have been at the forefront of criticizing the federal government’s bailout of large financial institutions. While their criticism is generally [...]

Zombie Banks: How Broken Banks And Debtor Nations Are Crippling the Global Economy. Yalman Onaran. Bloomberg Press, 2012, pp. 184, $34.95

Over the past several years, both the Tea Party and Occupy Wall Street (OWS) have been at the forefront of criticizing the federal government’s bailout of large financial institutions. While their criticism is generally merited, it is unclear whether it would have been realistic, not to mention politically viable, to have let the big banks fail. Such a move truly could have had devastating effects on the American economy, dwarfing the Great Recession and its aftereffects.

Letting the banks survive to see another day, however, led to the creation of financial zombies, dead, but still living. Not only do they linger in our midst, zombie banks are also holding back our economic recovery. Such is the thesis of Yalman Onaran’s recently published Zombie Banks: How Broken Banks are Crippling the Global Economy. Onaran, a reporter at Bloomberg News, builds upon the notion of zombie banks, a concept first utilized by finance professor Edward J. Kane in a 1987 academic paper. “In its simplest form,” writes Onaran, “[a] zombie bank refers to an insolvent financial institution whose equity capital has been wiped out so that the value of its obligations is greater than its assets.” In its simplest formulation, these are banks that are, for a lack of a better term, broke, but kept alive through government intervention or, as the case may be, non-intervention.

Onaran’s intention in writing this book was to provide a big picture analysis of the global financial crisis. The author argues that many of the current policies employed by both European and the American polities have resulted in the creation of zombie banks. These financial zombies remain alive due to, among other factors, government backing of bank debt and near-zero interest rates. Onaran contends that, “it’s the taxpayer money that zombie banks eat and that’s where their harm to society is.” In a series of vignettes written in a lively, accessible journalistic style, he is generally successful in showing the interconnectedness of the distressed banking sector, government policies on both sides of the Atlantic, and economic stagnation. Indeed, he boldly contends that, “despite their claims to the contrary, politicians worldwide have not tackled the structural problems in the financial system underlying that crisis.” Temporary fixes, it could be said, are not solutions.

Onaran utilizes a comparative approach, one that is notably lacking in many journalistic accounts of the financial crisis. In detailing the differences in how Iceland, Ireland, and the United States handled their respective countries’ banking difficulties, he provides particular insight into the problem of zombie banks. The United States took somewhat of a middle course between the two aforementioned island nations’ approaches to troubled banks, a trajectory more akin to that taken by Germany, which created its own zombies.

Whereas the Irish government initially guaranteed the liabilities of the country’s national banks in 2008 in response to the credit crunch, the Icelandic government embarked upon a starkly different course, seizing the banks and restructuring them, effectively letting the bad banks die. “So while one island’s banks were kept alive as zombies for two more years before they brought down the whole country with them,” writes Onaran, “the neighboring island’s troubled banks were allowed to die.” He points out that, while Iceland has not had it easy since 2008, the country did two notable things correctly; first, private bank debt was not converted to public debt and second, Reykjavik did not prop up failed banks, allowing them to continue artificial lives as zombies.

The relationship between the private debts of financial institutions and sovereign debt is a significant one. “As is the case with most financial crises,” posits Onaran, “the problems of the banks are closely associated with the debt overhang society faces after a decade or two of binging on cheap credit.” He raises thought-provoking issues regarding central bank policies that keep interest rates at a near-zero level.

Onaran contends that these exceedingly low interest rates designed to keep zombies alive and to aid them in healing their balance sheets has harmful societal effects and terms it “a wealth transfer from pensioners and others relying on fixed returns of their savings to the banks’ coffers.” This results, for a segment of society, in reduced disposable income and reducing spending. He also highlights what he perceives to be the connection between quantitative easing and events abroad, positing that it has led to commodity price increases and bubbles in emerging markets. Cheap money, it would seem, needs a home. One could easily imagine a future study detailing the largely unforeseen effects that quantitative easing had had on the politics of foreign lands.

In conclusion, Zombie Banks is a useful addition to the growing corpus of literature on the global financial crisis. While the author could have devoted more attention to the issue of moral hazard in banking regulation, free market advocates will be heartened by Onaran’s contention that propping up banks that should have died is not fair to competitors. “In a real market economy, those companies that take the wrong risks and lose out are supposed to fail, their customers and market share shifting to the surviving firms that were more prudent.” Onaran’s suggestion that governments need to kill the zombies off so that economies can recover is perhaps theoretically correct, though it is probably politically impossible at this time, at least in the United States. Bailouts may be, for better or worse, the new normal. If that is the case, then zombies will continue to stagger among us.

Jon Lewis (c) 2012

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How Capitalism Survived The Crisis

On December 7, 2011, in banking, Federal Reserve, monetary policy, by Jon Lewis

The Legacy of the Crash: How the Financial Crisis Changed America and Britain. Edited by Terrence Casey. Palgrave Macmillan, 2011, pp. 291, $32.00 Historians, when studying economic or political events, often focus on whether a particular historical occurrence represents a break from, or continuity with, the past. There is, for instance, a general consensus that [...]

The Legacy of the Crash: How the Financial Crisis Changed America and Britain. Edited by Terrence Casey. Palgrave Macmillan, 2011, pp. 291, $32.00

Historians, when studying economic or political events, often focus on whether a particular historical occurrence represents a break from, or continuity with, the past. There is, for instance, a general consensus that the Great Depression, and both FDR’s and the Supreme Court’s response, represented a departure from American legal and political history, when the federal government intervened far less in economic affairs. But what of the responses to the financial crisis of 2008, when a Republican administration pursued a deeply interventionist strategy in the hopes of preventing a worldwide economic collapse, and the British government effectively nationalized a major bank? Did that represent the beginning of the end for Anglo-American capitalism or a temporary departure from business as usual?

The Legacy of the Crash, edited by Terrence Casey (Rose-Hulman Institute of Technology), attempts to shed light on how the crisis and its aftershocks may have transformed American and British political culture. Given that the chapters were originally academic papers presented at a September 2010 conference, it is unsurprising that the prose is largely scholarly, with numerous citations. The book is divided into three sections: the causes and consequences of the financial meltdown; political trends after the crash; and how public policy changed after it. While The Legacy of the Crash would be most valuable to scholars, readers interested in learning more about how the financial crisis affected the United States and the United Kingdom can nevertheless benefit somewhat from a perusal of the book.

Casey, in the book’s introduction, contends that the origins of the financial crisis had multiple causes. He argues against simplistic explanations of what went wrong. “It may provide moral or political comfort to identify a sole culprit, be it greedy bankers, economic theorists, short-sighted politicians, misguided regulators, or irresponsible homeowners. Reality though is closer to the plot of Agatha Christie’s Murder on the Orient Express, where everyone was guilty.” This passage, while pithy, might have been better written to acknowledge that, whereas everyone was guilty, not everyone was equally guilty. After all, it would be difficult to imagine that the crisis would have occurred but for the Federal Reserve’s easy money policies enacted after the dot-com bust in the early 2000s.

Are the American and British versions of capitalism similar? In “Was there Ever an Anglo-American Model of Capitalism?” (Chapter 2), Wyn Grant (University of Warwick/International Political Science Association) puts forth the argument “that the UK does conform to a liberal model of capitalism, not least in terms of the centrality and mode of organization of the financial services sector, but that the terrain is more contested than in the US.”

If there was indeed a crisis of capitalism, as Casey suggests in his essay, “Capitalism, Crisis, and a Zombie Named TINA” (Chapter 3), does that logically infer that capitalism is doomed to the dustbin of history? Quite the opposite, according to the author, who cites Margaret Thatcher’s acronym, TINA — There is no Alternative (to Anglo-American capitalism). “This crisis of capitalism, in short has yet to produce a counter-liberal coalition in either Britain or America, let alone that has maneuvered to a position of electoral success. Mrs. Thatcher’s axiom still rings true, at least for now.” When the two aforementioned authors write of liberalism, it should be emphasized, they are speaking of classical liberalism and free market capitalism, rather than of the American liberal-left political tradition. The Occupy Wall Street movement may, however, be the beginning of an anti-TINA coalition. Indeed, it would appear that at least one Republican pollster is concerned about the impact of OWS on Americans’ perceptions of capitalism.

While the Anglo-American model may arguably remain intact, the United States and the United Kingdom have their differences. In “Fiscal Policy Responses to the Economic Crisis in the UK and the US” (Chapter 5), Edward Ashbee (Copenhagen Business School) argues that despite the notion of an Anglo-American model of capitalism, “there were, as the financial crisis unfolded, important economic policy differences between the US and the UK. In particular, discretionary fiscal policies took very different forms.” Tom Bale (University of Sussex) and Robin Kolodny (Temple University) cite the work of other writers and remind us that that, while both are center-right parties, the Conservatives and the Republicans have both their similarities and their differences.

In the book’s conclusion, Casey posits that there was a crisis of capitalism. It was expected that the political economies of both countries would take a new path. “And yet, as chronicled by this volume,” he writes, “so much of what has occurred since then belies this prediction. In terms of public policy, economic governance, and political trends, there has been far more consistency than change.” Whether one accepts Casey’s argument, of course, is a matter of perspective. A Tea Party activist, for instance, might posit that the Obama Administration’s interventionist policies, if not combated, will fundamentally alter the relationship between the federal government and the private sector.

Casey, however, is spot on in arguing that, “one would hope that the primary legacy of the crash is to demolish the sense that ‘it cannot happen here’ and that politicians, financiers, and even individual consumers will adjust their behavior accordingly.” This assessment is even more pertinent in light of the failure of the congressional super-committee and the yet uncertain effects that the European debt crisis will have on the American and British economies.

In conclusion, The Legacy of the Crash will be more useful to the scholarly community, rather than to policymakers. While the chapters on the causes and consequences of the crash (Part I) have some useful insights, they do not substantially break new ground. The comparative approach between the United States and the United Kingdom, however, is a useful one. It would certainly be beneficial if more scholarly analyses of the financial crisis acknowledged how the Bush Administration’s policies in late 2008 were similar to, or different from, policies enacted by other western governments. Today, it is the Continent, rather than the United States or the United Kingdom, which faces an immediate financial crisis. One could imagine that in a couple of years hence, scholars will gather to assess how various European governments either succeeded or failed to respond to events that may or may not end the Euro.

Jon Lewis (c) 2011

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