Books To Get You Thinking

It was back in 2007 that the first rumblings of trouble in the US financial sector made an appearance. By 2008 the bursting of the housing bubble and mortgage subprime crisis resulted in chaos in the financial markets and the onset of a recession which has largely become endemic and has acquired global dimensions. Five years have passed by and yet the situation stays grim. The crisis in Europe in the face of soaring debts in Greece, Spain and Italy threatens to escalate and send shock waves over the entire global system. There is a slowdown in the Chinese and Indian economies with inevitable ripple effects on other countries through lower levels of demand. At the same time there seems to be no quick fix for the stagnating manufacturing sector in the US as investment and hiring continues to be held back and the high deficit levels remain worrisome. The critical question that arises is how we could deploy a combination of economic, monetary and fiscal policy measures to help restore economic growth and break the cycle of stagnation and unemployment. Mercer County Library has a comprehensive collection of books dealing with diverse aspects of investment, economic growth, financial markets and the global flow of capital that could help readers comprehend the complex dynamics and inter connectivity between the different economies that are enveloped by the financial crisis.

How Markets Fail: The Logic of Economic Calamities by John Cassidy A British author and contributor to the New Yorker, John Cassidy pens this excellent contribution to the prevalent schools of thought about the way free markets work . The book provides readers with a window into the history of economic thought dating back to Adam Smith’s elucidation of the “Invisible Hand”, then further refined by Friedrich von Hayek. It was in the fifties that the mathematical model developed by Arrow and Debreu demonstrating how free markets would lead to a situation of general equilibrium became the definitive standard for exponents of the laissez faire economy. Cassidy provides an outstanding analysis of the assumptions on which such “Utopian economics” rests and the scenarios where unfettered free market forces would not only fail at providing an efficient allocation of resources but where the absence of controls especially in financial services would inevitably lead to crisis situations such as the housing bubble and the subprime mortgage crisis of 2008. Cassidy builds a rigorous framework where monetary policy and economic regulations superimposed on free market forces would translate into “reality based economics”.

Boomerang: Travels In the New Third World by Michael Lewis Following on the heels of the author’s 2010 bestseller, The Big Short: Inside the Doomsday Machine, this book examines the current financial crisis from a global perspective by analyzing events in different countries in Europe including Greece, Ireland and Iceland that are currently mired under staggering levels of debt. Lewis relates each nation’s fascinating story of financial recklessness which in sum has translated into financial instability for the entire European Union with the euro coming under intense pressure. The high levels of public deficit have been accompanied by debts involving the banking system of the countries following on the heels of the readily available cheap credit, risky borrowing and sophisticated financial tools such as credit swaps. Statistics collected by Lewis reveal startling numbers: Iceland with debts exceeding twenty five times its annual tax revenue, while for Spain and France the number stands at ten times the annual tax revenues. Lewis is able to explain complex financial events and scenarios using plain language which makes the book both lucid and comprehensible to a wide range of readers.

From Financial Crisis to Global Recovery by Padma Desai The author, a Professor of Comparative Economic Systems at Columbia University has provided an analytical framework for examining different facets of the current economic crisis in this very engaging and absorbing book. Desai begins with tracing the origins of the financial crisis in the US then goes on to provide a fascinating narrative that includes the extraordinary efforts by the Fed and the Treasury to protect the banking system from collapsing. Turning the pages readers gain an understanding of the challenges that face the path of economic recovery, the implications of the exponentially rising deficits and how the practices of derivatives, and credit swaps are inextricably tied to future investment and growth. Desai has also included an analysis of the financial instability among members of the European Union and its implications for global recovery. In the final section the author draws a comparison between the Great Depression of the ‘30s and the Current Financial Crisis in terms of policy implications for restoring economic growth.

Manias, Panic and Crashes: A History of Financial Crises by Charles Kindleberger, Robert Aliber and Robert Solow

In this book Robert Aliber, Professor of International Economics at the Chicago Business School provides an update on the timeless classic penned by Charles Kindleberger, renowned global economist and economic historian (1910-2003) who authored over 30 books over his lifetime. The book provides a superb analysis of the recurring crisis in financial markets over the last two and a half centuries caused by financial mania or financial bubbles. It spans all the major incidents of financial manias and panic - the recent housing price bubble and the stock market bubble of 1995-2000 in the US, the bubble in real estate and stocks in Asia during the ‘90s, in Japan, Finland and Sweden in the ‘80s. The analysis goes all the way back to the 1920s stock market crash, the South Sea Bubble of 1720 and the Dutch Tulip Mania of 1636 demonstrating how financial bubbles a result from an irrational market response to rising values of a capital asset and an opportunity for profits , juxtaposed with easy credit conditions. Inter linkages between economies and the global flows of capital result in a rapid spread of the crisis to every corner of the world. In such scenarios Kindleberger advocates appropriate action from the government, the “domestic lender of last resort” to contain the financial crisis from spiraling into a deep recession.

Nita Mathur 


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