How the Economy Works: Confidence, Crashes and Self-Fulfilling Prophecies

"Of all the economic bubbles that have been pricked," the editors of The Economist recently observed, "few have burst more spectacularly than the reputation of economics itself." Indeed, the financial crisis that crested in 2008 destroyed the credibility of the economic thinking that had guided policymakers for a generation. But what will take its place?

In How the Economy Works, one of our leading economists provides a jargon-free exploration of the current crisis, offering a powerful argument for how economics must change to get us out of it. Roger E. A. Farmer traces the swings between classical and Keynesian economics since the early twentieth century, gracefully explaining the elements of both theories. During the Great Depression, Keynes challenged the longstanding idea that an economy was a self-correcting mechanism; but his school gave way to a resurgence of classical economics in the 1970s-a rise that ended with the current crisis. Rather than simply allowing the pendulum to swing back, Farmer writes, we must synthesize the two. From classical economics, he takes the idea that a sound theory must explain how individuals behave-how our collective choices shape the economy. From Keynesian economics, he adopts the principle that markets do not always work well, that capitalism needs some guidance. The goal, he writes, is to correct the excesses of a free-market economy without stifling entrepreneurship and instituting central planning.

Recent events have shown that we cannot afford to treat economics as an ivory-tower abstraction. It has a direct impact on our lives by guiding regulators and policymakers as they make decisions with far-reaching practical consequences. Written in clear, accessible language, How the Economy Works makes an argument that no one should ignore.

About the Author

Roger E. A. Farmer is Professor and Chair of the Economics Department at UCLA. The author of six books and numerous journal articles, he is a Research Associate of the National Bureau of Economic Research and of the Centre for Economic Policy Research. He has served as a consultant to the Federal Reserve Bank of Atlanta, the Reserve Bank of Australia, the European Central Bank and the Bank of England. He is a contributor to the Financial Times Economists' Forum and, in 2000, received the University of Helsinki medal in recognition of his work.

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Ten Great Economist

Originally published in 1952, this seminal work is reproduced here with a new introduction by Professor Mark Perlman, a well-known Schumpeterian scholar. The essays, written between 1910-50 were primarily commemorative pieces marking the achievement of a celebrated economist. Those covered include:

* Marx

* Walras

* Menger

* Marshall

* Pareto

* Bohm-Bawerk

* Taussig

* Fisher

* Mitchell

* Keynes

The appendix includes articles on lesser-known economists Knapp, Von Wieser; Von Bortkiewicz.

With the exception of Marx, Schumpeter himself selected the ten main essays for inclusion in this volume and was personally acquainted with all but two of his subjects. Initially considering them unworthy for publication he relented in the face of public demand since the journals in which they originally appeared were difficult to obtain.

The new introduction places this work in its contemporary context and highlights its importance for students unfamiliar with the original.

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The Theory of Moral Sentiments (1984)

"The Theory of Moral Sentiments" clearly demonstrates that besides mundane economic pursuits, Smith was just as interested, if not more so, in the capacity of people to bestow and to esteem benevolence, and to strive for virtue even while they are pursuing their own self-interest. The root of our motivation to act benevolently toward others, says Smith, is our natural propensity to sympathize with others. By the same token, our need to have others sympathize with us fuels our desire to be esteemed by others for our benevolence and generally virtuous character. But beyond the need for social approbation, we also have a genuine desire to live according to the dictates of conscience (called by Smith the 'Impartial Spectator'). This is our highest impulse and leads us continually to strive for excellence in all spheres of life quite apart from any recognition or encouragement from others. It may be prudent in our economic life to follow our self-interest to secure the basic necessities, but this is only the first stage of personal development toward the much higher goal of living a morally virtuous life. Although "The Theory of Moral Sentiments" is not well known today, it was widely read and highly praised by the leading intellectuals of the day including David Hume and Edmund Burke. The book went through six different editions between 1759 and 1790 and was also translated into French by the widow of Condorcet. To gain a complete picture of Adam Smith and his ideas, every reader of "The Wealth of Nations" should also become familiar with his classic treatment of ethics. 

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Slapped by the Invisible Hand: The Panic of 2007 (Financial Management Association Survey and Synthesis)

Originally written for a conference of the Federal Reserve, Gary Gorton's "The Panic of 2007" garnered enormous attention and is considered by many to be the most convincing take on the recent economic meltdown. Now, in Slapped by the Invisible Hand, Gorton builds upon this seminal work, explaining how the securitized-banking system, the nexus of financial markets and instruments unknown to most people, stands at the heart of the financial crisis.

Gorton shows that the Panic of 2007 was not so different from the Panics of 1907 or of 1893, except that, in 2007, most people had never heard of the markets that were involved, didn't know how they worked, or what their purposes were. Terms like subprime mortgage, asset-backed commercial paper conduit, structured investment vehicle, credit derivative, securitization, or repo market were meaningless. In this superb volume, Gorton makes all of this crystal clear. He shows that the securitized banking system is, in fact, a real banking system, allowing institutional investors and firms to make enormous, short-term deposits. But as any banking system, it was vulnerable to a panic. Indeed the events starting in August 2007 can best be understood not as a retail panic involving individuals, but as a wholesale panic involving institutions, where large financial firms "ran" on other financial firms, making the system insolvent.

An authority on banking panics, Gorton is the ideal person to explain the financial calamity of 2007. Indeed, as the crisis unfolded, he was working inside an institution that played a central role in the collapse. Thus, this book presents the unparalleled and invaluable perspective of a top scholar who was also a key insider. 

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http://www.4shared.com/account/document/M_gyeAgB/Slapped_by_The_Invisible_Hand.html 

 

The Cultural Contradictions Of Capitalism: 20th Anniversary Edition

New afterword by the author, this classic analysis of Western liberal capitalist society contends that capitalism—and the culture it creates—harbors the seeds of its own downfall by creating a need among successful people for personal gratification—a need that corrodes the work ethic that led to their success in the first place. With the end of the Cold War and the emergence of a new world order, this provocative manifesto is more relevant than ever.
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Macroeconomics (5edition)

With its clear and engaging writing style, Macroeconomics  of the most popular books on economics available today. Mankiw emphasizes material that you?re likely to find interesting about the economy (particularly if you?re studying economics for the first time), including real-life scenarios, useful facts, and the many ways economic concepts play a role in the decisions you make every day. 

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Time for a Visible Hand: Lessons from the 2008 World Financial Crisis

The financial crisis, which originated in developed country financial markets, has spread to developing countries and has turned into a global financial meltdown. Governments and Central Banks--though taking many and costly measures--seem powerless to stop the crisis. In light of this major global crisis that is hurting economies across the globe, this highly topical book focuses on the transparency and regulatory measures that become desirable after the current crisis; the implications of both the crisis and regulatory discussions for developing and developed economies; and reforms in the global financial architecture that might make the global financial system more stable and more equitable.

Given the depth of the current financial crisis, the world economy is in unchartered territory. As a consequence, this book aims to systematically understand current major problems, both in the financial system, its governance, and in its links to global economic imbalances. It will try to explain how both market actors and regulators behavior, as well as how the prevailing ideology of extreme financial liberalization without sufficient regulation contributed to the financial crisis. The book presents radical, but specific and politically feasible, proposals to try to ensure a more stable, equitable and growing world economy.

Contributions are written by leading authorities in their field, with a mixture of very senior national--as well as international--policy makers, practitioners from the private sector, and leading academics; contributors come from both developed and developing countries.
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