Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World

Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World

by Jeff Madrick
     
 

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A bold indictment of some of our most accepted mainstream economic theories—why they’re wrong, and how they’ve been harming America and the world.

Budget deficits are bad. A strong dollar is good. Controlling inflation is paramount. Pay reflects greater worker skills. A deregulated free market is fair and effective. Theories like these have

Overview

A bold indictment of some of our most accepted mainstream economic theories—why they’re wrong, and how they’ve been harming America and the world.

Budget deficits are bad. A strong dollar is good. Controlling inflation is paramount. Pay reflects greater worker skills. A deregulated free market is fair and effective. Theories like these have become mantras among American economists both liberal and conservative over recent decades. Validated originally by patron saints like Milton Friedman, they’ve assumed the status of self-evident truths across much of the mainstream. Jeff Madrick, former columnist for The New York Times and Harper’s, argues compellingly that a reconsideration is long overdue.

Since the financial turmoil of the 1970s made stagnating wages and relatively high unemployment the norm, Madrick argues, many leading economists have retrenched to the classical (and outdated) bulwarks of theory, drawing their ideas more from purist principles than from the real-world behavior of governments and markets—while, ironically, deeply affecting those governments and markets by their counsel. Madrick atomizes seven of the greatest false idols of modern economic theory, illustrating how these ideas have been damaging markets, infrastructure, and individual livelihoods for years, causing hundreds of billions of dollars of wasted investment, financial crisis after financial crisis, poor and unequal public education, primitive public transportation, gross inequality of income and wealth and stagnating wages, and uncontrolled military spending.

Using the Great Recession as his foremost case study, Madrick shows how the decisions America should have made before, during, and after the financial crisis were suppressed by wrongheaded but popular theory, and how the consequences are still disadvantaging working America and undermining the foundations of global commerce. Madrick spares no sinners as he reveals how the “Friedman doctrine” has undermined the meaning of citizenship and community, how the “Great Moderation” became a great jobs emergency, and how economists were so concerned with getting the incentives right for Wall Street that they got financial regulation all wrong. He in turn examines the too-often-marginalized good ideas of modern economics and convincingly argues just how beneficial they could be—if they can gain traction among policy makers.

Trenchant, sweeping, and empirical, Seven Bad Ideas resoundingly disrupts the status quo of modern economic theory.

Editorial Reviews

The New York Times Book Review - Paul Krugman
…Jeff Madrick…argues that the professional failures since 2008 didn't come out of the blue but were rooted in decades of intellectual malfeasance…Seven Bad Ideas tells us an important and broadly accurate story about what went wrong.
Publishers Weekly
08/25/2014
Madrick (Age of Greed) takes aim, in dense but readable prose, at mainstream economic thinking: the ideas that are so commonly accepted that they’re now taken as gospel. Focusing on the 2008 recession, he presents a thorough exegesis of this accepted wisdom and its effect on the economy, starting with Adam Smith’s “Invisible Hand” theory, which describes how buyers and sellers decide a good or service’s ideal price. Madrick goes on to examine Say’s Law and austerity economics, John Maynard Keynes’s theories on interest rates, and Milton Friedman’s theories of free markets. He also addresses the question: where did we go awry? Mainly, he says, when we started treating economics as a perfect science, thereby giving “economic ideas more credibility than they often deserve.” Moreover, modern thought has led us to believe that the government is almost always bad and the markets almost always good. Those bankers and economists who failed to avert the crisis aren’t evil, according to Madrick, just misguided, particularly in oversimplifying major economic shifts. This book is an attempt to inject the complexity back in. As a result, it’s a tough read for the nonacademic reader, but one well worth the effort. (Oct.)
From the Publisher
“Jeff Madrick argues that the professional failures since 2008 didn’t come out of the blue but were rooted in decades of intellectual malfeasance…As Madrick makes clear, many economists have, consciously or unconsciously, engaged in a game of bait and switch….Seven Bad Ideas tells an important and broadly accurate story about what went wrong.”
—Paul Krugman, The New York Times

“Must-read….In this brisk and accessible volume, which should be on Econ 101 syllabi, Madrick outlines the wrong-headed propositions, fictitious models, shoddy research, and partisan agendas that have made a reexamination of the entire field long overdue, especially in the wake of the financial crisis of 2008.”
Salon

“An important and eloquent voice…Madrick’s wonderful chapter on efficient markets should be required reading for everyone in the financial world.”
The New York Review of Books

“Fascinating and provocative….Madrick makes a strong, persuasively argued case, offering a refreshing take on the political and fiscal policies that have defined our era, and the questionable foundations on which they uncomfortably rest.”
PopMatters.com

“Bankers and economists who failed to avert the [2008] crisis aren’t evil, according to Madrick, just misguided, particularly in oversimplifying major economic shifts. This book is an attempt to inject the complexity back in…well worth the effort.”
Publishers Weekly

“If there were an eighth bad idea, it would be ignoring this book.”
Shelf Awareness

“A readable, useful economic text. Somewhere, John Maynard Keynes is smiling.”
Kirkus
 
“‘Zombie ideas,’ it’s been said, are those that should have been killed by evidence, but refuse to die. Even more obdurate are the axioms of orthodox economics, upon which pernicious policies are erected. Mythbuster Madrick, in clear and compelling prose, demolishes seven of the biggest of these. May they (hopefully) rest in peace.”
—Mike Wallace, Pulitzer Prize-winning historian and coauthor of Gotham 

“In his incisive new book Jeff Madrick shows in rigorous and compelling detail how mainstream economic theory not only failed to anticipate the financial crisis of 2008 and the recession that followed, but actively contributed to the worst economic calamity since the Great Depression. If you suspect there is something radically wrong with mainstream economic theory, you must read Seven Bad Ideas.”
—John Gray, emeritus professor, London School of Economics

“In the venerable Mark Twain tradition, Jeff Madrick explains that what makes some economists so dangerous isn’t what they don’t know, it’s what they know that just ain’t so.”
—Robert H. Frank, author of The Economic Naturalist

“Thanks to Jeff Madrick, the Seven Deadly Sins now have serious competitors from seven ideas economists have spread to our detriment. Jeff is an economist, too, but he is an icon buster who writes with verve, clarity and a fierce sense of justice. May he encourage his colleagues to second thoughts—and may some even consider repentance.”
—E.J. Dionne, Jr., author of Our Divided Political Heart

“The economics of ‘free market’ doctrines is not underpinned with valid knowledge. Its bogus scientific authority provides a cover for finance and big business to squeeze the rest of society. Jeff Madrick is an excellent guide to the whole range of finance-friendly policies in recent decades, in the U.S. and globally, and is especially good on ‘efficient markets theory,’ whose assumption that money can do no wrong is the bitter root of the current economic crisis.”
—Avner Offer, professor emeritus, University of Oxford
 
“Influenced on the one side by broad, somewhat ideological belief in the efficacy of markets, and on the other side by strong belief in the value of what can be learned by building and analyzing simple formal models, in recent years the economics discipline has lost much of its ability and interest in studying pragmatically and empirically how the economy actually operates. Madrick’s Seven Bad Ideas is one of the best discussions of this problem that I have seen.”   
—Richard Nelson, professor emeritus, Columbia University
 
 
“Invigorating…Jeff Madrick is so inventive a writer that, for each of the bad ideas he analyzes, Madrick also makes you think about a good idea. This is a real contribution to making economics a more responsible discipline.”
—Richard Sennett, author of The Fall of Public Man

 
 

Kirkus Reviews
2014-08-13
For the crash they failed to predict, for the Great Recession that followed and for the piddling recovery, a longtime economics journalist blames the wrongheaded theories of orthodox economists. By "orthodox," Harper's columnist Madrick (Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present, 2011, etc.) means the right and center-left economists who've taken their cues for the past 40 years from Milton Friedman, "the godfather" of the laissez faire revolution. The author marvels at how Friedman and his disciples have escaped censure for policy recommendations accounting for our current mess and takes a stick to the profession for its insularity, trendiness and refusal to abandon theory in the face of stark, real-world facts. Their litany of error, Madrick insists, stems from reliance on Adam Smith's Invisible Hand theory: that, without any outside interference, buyers and sellers will reach a just accommodation. This 18th-century insight, writes the author, was descriptive rather than prescriptive and surely an incomplete model of modern markets. Its simplicity encouraged the modern era's move toward widespread deregulation. From the Freidmanites' horror at the prospect of government intervention flowed other bad ideas: that "supply creates its own demand" and economies will self-adjust; that government is useful only for correcting occasional market failures; that targeting inflation is all that really matters; that markets are highly rational, unsusceptible to fashion or speculative bubbles; that globalization will somehow triumph, and free trade will lift all boats. Madrick hammers mainstream economists for their insistence that economics is a science rooted in mathematics, unaffected by political bias. We'd do better, he argues, to make room for sociology, psychology, history, philosophy and theology to better account for real-world uncertainties and ambiguities. Economics, he insists, "is a set of value judgments," and notions of decency and community are every bit as relevant as "the special knowledge" held by the high priests. A readable, useful economic text. Somewhere, John Maynard Keynes is smiling.

Product Details

ISBN-13:
9780307961181
Publisher:
Knopf Doubleday Publishing Group
Publication date:
09/30/2014
Pages:
272
Sales rank:
1,274,590
Product dimensions:
8.40(w) x 6.20(h) x 1.20(d)

Meet the Author

Jeff Madrick, a former economics columnist for Harper’s and The New York Times, is a regular contributor to The New York Review of Books and the editor of Challenge magazine. He is visiting professor of humanities at The Cooper Union and director of the Bernard L. Schwartz Rediscovering Government Initiative at the Century Foundation. His books include Age of Greed, The End of Affluence, and Taking America. He has also written for The Washington Post, the Los Angeles Times, Institutional Investor, The Nation, The American Prospect, The Boston Globe, and Newsday. He lives in New York City.
 
www.jeffmadrick.com

@JeffMadrick

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