Stephen Karlson (shkarlson) wrote in 50bookchallenge,
Stephen Karlson

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We continue our survey of writing on the financial crisis of 2008-09 with Thomas E. Woods's Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. Book Review No. 47 will be relatively short, as the subtitle takes away any possibility of a review including spoilers. Mr Woods covers some of the same history as columnist Michael Lewis did in Panic (reviewed here) and he offers a different policy perspective from Paul Krugman in The Return of Depression Economics and the Crisis of 2008 (reviewed here). Where Professor Krugman sees merit in Keynesian countercyclical fiscal policies and changes in government regulation of financial markets, Mr Woods sees none. In his view, the government's mortgage agencies and the Federal Reserve created and enabled serial bubbles, and those agencies cannot be depended upon to undo the effects of the unwinding of the bubbles. He'd rather offer (this being a Regnery book, it's more likely to appeal to the converted than to change minds) a potted Austrian business cycle explanation for the bubbles and a return to money backed by precious metals. His use of the Austrian business cycle models would probably not satisfy a serious historian of economic thought, and, although I remember only enough of income theory and monetary economics to be dangerous, I would have liked first, a more careful explanation of why exhaustible resources (which is what gold and silver are) that have uses in industrial processes and in ornamentation as well as in stores of value are necessarily superior to other mediums of exchange -- that's not as easy as it looks; second, an explanation why a central bank with a common reserve requirement is necessarily inferior to competing banks with different reserve positions -- anyone who claims that all cash transactions were once upon a time backed by precious metals has not thought through the origins of fractional reserve banking in the receipts issued by goldsmiths; and third, a more careful analysis of the ability of a central bank to monopolize the creation of money -- researchers having identified M1 through M5 or M6 when I was in graduate school, and I'd be startled if there weren't more definitions including ever more creative instruments of credit.

(Cross-posted toCold Spring Shops.)

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