Martin Wolf's new volume on the causes and consequences of the world financial crisis comes with generous advance praise from, among others, Mervyn King, Larry Summers and Ben Bernanke. That, you might think, is a bit like a manual on maritime safety with jacket blurbs from the crew of the Titanic. But there is not much comfort for the these men within the book's pages. Bernanke, in particular, gets it in the neck: "even two months before the crisis broke, the chairman of the Federal Reserve had next to no idea what was about to hit him, his institution and the global economy. To be blunt, he was almost clueless." It seems he's not too careful about reading the books he endorses, either.
That is a pity, because this is a work that repays close attention. Wolf, a highly respected FT journalist, admits that he himself failed to anticipate the near-apocalyptic events of 2008, having placed too much faith in the benefits of market liberalisation. Noting that orthodox views of how the global economy functions were actually "nonsense", he observes, with just a hint of understatement: "This poses an uncomfortable challenge for economics." Actually, it is not economics that is at fault so much as a politico-financial power structure that privileges certain views of the economy at the expense of lucid dissenting voices. Wolf is certainly to be counted among the latter, as he alternates sophisticated technical explanations with powerful blasts of robust common sense. In the future, anyone who wants to understand why the arteries of the economy suddenly seized up and why it has taken so long for recovery to come will be obliged to refer to this book. Yet in spite of its helpful attempts to draw lessons, there still remains the unanswered question of how sound economic thinking can be made politically operational, when the politicians in charge are so strongly under the influence of the vested interests that seek to maintain the system in its current form.
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