From the Introduction:
The main problem with our economic system is not that it is hardto predict, but that, despite its enormous productivity andcreativity, it appears to be in a state of ill health. The economyis unfair, unstable, and unsustainable. But theory has no way ofdealing with these issues.
The economy if unfair. Economic theory is supposed to beabout optimizing the allocation of resources. However, the realityis that the rich really do get richer. In 2009 one hedge fundmanager earned over $2 billion, while over a billion people earnedless than $1 a day. That s a strange way to allocateresources.
The economy is unstable. According to theory, the invisible hand should keep asset prices at gold, andhard currencies are subject to enormous gyrations. In later 2007the price of oil surged to over $140 a barrel, then plunged tounder $40, all in the space of a few months. Oil is often calledthe lifeblood of the economy, but our blood supply is much betterregulated. For a while it seemed the economy was having a cardiacevent.
The economy is unsustainable. According to theory, theeconomy can grow forever without encountering limits. The realityis that we are bumping up against hard constraints due to thingslife over–crowding, climate change, and environmental degradation.As environmentalists point out, never–ending growth is thephilosophy of a cancer cell.
Together, these problems far exceed the importance of an eventlike the credit crunch. The debt that the global economy isbuilding up with the environment, or the debt of rich countries topoor countries, is of much greater concern than the debt of banksto governments or shareholders. Indeed, it may turn out that thiscrisis was a blessing in disguise, if it provides the impetus forus to rethink our approach to money.
“This is without doubt the best book I′ve read this year, andprobably one of the most important books I′ve ever read This ought to be a real game changer of a book. Read it.”
Brain Clegg, author of Before the Big Bang: ThePrehistory of Our Universe, writing at popularscience.co.uk
From the failure of wealth to make us happier, to the world′scatastrophic blindness in the lead–up to the credit crunch,Economyths reveals ten ways in which economics has failed usall.
Forecasters predicted a prosperous year in 2008 for financialmarkets in one influential survey the average prediction wasfor an eleven percent gain. But by the end of the year majoreconomies were plunging into the worst recession since the GreatDepression. In 2010, they still haven t fully recovered.
An even bigger casualty was the credibility of economics, whichfor decades has claimed that the economy is a rational, stable,efficient machine, governed by well–understood laws. If all thiswere true, how could the world′s most brilliant and talentedfinancial prognosticators get it so wrong? Why couldn t ourelaborate economic theories predict or prevent this enormousfinancial crisis from happening?
Mathematician David Orrell explores these provocative questionsand more. Tracing the history of economics from its roots inancient Greece to the financial centres of London and New York, hereveals ten distinct ways in which it is mistaken andproposes intriguing, and sometimes controversial, newalternatives.
An unapologetic critic of economic theory, Orrell explains howthe economy is the result of complex ad unpredictable processes;how risk models go astray; why the economy is not rational or fair;why until very recently no woman had ever won the Nobel Prize foreconomics; why financial crashes are less Black Swans than part ofthe landscape; and finally, how new ideas in mathematics,psychology, and environmentalism are helping to reinventeconomics.
Orrell deftly translates the arcane language of economic theoryinto a relevant, contrarian, and compelling exploration of theemotional subject of money. Economyths is a fascinating andelegantly written inquiry into the flaws in our conventionaleconomic models, how they got us into so much trouble, andalternatives that could revolutionize the way we think about theeconomy.
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