How the Economy Works: Confidence, Crashes and Self-Fulfilling Prophecies
Farmer explains the differences between classical and Keynesian economics and shows how they influenced the policy debate that developed after the 2007 world financial crisis began and exploded into a global disaster, with the collapse in the U.S. of Lehman Brothers in the fall of 2008. Along with a history of economic thought from 1776 to the present (noting it is incomplete), the author offers his suggestions for preventing future financial crises. “The correct response to the crisis is to set in place, in every country in the world, an institution to control the value of national stock market wealth by targeting the rate of growth of an index fund.” “Central banks should use changes in the size of their balance sheets to prevent inflation from rising too high or too low. They should use changes in the composition of their balance sheets to prevent bubbles and crashes.” This challenging book will appeal to the academic community but not to a broad range of readers. --Mary Whaley