What will you get from reading a book about the financial crisis? The facts? The reasons? Or maybe both? Now imagine, what will you get from reading 21 books about the financial crisis?
In the blog Planet Money, author Jacob Goldstein has addressed this tricky, but attention-grabbing question. According to MIT economist Andrew Lo, after each book, he felt like he knew less. You must wonder what kind of books did he read. The answer is: Basically everything. A book that summarizes 800 years of financial crisis; 11 theory books written by academics; Or 9 journalistic books that are matter-of-fact recounting of what happened by editors and columnists. What was the reason for Lo’s sense of being misinformed after managing his way through all these different perspectives?
As Jacob Goldstein describes, Lo sets out to give his own perspective of what happened during the crisis, which in my opinion, bears much similarities with Paul Krugman’s criticism of perfect market and rational individuals – one of our class readings. Lo describes this notion as” a false sense of safety, security and prosperity” that was initiated by an economic boom, then further puts part of the blame on the newly and cleverly constructed financial models such as credit default swaps. Encompassing this view, there is his deep concern over economists’ inability to come to an agreement over the causes of the crisis, much akin to the saltwater vs. freshwater economists dispute mentioned by Krugman. 21 books, 21 different perspectives, which raise nothing more than a collection of contradictory interpretations and merely informative conclusions. All the recounted facts and analysis are too fragmented; each offers a little bit of truth, but never the entire truth. Lo even goes as far as making an out-of-the-ordinary comparison, by putting scientists agreeing on data about climate change side by side with economists fighting over what caused crisis. Underlying all these, he implies the need for economists to establish a set of factual information and empirical evidences from which precise conclusions and narratives can be deduced from.
Author Jacob Goldstein seems to be much in agreement with Andrew Lo on this matter. Personally I agree with much of what Lo and Krugman criticize about the perfect market notion. However, I think that what Lo describes about the economists’ debate is along the line of a matter of fact. As Robert Teitelman, who questions the usefulness of Lo’s arguments, exclaims: “If there’s one thing that we’ve learned in the Internet age, it’s that the quest for comprehensiveness and universality is a form of folly”. Having various perspectives on a controversial issue has never been something rare or unusual. Economics is more than just theory; it also encompasses individual behaviors and society, and therefore, comparing economics to climate is utterly unconvincing. Frankly, the world is a strange place and thus, it is impossible to accurately predict market and individual behaviors. While it is very true that economists’ inability to reach an agreement will hugely affect the ability to come up with a solution to get out of the crisis, it is only a utopia in which one can to set up a single set of facts to solve all economic problems. There is no basic principles underlying every aspects of economics, and I do not think there will ever be. I believe in order to find the causes and solve the crisis, we need to look more beyond just the patterns of facts and principles, to social science and behavior patterns that might give rise to more issues than we can expect.
Do you think that there are way too many people writing and reading books about financial crisis, instead of actually standing up and doing something about it? While I think Lo does have a point, I disagree with his conclusions. It almost seems to me as if he already decided upon the answer he was looking for, and simply could not find it in any of these 21 books. If that is not the case, then maybe, once again, it is simply a matter of fact. If one has more than one clock, one will never know what time it is.