Unintended Consequences: Why Everything You've Been Told About the Economy Is Wrong By Edward Conard

Product Description

In the aftermath of the Financial Crisis, many com­monly held beliefs have emerged to explain its cause. 

 

Conventional wisdom blames Wall Street and the mortgage industry for using low down pay­ments, teaser rates, and other predatory tactics to seduce unsuspecting home owners into assuming mortgages they couldn’t afford. 

 

 It blames average Americans for borrowing recklessly and spend­ing too much. And it blames the tax policies and deregulatory environment of the Reagan and Bush administrations for encouraging reckless risk taking by wealthy individuals and financial institutions.

 

But according to Unintended Consequences, the conventional wisdom masks the real causes of our economic disruption and puts us at risk of facing a slew of unintended—and potentially dangerous—consequences. This book addresses many essential but overlooked questions, such as:

 

• If the United States had become a nation of reckless consumers rather than investors, why did productivity soar in the years leading up to the meltdown?
• If predatory bankers took advantage of home owners, why did down payments decline, thereby shifting risk from home owners to lenders?
• If the risks were easy to spot, why did top politi­cal and financial advisers encourage lenders to make unsound investments?
• If new regulations encourage banks to hold enough capital to fund withdrawals and not just loan losses, how will the economy underwrite the risks necessary to reach full employment?

In an attempt to set the record straight and fill the void left by other analysts, Conard presents a fas­cinating and contrarian case for how the economy really works, what went wrong over the past decade, and what steps we can take to start growing again.

 

Editorial Reviews

Review
''Ed Conard has written a provocative and important book about the economy that challenges conventional wisdom about the financial crisis, the trade deficit, government policy, and the path to prosperity.'' --William A. Sahlman, senior associate dean, Harvard Business School.

''Ed Conard provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.'' --Nouriel Roubini, chairman of Roubini Global Economics.

''Ed Conard's book presents the most cogent and persuasive analysis of the financial crisis to date.'' --Andrei Shleifer, Bates Clark Medal winner, Harvard University.

''There are an amazing number of good ideas and interesting points made in this book.'' --Steven Levitt, coauthor of the New York Times bestseller Freakonomics.

''Unintended Consequences will be the most talked-about economics book in 2012.'' --Kevin Hassett, senior fellow and director of economic policy, American Enterprise Institute.

Helpful Review

"Valuable even if you disagree with the author"
By Jackal

This is a data driven book written by a management consulting kind of guy. One key argument is that the wealthy class adds a lot of value to society because they invest money (as opposed to spend money). I think the author is half-right in this statement because risky equity capital is neither provided by the Fed, the banks nor small investors. However, it is only half-right, because the US economy is to some 70% driven by end-customer demand.

If Americans lack purchasing power, new products will not be in much demand. Any thinking person would realise that total income inequality (one guy earning everything) or total income equality (everyone earning the same) would be pretty bad societies. The optimal level of inequality is not much discussed in this book. More seems better for the author. (Just as less seems better for Krugman and Stiglitz.) It is a bit sad that we get just another book saying that more/less is better.

The author clearly wants to make an impact as a thought leader. I don't think this will happen for a couple of reasons:

- He is far too dogmatic in accepting market prices as unbiased. He seems to defend market prices in all situations, even when those markets are not very efficient. So while he rightly praises the highly paid IT or biotech entrepreneur, he also seems to praise all bankers. Somebody bought the subprime debt so some value must have been added, the author thinks. He does not take seriously the fact that some markets are seriously inefficient (e.g. the financial-services human-resources market). Had he analysed the lack of efficiency in some markets, the book would have been much stronger.

- Sometimes it is more intelligent, both intellectually and impact-wise, to concede a few points. The US government might have had something to do with the success of Intel and other companies due to huge government investments in R&D. And there are other kinds of motivation than money. Listen to what psychologists say about intrinsic motivation.

- Why not just state that rent-seeking or crappy bankers should just be fired? He probably does not have much sympathy for crappy bankers, so why not nail them hard? The author is super-rich so he can afford to pick a few names, trash their track record, and create some enemies. Instead he sits too close to the television; mechanically he finds some way to support them. He seems to believe that the bankers should not be punished because they took well-intended decisions, which only later turned out sour.

- Rather than just putting a lot of praise on private equity, what about acknowledging that the Fed's low interest rate policy makes it artificially profitable to do private equity deals? These funds can borrow at very low rates, which Joe the Plumber who wants to expand his business. Sure, the risk capitalists are rightly acting on the low cost of capital, but surely they don't deserve full credit when the price of capital is set by a monopolist (i.e. the Fed).

- The author also seems to hard-sell the book a bit too much. A lot of "friends" have given the book five stars on amazon without hardly having reviewed any other book. In fact, these "friends" have reviewed the ebook, but without actually buying the ebook (no "verified purchase" note).

- He considers art history students as spoilt because they use their talent on something that is not adding a lot of value to society. Irrespective of the truth of that statement, it will not endear the author to anyone. Just as tone death as Romney talking about his money and. Art historians are grappling with a very complex subject in trying to understand what is good/beautiful art. In other words, the unit of measure is complex. Economics is a little bit more like art history than the author understands.

So why do I give the book four stars? Well, the book presents a lot of interesting and thoughtful data. The book is at times thoughtfully and intelligently written. The book justly defends creative destruction which is an essential part of capitalism not just private equity. America has strong capitalist traditions, which have served the country well overall.

What Bain Capital has done might not be pleasant, but creative destruction never is. Still, it is part of American capitalism. The book is also fun because the author so needlessly overstretches himself; sometimes you think that he is metaphorically out to hang himself. Had he not trashed art history students, maybe he could have learnt one or two things from them.

If you are still undecided, have a look at Conard and Stiglitz having a five minute debate on a Bloomberg clip. The author has collected all media promotion clips on his webpage (thanks!), even the one in which he behaves like a disobedient, smart schoolboy that eventually gets reined in by his teacher (Jon Stewart).
 

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