- The Great Contraction by Milton Friedman and Anna Schwartz. Just the 1929-1933 chapter of Friedman's massive work. The book is somewhat technical, but with half an hour on investopedia looking up terms like velocity, it should be accessible to anyone decently intelligent and well informed. Since this is the work that shaped the modern understanding of what happened in the Great Depression, it's well worth diving into.
- The Great Crash by John Kenneth Galbraith. Basically the opposite of the Great Contraction: often technically
incorrectoutdated, but very accessible, and while much of the economic theory is questionable, the history is extremely engaging and often quite funny. - A Short History of Financial Euphoria by John Kenneth Galbraith Same caveats, and praise, as above apply. The book is tiny-readable in one leg of a commute for an average reader.
- Once in Golconda by John Brooks an extraordinarily enjoyable account of life on Wall Street prior to, and just after, the 1929 crash.
- Liar's Poker by Michael Lewis He didn't mean to, but he gave a pretty good primer of the explosion of the mortgage backed securities market in the 1980s. It's also hilarious reading, and we could all use a laugh
- Manias, Panics and Crashes by Charles Kindleberger the definitive primer.
- Extraordinary Popular Delusions and the Madness of Crowds The first attempt to explain why people go so crazy over . . . well, nearly everything.
- Risk and Business Cycles by Tyler Cowen. The authorship speaks for itself.
- The Return of Depression Economics by Paul Krugman Ten years old, but an excellent introduction to many of the current issues.
« In exchange . . . | Main | More recommended reading » Recommended reading10 Oct 2008 12:12 pm
I'm rereading the Great Contraction chapter from Milton Friedman's Monetary History of the US. It struck me that there are probably a lot of people out there who would like some books that might help them make sense of it all. Here's my list:
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No Mises or Rothbard? Not that I'm surprised.
Kindleberger is a must read; I'd suggest his "The World in Depression" as well. Edward Chancellor's "Devil Take the Hindmost" is also a good introduction to the history of crises like these.
No Peter Temin?
No Grapes of Wrath?
The Trillion Dollar Meltdown by Charles R morris.
Brief, 200 pages, but manages to explain what events led to todays situation and also makes credit default swaps and CDOs understandable.
Peter Temin would be good; like Friedman/Schwartz, he'd probably be on the "techincal" end of the spectrum.
Martin Mayer, just for learning about the banking and financial system in general, is invaluable.
You'd be better off hitting Murray Rothbard's Wikipedia page and reading everything listed under the "books" section.
You should read all of them, but start with "America's Great Depression" available online here:
http://www.mises.org/rothbard/agd/contents.asp
Thank you...it is my least-read but best book.
Tyler Cowen himself stops by!
How technical is the Cowen book? I'm rusty on my econ, but I majored in it undergrad and WOW, look at that Kindle price! The Kindle almost pays for itself if you buy enough books like that.
Mostly due to Megan's praise, I've become a hardcore kindler.
"WOW, look at that Kindle price!"
Yeah...WOW!!! No wonder it's his least read book *grin*
Move the decimal one place to the left and I'd buy it for my Kindle.
I'll second the recommendation for "Liar's Poker". I ordered after you mentioned it previously. I'm only 110 pages into it or so, but it's fascinating, educational, and funny as all get out.
Liar's Poker and the current debacle, Moneyball and today's A's. If Michael Lewis comes to write a book about you, run away!
You recently registered as a Democrat, yet you still heap praise on a now largely discredited(Uncle Milty) man? And want to trash, gently, someone who is now more relevant(John Kenneth Galbraith)?
"Liar's Poker" is a wonderful book - one of the best books ever written abotu the culture of finance.
Amity Shlaes' "The Forgotten Man" is good, athlough it shows the signs of hasty writing; you can get much of the important analysis in Paul Johnson's "Modern Times"; his chapter on the Depression is excellent.
I refuse to read anything by Milton Friedman. He was the intellectual fraud behind the American coup in Chile; removing perfectly funcational socialist government of Salvador Allende.
Milton Friedman was a despicable as is Norman Podhoretz.
Thanks but no thanks.
** BEGIN PROGRESSIVE TALKING POINT THAT MY ESKIMO STUDIES PROFESSOR TOLD ME WAS TRUE **
"I refuse to read anything by Milton Friedman. He was the intellectual fraud behind the American coup in Chile; removing perfectly funcational [sic] socialist government of Salvador Allende."
** END **
I refuse to read anything by Milton Friedman. He was the intellectual fraud behind the American coup in Chile
He was behind the coup? Seriously, is this the sort of idiocy that's going to reign over the next couple of decades?
Fuck, this is going to be more annoying than I thought.
LOL
Lane Honda
That was hilarious. It seems Naomi "everything bad happens because of people i hate" Klein is really infecting discourse.
He was behind the coup?
Well, he went there after it happened, so obviously he can't have been in front of it.
You recently registered as a Democrat, yet you still heap praise on a now largely discredited(Uncle Milty) man? And want to trash, gently, someone who is now more relevant(John Kenneth Galbraith)?
Have you actually read any of Friedman's analyses? You can make a very good case that his policy prescriptions have been misguided (not saying that is necessarily correct, just that a case can be made). However, his analysis of past events and of some past policies has been revolutionary and spot on. He was the one who correctly predicted that Keynesian and monetary policies would result in stagflation in the 70's. Galbraith also makes some very good analyses, but to say that Friedman is largely discredited, is demonstrably false.
You put Krugman on that list? He kind of sticks out in that list of names.
Drat, it was the Eskimo Studies Teacher this time? I had $50 on InTrade for the Invisible Leprauchan.
Maybe the Libray and the Candlestick will still pan out. Pass the dice.
I'm a much bigger fan of Milton Friedman's, "War Crimes and Genocide via Financial Intruments and Policy"
Great read.
Awesome. Thanks for the recs. I'm taking this list with me to Borders when I get off work. Strike that. Half Price Books. No, the library.
Anyone have any good recommendations about FDR biographies/histories of the New Deal? I've heard that Jon Alter's book about FDR's 1st 100 days is good.
Heh, the Naomi Klein crowd always cracks me up (talk about discredited...)
Don't forget Hyman Minsky's Can "It" Happen Again? Minsky's instability hypothesis was an influence on Kindleberger.
"Seriously, is this the sort of idiocy that's going to reign over the next couple of decades?
Fuck, this is going to be more annoying than I thought."
As opposed to the idiocy of the past couple of presidential terms? Running multi-hundred billion dollar deficits while the economy was growing?
That was rocket science...
Nanonymous:
Amity Shales is a hack.
Jim:
Uncle Milty wasn't behind the coup(that was the CIA .. and corporate America). He just took advantage of it to enrich himself.
One nugget from a 9 year long exploration of the financial world. The Credit Bubble Bulletin.
From 9/7/2000
Doug Noland
A key to appreciating credit bubble dynamics is to recognize that they are acutely self-reinforcing. Here, the focus is on processes and forces not easily characterized and certainly non-quantifiable. Credit bubbles absolutely feed on money and credit excess, which only induces an intense hunger for greater excess. What’s more, this appetite is insatiable. After all, credit bubbles are about financial wealth creation and accumulation. Lending, the creation of additional liabilities, is the mechanism, while the consequences of excess are immediate spending increases and asset inflation. Wealth is, of course, about power and one should appreciate that credit bubbles have everything to do with obtaining and retaining power. Those who control a mechanism for money and credit creation have enormous power. Those who manage vast sums of financial assets on behalf of their clients are immensely powerful. And those who attain discretion to allocate an economy’s resources possess great power. Credit bubbles by their very nature direct enormous power to the financial sector, for the financial sector, by the financial sector. And, as has developed during this historic period, as the financial sector attains sufficient financial power to dictate an economy’s reward system it achieves supreme power. With this achievement, the powerful financial sector garners and relishes in its ability to create its own financial wealth, with devastating consequences to the underlying economy and financial system.
http://www.prudentbear.com/index.php/creditbubblearchivedisplay?art_id=8732
The archives.
http://www.prudentbear.com/index.php/creditbubblebulletinarchive
*Most later dated posts contain summaries of each weeks market actions. Scroll down the page till you get to the header bearing the articles title to get to the meat of the discussion.
At some point, the right is going to have to discover what the rest of us know so well and so implicitly: the reign of the Free Market is just as stupid a goal as the Dictatorship of the Proletariat, and just as likely to turn you into a grotesque caricature of everything you think you embody.
Didn't Friedman want some kind of guaranteed income for everybody? Negative income tax or some such thing? That would be a vast improvement on the goals of his acolytes, at least.
One has to question the intellectual capacity and gullibility of a person who reads anything by Milton Friedman.
He wasn't a despicable human being. He had the common old jew paranoia.
I loved reading The Great Contraction in the context of studying the Great Depression. It's quite convincing.
Question: what are the odds that "money mischief" has caused and worsened this modern crisis, but subtly slipping by the knowledge of contemporary economics as it did during the Great Depression?
Perhaps another Friedman & Schwartz will shine some light on our collective ignorance (irrationality?).
I think its just as fair to say that Friedman's ideas are also outdated. A lot of his points were quite good, but who seriously believes in his monetarism policies anymore? I mean, do you think we should abolish the Federal Reserve and replace it with an automatic mechanism for steady and constant money supply growth? I think most economists would admit that inflation targeting is vastly superior to money supply targets.
Although I must admit to using the phrase, "inflation is always and everywhere a monetary phenomenon" in my own papers, although, admittedly, its because it makes the restrictions on the SVARS easier. I am not proud of this cop-out.
I do agree with him that prostitution and drugs should probably be legal though.
But seriously, this libertarian obsession with Friedman being an infallible source of sound theory must end. Its intellectually dishonest.
I must admit that the Return to Depression Economics was probably the single book most responsible for my decision to get my Ph.D. in economics. Krugman has become a target of political hate in the past 8 years, but one must not forget that the man is one hell of an economist. I can still remember the wonder I felt when I first read his early trade papers on increasing returns to scale. Such simple models with easy math, yet the conclusions and implication were just amazing.
I cannot believe that any of his detractors has actually read his early work. They are simply too good to allow any sense of hate towards the man,only amazement.
It is ironic that he now acknowledges the strengths of the models his early papers once shed doubts on.
Question: what are the odds that "money mischief" has caused and worsened this modern crisis, but subtly slipping by the knowledge of contemporary economics as it did during the Great Depression?
If by "money mischief" you mean the insane goal of ensuring that 90 percent of the money winds up in the hands of 1 percent of the population, then, yes, it has a lot to do with this current crisis.
I propose, in honor of its 100-year anniversary, The Moneychangers, by Upton Sinclair.
I really liked Bill Greider's "Secrets of the Temple: How the Federal Reserve Runs The Country." It's mostly a blow-by-blow of the Volker Fed through the Reagan Administration, but the lead in - an economic and monetary history of the United States since the Civil War, was terrific.
Overall, the book is a splendid piece of reporting, and one of the best works of financial journalism I've read anywhere.
Monetarism is an important analytical tool. The problem is that it's difficult if not impossible to say exactly what money is or how it should be measured. Inflation and deflation are monetary phenomenon.
From the day Greenspan took the chairmanship to the day he left M3 rose at a 10.3% annual rate, so did the S&P 500 index. Since 2001 it's been estimated that the amount of money in the world doubled. So too approximately did the value of equities worldwide. Admittedly I don' know what measure of money the World Bank analyst used to come up with that doubling estimate.
During the 90's CPI inflation was modest. During the decade however the prices of financial assets soared. The simple monetary aggregates like M1 rose modestly, the broader measures of money like M3 soared. I am not actually sure what measures Friedman focused on in his work, his early or late work but I suspect he focused on the simple measures. At any rate the important thing to understand is that the rise in prices of stocks and financial assets is never ever called inflation. It is always called increased value. With this neat trick the creators and beneficiaries of the great run up in financial asset prices became geniuses instead of just dumb passengers on the great monetary expansion train.
Again I say identifying and measuring what money is has become ever more difficult. Huge amounts of financial instruments from MBS's to money market deposits to credit default swaps attained the status of money, or almost. Their 'value' unquestioned and used for accounting purposes as good as gold assets, having a property called moneyness. What we have seen here is that many of those 'values' were an illusion.
Friedman acquired powerful ideological friends during the 70's and 80's and he basked in the glow of his fame. As the great financial inflation took off in the early 80s Freidman and his allies had to come up with ways to maintain that what was inflation was really an increase in 'value'. The importance of monetarism declined to almost nothingness and Friedman himself seems to have slowly abandoned his life's work. Scratching his head in puzzlement at the anomalies in the strong rises in the M's, ignoring the gigantic expansion in financial claims that had the property of 'moneynees' and the resultant rise in prices of financial assets. It was all so complicated, so yes, his monetarism lost importance as an analytical tool but he was still the guest of honor at glittering dinners among the rich and powerful. In essence by the end of the millennium Milt had abandoned his life's work on monetarism but and retired into comfortable celebrity.
I don't see why the Galbraith and Friedman books can be considered "opposite". Obviously if you have rampant speculation in shady unregulated new investments, you're setting yourself up for a big fall. Obviously if the government then fails to lift a finger in the credit markets, you're going to make that fall last for a while. It seems to me that the more appropriate term for the two is "complementary."
Additionally I'm afraid we're about to find out that if the Friedman prescription is pursued in a vacuum, we're not going to get any better results than we did in the 1930s. In the end, someone has to SPEND the money. In that case, we're going to see the "complementary" facet even more -- we're going to need a dose of Keynesianism with the monetarism.
It's very obscure, but 'A World In Debt' by Freeman Tilden is an excellent, easy to read account of the history of debt and how abuse of credit consistently leads to the destruction of capital and a slump.
I liked Peter Temin's 'Lessons from the Great Depression.'
"Thank you...it is my least-read but best book." -Tyler Cowen
Tyler, it is your least read book because it goes for $200 on amazon. I have read two of your books but am not willing to pay that much for a book unless it is a textbook required for class.
"Uncle Milty wasn't behind the coup(that was the CIA .. and corporate America). He just took advantage of it to enrich himself."
He had a machine that harvests the suffering created by worldwide deregulation and converted it into ingots of pure gold.
Little Boots - At some point, the right is going to have to discover what the rest of us know so well and so implicitly: the reign of the Free Market is just as stupid a goal as the Dictatorship of the Proletariat, and just as likely to turn you into a grotesque caricature of everything you think you embody.
While both Republicans and Democrats have their hands dripping with the current financial crisis and there are many causes, the Clinton CRA compelled risky loans via lawsuits ("to eliminate redlining") and reduced the amount of money that needed to be held against a mortgage from 10% to 2.5%. Democrats defended this legislation against Republican attempts to reform it. Check out the following;
www.examiner.com/x-847-Conservative-Politics-Examiner~y2008m9d29-The-Most-Important-8-Minutes-37-Seconds-of-Your-Day
or
While underestimation of the risks of subprime loans due to a long run of rising home prices which prevented forclosures (if prices go up, you can sell) also played a large role, so did disproportionately Democratic de-reregulation of the mortgage industry. Please watch the link before replying. I'd be interested to hear your response. Thanks.
clinton -> clinton era
As opposed to the idiocy of the past couple of presidential terms? Running multi-hundred billion dollar deficits while the economy was growing?
That was rocket science...
I'm sorry, I didn't realize that calling out the idiocy in complete historical inaccuracies implies that I tacitly approve of current administrative policies. Please save your pigeonholes for the more feeble-minded. Thanks.
You put Krugman on that list? He kind of sticks out in that list of names.
Posted by ben | October 10, 2008 3:18 PM
Sticks out even more now, eh motherfucker
What an awful comment thread. I like how everybody thinks knowing two things about a topic qualifies them to talk about it; and how they attempt to prove their credibility to others by casually mentioning those two things as if they could elaborate, but simply choose not to.
Two others books about financial crises that are worth reading are When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein, and The Panic of 1907: Lessons Learned from the Market's Perfect Storm by Robert F. Bruner and Sean D. Carr. It is amazing how much one financial panic resembles another.
If you want a follow-up on Friedman's analysis of monetary policy during the Great Depression, you can try A History of the Federal Reserve, Volume 1: 1913-1951 by Allan H. Meltzer. However, it is directed at a professional audience, not the general reader.
What is with all the hatred directed at the late Milton Friedman? Have the people who are so full rage and anger actually read what he wrote?
Wow, I can't believe the lengths some will go to to make Friedman out to be some right wing monster.
I mean a guy who was against the draft (and said his role in ending it was his greates accomplishment) and was for the EITC.
He was a great economist in multiple areas of research although he was best known for his monetary theories. I don't think any serious economist (left of right) would challenge his contribution to the field (just as none would challenge Krugmans)
Was he always right, no. But his critics should at least read what the man said in his works before they criticize based on something Naomi Klein wrote. What they will find is a moderate classical liberal similar to Hayek.
You might also like to look at - Donald Markwell, "John Maynard Keynes and International Relations: Economic Paths to War and Peace", Oxford University Press 2006.
It provides a fascinating history of much of the early to mid-20th century development of proposals for, and failures (and some successes) of, international economic policy co-ordination. Highly relevant to today.
It also serves as a salutary reminder that economic crises (and other economic causes of international rivalry) can have profound geopolitical effects - including leading to war.