February 16, 2014
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After the Music Stopped
JDN 2456705 PDT 12:31.
After the Music Stopped is the most comprehensive, detailed account of the Second Depression I have read thus far—and if you’ve been following my Goodreads you know I read quite a lot of these. Blinder does an excellent job of explaining not just what happened, but why it happened; not just who did what, but what motivated them to do it. He talks about how difficult some of these decisions were, and paints a very sympathetic portrayal of most of the policymakers involved. Bernanke in particular comes off as positively heroic.
Unlike most economists, Blinder also fully appreciates that people are irrational, and the markets they create are no better. He recognizes that "market discipline" and "self-regulation" are oxymorons. Where the hardline neoclassicists were blindsided, Blinder (along with Krugman and other good Keynesians) shakes his head: We saw this coming, why didn’t you?
At the end of the book, Blinder offers us his recommendations for policy reform. I find it a bit gimmicky that he made them "Ten Commandments" and wrote them in King James Version style (and it gets awkward fast), but the recommendations themselves are sound: "Thou Shalt Remember That People Forget", "Thou Shalt Not Rely on Self-Regulation", "Thou Shalt Honor Thy Shareholders", "Thou Shalt Elevate the Importance of Risk Management", "Thou Shalt Use Less Leverage", "Thou Shalt Keep it Simple, Stupid", "Thou Shalt Standardize Derivatives and Trade Them on Organized Exchanges", "Thou Shalt Keep Things on the Balance Sheet", "Thou Shalt Fix Perverse Compensation Systems", and "Thou Shalt Watch Out for Ordinary Consumer-Citizens".
The book is rather long, probably longer than it really needed to be. However, Blinder is not wasteful with this space; he fills it with a
great deal of relevant information in terms that anyone with basic economic literacy should be able to understand. You don’t need to know what a CDO or an exchange-rate swap is in order to read this book (though it might help to at least know what bondsand the money supply are).
One thing I think Blinder is missing compared to say, Krugman or Stiglitz is moral passion. He approaches the situation calmly as a technical problem, doing the cost-benefit analyses as economists are wont to do. And there is a place for that, certainly. But one thing that Krugman especially appreciates is that our financial system is broken, not just technically, but morally.Blinder talks about how people are outraged, but distantly, as though an anthropologist describing the behavior of some primitive culture. He can’t share their outrage—but Krugman can. And we must, for the people are right to be angry. Our banking system has become essentially a worldwide organized crime syndicate. Perhaps it can be reformed… but if it can’t, we must be prepared to tear the whole thing down. If we must nationalize the entire financial industry once and for all, so be it. In any case there are definitely bankers we should be taking to prison. Perhaps the whole idea of profiting off finance is wrong; certainly the basic economic arguments for how profit is supposed to work don’t apply. I like the reforms that Blinder suggests; but I think we need something more than that. We need to rethink the way our economy is structured.
