Nine Economic Disasters That Didn’t Have to Happen

November 19, 2013  

Wrong by Richard Grossman asks if leaders will ever learn that ideology isn’t an economic policy.

The subprime mortgage crisis created a club of billionaires, including hedge fund managers like Paulson & Co.’s John Paulson and Harbinger Capital Partners’ Philip Falcone, who were able to predict, time and execute upon the failing housing market. But what put them in a position to capitalize so enormously?

The crisis itself came on the back end of poor economic policy, according to a new book by Richard Grossman. In Wrong: Nine Economic Policy Disasters and What We Can Learn from Them (Oxford University Press, $27.95), Grossman, a professor of economics at Wesleyan University, examines some of the transformative policy miscues that have shaped the developed world, from British imperial policy in the Americas to the Great Irish Potato Famine through the current euro crisis. Through nine historical accounts, Grossman paints a picture of learning opportunities, conveyed through an early Mark Twain quote: "History doesn’t repeat itself, but it does rhyme." The common problem throughout, Grossman says, is a long line of decision makers who have dictated policy by ideology.

Only on very rare occasions have policymakers learned from past mistakes. After World War I the Allied powers, intent on making the enemy pay, forced reparations upon Germany that crippled the country. Allied leaders learned from that mistake and after World War II instead appropriated funds with the goal of resurrecting the beaten German and Japanese economies.

The lesson Grossman believes we need to learn today? The dominant paradigm of deregulation has met its expiration date; the complex 21st-century financial system needs sophisticated regulation.

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