Appreciation: The Origin of Financial Crises

I'm off at the crack of dawn for a few days on the East Coast, but I don't want to let slip a chance to put in a good word for George Cooper's The Origin of Financial Crises. That's "Crises" plural--so, not just about the current uproar. I made that mistake a few months ago when I opened Cooper looking for a tictoc of recent events; no such luck, so I set aside in favor of this and this--and got back to Cooper just now.

Anyway, say this for Cooper: Origins is a marvel of exposition. I don't know of anybody who puts the common sense of macro policy* into such a straightforward and comprehensible form. Cooper's style is a bit jaunty and chatty which puts your--or at least my--guard up at first. But he is able to deliver with examples and and analysis that are simple without oversimplification.

Cooper's content isn't terribly original and I don't think he means it to be so. It is, rather, a distallation (in varying degrees) of John Maynard Keynes, Hyman Minsky and perhaps Bernard Mandelbrot. He casts it all in a frontal attack against the Efficient Capital Market Hypothesis. This works for purposes of presentation, but I think it is overdone: as I have argued elsewhere I think the ECMH emerges in the current debate emerges as not so much wrong but rather crashingly irrelevant--offering no help on issues for which it didn't presume to offer help to begin with.

Cooper also undertakes to hook his argument onto some 19th Century mathematics developed by the great Clerk Maxwell for use in the making of machines (he even reprints a critical Maxwell paper at the end of the book). It's elegant and it may be right, but I think it may be a sidetrack. Insofar at it is an accessible analogy, it risks a false comparison. Insofar as it is trying to say something about the behavior of markets, it is probablywell enough said by more conventional sources.

Which leaves us with a straightforward message, not exactly unfamiliar, but too much forgotten of late. That is: bubbles happen. Financial markets carry an inherent risk of instability. It is the "the job of the Federal Reserve...to take away the punchbowl just when the party gets going." Cooper quotes those words; if they sound familiar, it is because they come from former Fed governor WilliamMcChesney Martin, who died in 1998.
==
*Well: there is a wonderful mini-text on macro issues: David A. Moss, A Concise Guide to Macroeconomics.