Economic, Social, and Environmental

Daunton has written a sweeping history of international economic cooperation and of the meetings and institutions through which it is organized.The author’s original design for this book, many years in the making, was evidently to begin his narrative with the London Economic Conference of 1933, which failed to preserve an open international order, and conclude with the more successful G-20 summit in London in 2009, which mobilized international efforts to contain the 2008 global financial crisis and stabilize the world economy. Whereas the first of these conferences was sunk by doctrinal disagreements and international political disputes, the second benefited from the intellectual and political convergence that followed the fall of communism and the end of the Cold War. Developments in the past decade, however, have thrown the author’s optimistic narrative a series of curve balls: the resurgence of populism, tensions between China and the United States, and Russia’s invasion of Ukraine, which put an end to political convergence and inaugurated what some call a “new Cold War.” Progress in strengthening global governance, it turns out, is not inevitable. Institutions such as the International Monetary Fund and the World Trade Organization retain a role in fostering international cooperation, but Daunton insists that they must not interfere too extensively in domestic policy choices lest they spark a backlash. To sustain international cooperation, governments must complement openness with policies that create good jobs, provide social insurance, tax footloose corporations, and avoid destabilizing capital flows.

A Crash Course on Crises: Macroeconomic Concepts for Run-Ups, Collapses, and Recoveries

By Markus K. Brunnermeier and Ricardo Reis. Princeton University Press, 2023, 136 pp.

Macroeconomics and Financial Crises: Bound Together by Information Dynamics By Gary B. Gorton and Guillermo L. Ordoñez. Princeton University Press, 2023, 208 pp.

In his 2003 presidential address to the American Economic Association, the economist Robert Lucas, Jr., famously observed that the “central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades.” The global financial crisis of 2008–10 and the European debt crisis from 2009 to

the mid-2010s exposed Lucas’s conclusion as premature. Two recent books parse the dynamics of financial crises. Brunnermeier and Reis provide a compact, accessible introduction to efforts to understand and prevent economic crises, the task Lucas referred to as “depression prevention.” Ten short chapters explain concepts used to analyze economic and financial crises, such as bubbles, leverage, and contagion.The authors then put these concepts to work, showing how they shed light not just on the 2008–10 and 2010–13 episodes but also on the German banking crisis of 1931, the East Asian financial crisis of 1997–98, and the Argentine crisis of 2001, among others.

Gorton and Ordoñez’s more technical approach focuses on the roles of credit and information in financial turbulence. In contrast to Brunnermeier and Reis, they reject the emphasis on psychological factors in certain interpretations of crises, arguing that credit booms and busts are intrinsic to the operation of market economies. Disagreements aside, together these two books show that economists have made considerable headway in the last 20 years in understanding financial crises, if not necessarily in preventing them.

Economics in America: An Immigrant Economist Explores the Land of Inequality By Angus Deaton. Princeton University Press, 2023, 280 pp.

The 2015 winner of the Nobel Prize in economics, Deaton reflects on the state of the field, the pervasiveness of inequality, and the condition of the United States, the country he emigrated to from the United Kingdom. He takes a critical approach, including to the practice of economics. Economists are not as influential when it comes to policy as is sometimes alleged, he argues, but neither are they powerless. The discipline would make faster intellectual progress if it were organized less hierarchically and would abandon its combative, testosterone-fueled seminar culture. Above all, Deaton is critical of “economism,” that is, of the naive belief that the world truly works as described in introductory economics textbooks. This assumption informs, or at least justifies, the presumption that individual choices are optimal, market outcomes are best, and government intervention only makes things worse—arguments that are widely invoked by the opponents of universal health insurance, legislated minimum wages, and antipoverty programs. Drawing on his influential book with Anne Case, Deaths of Despair and the Future of Capitalism, Deaton documents the widening extent of income and wealth inequality, as well as growing disparities in health outcomes, access to opportunity, political influence, and human dignity. His attention to these additional dimensions leads him to recommend rejecting a narrow focus on money as a measure of individual well-being. Economists, he urges, must reacquaint themselves with how sociologists and philosophers think about inequality and welfare.

Fiscal Unions: Economic Integration in Europe and the United States

By Tomasz P. Wozniakowski. Oxford University Press, 2023, 192 pp.

Economists puzzle over why Europe has failed to combine its monetary

union with a fiscal union; there is a European Central Bank but no European Treasury. Wozniakowski compares the European Union with the United States, where the power to tax and spend was transferred from the states to the federal government within two decades of independence, thanks in part to the urgings of leaders such as Alexander Hamilton. The author argues that governments acquire political prerogatives, including the power to create money, in response to external threats. U.S. states delegated additional powers to the federal government in the 1790s in response to military threats from Great Britain; after World War II, European states formed what became the EU in response to the Soviet threat. Fiscal unions, by contrast, are formed in response to internal threats. U.S. states empowered the federal government to tax and borrow when domestic uprisings such as Shays’s Rebellion threatened the viability of the union in 1786–87. For a time, it seemed that the European debt crisis from 2009 to the mid-2010s, which pitted northern and southern European states against one another, might similarly rise to the level of an existential crisis for the EU and induce movement toward fiscal union. But Europe found other ways of papering over the cracks, such as the bond-buying programs of the European Central Bank. It is too early to tell, the author concludes, whether the COVID-19 pandemic, the climate crisis, or the security threat posed by Russia will occasion Europe’s “Hamiltonian moment.”