I have read a mountain of economics books that purport to explain the great econopocalypse in which we find ourselves, but none can hold a candle to John Lanchester’s Whoops! Why Everyone Owes Everyone and No One Can Pay, a British book that explains the macro- and microeconomic phenomena with a novelist’s sense of plot and clarity (Lanchester being a novelist) that nevertheless refuses to sacrifice accuracy for accessibility.
Lanchester explains the econopocalypse thus: a climate (the fall of the Soviet Union and the triumphal do-no-wrong belief in unfettered capitalism that ensued), a problem (using derivatives to expand risk, rather than limit it, which led to reckless lending in the housing market), a mistake (bankers assuming that they had laid off the risk using complex derivatives) and a failure (regulators refusing to look the financial gift-horse in the mouth). This provides an excellent framework for explaining the ways in which history, greed, and hubris conspired to create the worst financial crisis in memory.
What’s more, Lanchester is funny, and he has a gift for making you revisit your assumptions about the world (your house is a highly leveraged asset that appreciates at the same rate as the overall economy, is difficult to liquidate, and if you manage it, you need to buy another house that has appreciated right alongside of it or find yourself homeless). He even manages to make Alan Greenspan and Maggie Thatcher funny, which is really saying something.
Alas, Lanchester is also a downer. At the risk of giving away the ending, he concludes with a compelling argument that the UK economy is likely to be roadkill for a very long time as a result of the financialization of the economy and the capture of the regulators who were supposed to keep an eye on it (he’s also bearish on the US economy). Yeah, it’s depressing. It’s also probably true. And at least he made me laugh while he broke me the news.
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