Why the Conventional Wisdom about the 2008 Financial Crisis Is Still Wrong: Ten Years Later.

• Author: Congleton, Roger D.

Why the Conventional Wisdom about the 2008 Financial Crisis Is Still

Wrong: Ten Years Later

By Paul D. Mueller

Newcastle upon Tyne, U.K.: Cambridge Scholars, 2019.

Pp. viii, 189. $58.99 hardcover.

The idea of writing a retrospective account of the financial crisis ten years out is a good one, and Paul Mueller's book provides a nice overview of the economic and political factors that contributed to the crisis. Ten Years Later: Why the Conventional Wisdom about the 2008 Financial Crisis Is Still Wrong has a bit of a public-choice flavor in that he stresses how various bank and mortgage regulations tended to amplify the crisis--making it worse than it would otherwise have been. That perspective is perhaps naturally absent from the macroeconomic perspective that dominates writing and economic research in this area, in which the details of policies are essentially without interest and the focus tends to be on variables of interest to macroeconomists as explanatory factors. For the most part, most macroeconomists regard their models to be correct, even though the models completely missed--that is, failed to forecast--the financial crisis that emerged in 2007-8. As a macroeconomist might say with a shrug, "Surprises and shocks happen." Carmen Reinhart and Kenneth Rogoff's work on financial crises (This Time Is Different [Princeton, N.J.: Princeton University Press, 2011]) is a rare exception to this complacency typical of mainstream macroeconomists, but its insistence that excessive private and public debt can lead to crises is not mentioned in Mueller's book.

Ten Years Later is not really about macroeconomics except insofar as Mueller uses some macroeconomic basics in his overview of conventional or mainstream explanations for the financial crisis and its associated great recession. Rather, it is about a plethora of microeconomic factors--largely regulations of various kinds--that contributed to the crisis. In that respect, it is similar in spirit to a piece I wrote as the crisis was unfolding ("On the Political Economy of the Financial Crisis and Bailout of 2008-09," Public Choice 140 [2009]: 287-317).

The book is organized in three parts: part 1 provides an overview of the factors that created the environment for the financial crisis; part 2 provides an overview of events and immediate responses to those events that occurred in 2007-8; part 3 reviews mainstream explanations for the crisis and for the slow recovery after the crisis was over...