Thirty renowned authors examine 30 of those “threats,” which include the emergence of sharia law within western nations, the paradoxical uniformity that “politically correct” diversity has spawned, the abandonment of democracy promotion abroad, the State regulation of daily life, the imposition of campus speech codes, and the “threat” of cyber-anonymity.

At first glance the “new threats” seem like a grab-bag of issues that will rouse and rile a reader committed to individualism . . . and they do so in rapid secession.

The thought-provoking essay “The Isolation of Today’s Classical Liberal,” by legal scholar Richard A. Epstein, appears directly before the socially conservative essay, “Single Women as a Threat to Freedom,” in which antifeminist Jessica Gavora dismisses a plausible lifestyle choice largely because “single women are pro-statist.” “The Rise of Antireligious Orthodoxy,” by conservative Mark Helprin, directly precedes an essay by the notoriously antireligious left-radical Christopher Hitchens; the juxtaposition is not meant to provide balance, since Hitchens deals with the issues of multiculturalism and diversity.

Yet clearly this is a carefully constructed anthology. At a third or fourth glance, an integrating theme emerges. At its root New Threats is a socially conservative collection on issues that this movement assesses as threats; the anthology’s libertarian contributors indicate where these two movements intersect.

Consider the excellent essays by libertarians Max Borders and Katherine Mangu-Ward.

In “The Urge to Regulate,” Borders recounts how bureaucratic regulation crushed his dream of starting a small home-based business designed to sell products at a farmer’s market. He imagines a parallel world without “regulatory barriers,” in which hard work and reputation are allowed to succeed. Then, poignantly, Borders speculates about “the possible worlds that government interference destroys.” These are populated by working people who long to provide for their families.

In “The War on Negative Liberty,” Mangu-Ward analyzes the bizarre spectacle of Americans asking the government to strip them of lifestyle choices like smoking or consuming trans fats. Or at the very least they wish government to impose punitive taxes on such choices. She compares the Taliban’s prohibition of women eating ice cream to the Brooklyn mom who turns in an unlicensed vendor. The common denominator: “[B]oth want the same thing—a targeted ban on ice cream.”

Borders and Mangu-Ward address fundamental questions that mirror each other. Borders asks, “What makes people want to control others?” Mangu-Ward asks, “[H]ow could people who cherish freedom clamor for the state to take away their choices?”

In opposing government regulation of business and its imposition of political correctness on food choices, the two essays exemplify issues on which libertarianism and social conservatism converge. Similarly, a few nonconservative authors like Hitchens touch on the rare areas of confluence between the right and other positions. In areas of difference, however, it is the conservative voice that is heard. As such New Threats is a fascinating window into the psychology of social conservatism and the issues that will be “burning” for them in the future.

What are some of the differences on issues? Perhaps they are most pronounced in foreign policy. New Threats authors equate democracy with liberty and think that Americans should export it. In “The Abandonment of Democracy Promotion,” Tara McKelvey—a senior editor at The American Prospect—claims such exportation “belongs high on the U.S. foreign-policy agenda and should be supported by substantial resources.” Former New Republic contributing editor James Kirchick concludes in “Transnational Progressivism” that “any threat to American global predominance . . . is in and of itself a threat to freedom, not only to our own, but especially to those people living in dark places.”

An aggressive foreign policy designed to export a specific political system is a difference of opinion with libertarians, indeed.

New Threats is, in rapid turn, provocative, annoying, and enlightening. It is also puzzling in its omission of certain issues and seemingly obvious points. For example, given the 21st-century focus, little discussion of technology occurs outside of a critique of cyber-anonymity. Abstract “ingratitude” is included as a threat to freedom whereas concrete reproduction and population control in light of new technologies is not. In presenting sharia law as a threatening parallel legal system, it is not clear why sharia courts could not operate as Hasidic ones currently do.

Nevertheless New Threats is fascinating and extremely well written. Social conservatives will be delighted; libertarians will embrace fully half of it; Progressives with high blood pressure had best be selective . . . or at least consult a doctor beforehand.

Readers of The Freeman will be familiar with this experience: How would libertarianism handle drunk driving? (That’s under “D.”) What do libertarians think about organ sales? (Under “O.”) What do you mean by “unintended consequences”? (Look under “U.”) The entries are not at all superficial, though; they are well thought out and carefully reasoned discussions of the topics. Just as important, they are well written: Since Miron’s intention here is to communicate the good sense of these ideas, it really makes a difference that he can write clear and effective prose. And he goes beyond surface-level questions (such as minimum wage) to tackle more complicated issues like Pareto efficiency, fiat money, and abortion. Miron also includes entries on how libertarianism differs from conservatism and (modern American) liberalism, and how consequentialist approaches differ from rights-based approaches.

Another asset of this book is the way Miron uses some of the basic concepts of economics in ways that are not only accessible to the non-economist but also show how the “economic way of thinking” applies to a variety of problems that the average reader might not think of as economic. For example, in the entry on protection of endangered species, Miron appeals to the concept of incentives. Although this solution is counterintuitive, assigning private property rights in endangered species or their habitats will create better incentives for good stewardship. There are many examples in Africa of the success of this approach, so Miron is able to supplement the theoretical explanation of why this works with empirical evidence. He contrasts this effectively with statist approaches by showing how these end up being counterproductive. Worse than being ineffective, these policies can create incentives for behavior that is the opposite of what is intended. It’s important that Miron can show this. Since a book like this has its chief value in outreach, it needs to provide answers to these sorts of questions from people who might not be predisposed to classical liberalism or the economic way of thinking. When he does appeal to precise notions like externalities or moral hazard, the reader is directed to entries on those.

Another feature I found compelling is the way Miron acknowledges the reality of moral disagreement where relevant, while nevertheless directing the reader to think in terms of policies that might make a positive change. For example, consider capital punishment. This isn’t strictly speaking a definitional issue for libertarianism: It’s possible to be a libertarian and think either that murderers deserve death or that no one has the right to take a life. But Miron encourages the reader to think about the issue differently. He frames the usual death penalty debate as “a distraction” and suggests that the reader approach the problem from the other side: “Society wastes substantial energy arguing about the death penalty rather than focusing on policies that would actually reduce crime, such as ending drug prohibition, legalizing prostitution, and improving educational outcomes.” We could argue about what is the best way to punish murderers, but perhaps it would be more productive to create conditions in which there would be fewer murders. The quoted sentence refers the reader to the relevant entries in which Miron shows what the causal links are.

Oddly, there are no entries for “rights” or “liberty.” This seeming lacuna is explained when one reads the entry “consequential versus philosophical libertarianism,” in which Miron contrasts the approach he favors, which he refers to as “consequentialist,” with the “philosophical,” or rights-based, approach. He argues that the latter approach is poorly supported and in any case less useful when trying to get others to see the benefits that libertarianism offers to a society. There is something to be said for the latter point, but the former point is belied by dozens of books by philosophers who explore the possible meanings of rights and liberty. Miron then says that the rights-based approach is consequentialist in that rights theorists claim that respecting rights has the best consequences. While a correct way to characterize John Stuart Mill, this doesn’t really encompass the point of rights for John Locke or for neo-Lockeans and neo-Aristotelians.

But to dwell on this intra-libertarian dispute would be to diminish the overall quality of the book. Libertarianism from A to Z is accessible and readable, and makes its points clearly and concisely. Libertarians will want to have it partly as a reference work. You may already have come to accept libertarian principles but not remember how fiat money works. But it is also an excellent choice to recommend (or give) to friends or relatives who do not agree with this approach but are open-minded enough to want to inquire. Miron has thus done us a great service.

In his book The Politically Incorrect Guide to Socialism, economics professor and National Review editor Kevin Williamson gives the reader an easily understood yet highly informative disquisition on the nature of socialism, its inherent flaws, and the reasons it continues to spread. In connection with that last point, two of Williamson’s chapters cover the political infatuation with “energy independence,” which he argues is socialist in essence, and the push to saddle Americans with the politicized medical care system known as Obamacare.

Williamson’s arguments are sharp and his examples illuminating. His book is like a wrecking ball going to work on the already feeble edifice of socialism.

“Hold on a minute,” some will say. “You can’t compare the bad things that happen in a totalitarian state like North Korea with our well-intended and generally popular public school system in America.” Williamson shows, however, that the crucial element of socialism is present in both, namely governmental control over the provision of goods and services that would otherwise be done by private enterprise. That invariably leads to waste and inefficiency—or even worse.

Williamson does a first-rate job of explaining why those arrangements stifle productivity, depress quality, and hinder innovation. It is because government officials (and the type of government is immaterial) do not know what consumers want. That information only comes from the market’s price system, which socialism prevents from working. It is also because government officials have no incentive to satisfy consumer wants since their money is not given by buyers but taken from taxpayers. Starving peasants in Korea and illiterate students in the United States—the roots are the same.

The poverty of India has been compared to the remarkable wealth enjoyed by the people of Hong Kong and Singapore before, most famously by Milton Friedman, but that is no reason not to emphasize it again. Following World War II, Williamson observes, India was seemingly poised for great economic expansion, having suffered little from the war and benefiting from infrastructure built by the British. India’s economy, however, remained stagnant due to the naive socialism of Nehru, the first prime minister, who admired Soviet central planning. Grinding poverty gripped most of the country.

Singapore and Hong Kong, in contrast, had suffered considerable war damage. Nevertheless both enjoyed rapidly rising incomes for all income classes. The fact that prosperity was widespread is important in heading off the common objection that capitalism only helps a few. Those two city-states were able to escape from poverty by rejecting socialism and adopting laissez faire: prices were free, investors could seek profitable opportunities without government interference and keep their earnings (or swallow their losses) and taxes and regulations were minimal.

Williamson also points out that in recent years India has begun rapid economic development, but only because new leaders have lightened the heavy yoke of socialism.

Defenders of socialism almost always point to Sweden and say that its experience proves that socialism can work. Williamson’s chapter “Why Sweden Stinks” refutes that notion. Sweden seemed to have the best of all possible worlds—a high standard of living combined with an expansive “safety net” and generous government benefits. The trouble is that socialism is unsustainable because it erodes the human qualities that built up the wealth that the socialist state consumes. Williamson writes that Sweden “is rapidly transforming itself into the sort of society that will not be able to support the relatively successful welfare-state arrangements that characterized it throughout most of the twentieth century.” As Hayek observed, socialism changes the character of the people gradually, undermining habits of work, thrift, and self-reliance. We are seeing that in Sweden.

Speaking of Hayek, another of his famous insights regarding socialism was that under it, the worst people usually rise to the top. I wish that Williamson had included a chapter on that point. We hear so often from socialism’s advocates that their system would work beautifully if it were controlled by good people rather than murderous dictators like Stalin. It would have been worth several pages to attack the idea that there is some magic formula to keep vicious, power-mad people from scheming their way to the top of a system that gives them what they crave.

Finally, although I applaud Williamson’s effort, he has bundled together under the label “socialism” several policies better labeled “corporatist” or “collectivist” since they don’t entail government ownership or abolition of the market economy—only interventions that hamper it. Ethanol subsidies are bad, but we don’t have a federally owned energy sector and “public education” doesn’t prevent (though it surely hampers) home and private schooling. Such distinctions are important.

In 2008 Fannie Mae (and its sibling, Freddie Mac) both failed. Their debts were assumed by the federal government. The loss imposed on taxpayers was recently estimated by the Congressional Budget Office at $325 billion through 2011, with additional losses to come.

In the above-mentioned report Stiglitz and his coauthors noted the view that there was an implicit government guarantee that enabled Fannie and Freddie to borrow at below-market interest rates. Their estimates of taxpayer risk were based on the assumption that “the implicit government guarantee on GSE debt is equivalent to an explicit guarantee.” In Freefall, by contrast, Stiglitz declares, “Fannie Mae began as a government-sponsored enterprise but was privatized in 1968. There was never a government guarantee for its bonds; had there been, its bonds would have earned a lower return, commensurate with U.S. Treasuries.”

That statement is seriously misleading. Fannie (and Freddie) had an all-but-explicit guarantee and received other favored treatment from the government. Reflecting the implicit guarantee, their bonds paid lower yields than those of other private financial institutions. Their borrowing-cost advantage was worth billions per year.

The misleading treatment of Fannie Mae and Freddie Mac is just one example of a pervasive feature of Freefall: It often traffics in ideological spin. Stiglitz notices the mote of ideological bias in the eye of “those who have done well by market fundamentalism,” but ignores the beam in his own.

Free of false modesty Stiglitz describes himself as a member of “a small group of economists” who in the years before 2008 “tried to explain why the day of reckoning that we saw so clearly coming had not yet arrived.” He views himself as a courageous outsider, but it is difficult to share Stiglitz’s outsider picture of himself in light of the well-placed insider roles he has occupied during his career: chairman of the President’s Council of Economic Advisers (1995–97) and chief economist at the World Bank (1997–2000).

A major theme of Freefall is that incentive-distorting government regulations had little to do with the financial crisis. The plot line of his narrative is indicated by the title of chapter six: “Avarice Triumphs over Prudence.” The crisis happened in a “deregulated market,” or a market characterized by “lax regulation,” and so “it was something that Wall Street did to itself and to the rest of society.” He writes of “the deregulatory frenzy of the 1980s, 1990s, and the early years of [the 2000s],” and “the current rush to deregulation,” events not evident in the actual historical record.

Stiglitz makes his case for government intervention by holding free markets to the straw-man standard of frictionless efficiency. He touts his own academic research as showing that when the conditions for perfectly frictionless efficiency are not satisfied, “there [are] always some government interventions that could make everyone better off.”

This is argument by existence proof: The brief for government intervention is that we can imagine a case in which it improves things. It could make everyone better off—assuming an ideally omniscient and benevolent intervener. Might not actual government interveners fail to meet the conditions for their own perfection? Might they fail to know just where and how to intervene?

At least Stiglitz recognizes that government policies played a crucial role in creating the housing bubble. He notes that the Federal Reserve’s loose monetary policies under Greenspan fueled the housing boom and acknowledges the role of the moral hazard fostered by too-big-to-fail policies. He points out the cronyism involved in bailouts to Wall Street, particularly from the Federal Reserve Bank of New York.

Stiglitz offers a straightforwardly Keynesian analysis of the Great Recession, blaming it on insufficient aggregate demand. Therefore the government should “attack with overwhelming force” in the form of massive stimulus spending, an approach he suggests might be called “the Krugman-Stiglitz doctrine.”

Overall the book is a patchwork of nonscholarly accounts of historical events beside attempts to render scholarly economic theories into plain language. In many places the book disappointingly reads as though the author lacked the time to state his case systematically and coherently, to anticipate the strongest objections to his arguments and state them fairly, then address them carefully with evidence.

In his introductory essay editor Edward López states the core idea advanced in the book: “[I]f we want to understand why the legal system sometimes fails to perform up to our ideals and expectations we must analyze the incentives available to actors in the legal arena and the institutions that set the ‘rules of the game.’” This focus raises the question of whether Public Choice analysis differs from the “economic analysis of law” advanced by Ronald Coase, Richard Posner, and others. López maintains that while “there is little fundamental difference between” the two on methodological grounds, there seems to be a difference “in the character of the reforms they recommend.” According to López, Public Choice emphasizes constraining political actors while the economic analysis of law emphasizes “arranging institutions to minimize transactions costs.”

Benjamin Barton’s chapter on the “lawyer-judge hypothesis”—which might be the marquee contribution to this volume—argues that “if there is a clear advantage or disadvantage to the legal profession in any given question of law, judges will choose the route that benefits the profession as a whole.” Barton offers a number of examples drawn from numerous areas of the law that support the hypothesis. Charles Keckler’s outline of recent changes in the cy pres doctrine that enable judges to award unclaimed funds from class actions to “law related entities such as law schools” fits squarely within this analysis.

The other nonquantitative contributions deal with more familiar topics. Nicholas Curott and Edward Stringham do a nice job retelling the story of Anglo-Saxon law as a spontaneous order that focused on victim compensation and how it was replaced by a centralizing Norman legal order after 1066. Ilya Somin takes dead aim at the use of eminent domain by local governments bent on “economic development,” and John Bratland argues that “just compensation” in cases of government takings fails as an ethical matter. Adam Summers recounts the case against government licensure of lawyers and argues for market-based alternatives.

Three chapters that use numerical data and summary statistics all include suggestions for reform. Roger Koppl offers a strong critique of the current use of forensic science in criminal justice administration. Government-run forensic laboratories make mistakes in testing crime scene evidence—television dramas to the contrary notwithstanding. Testing at multiple labs simultaneously would reduce the number of mistakes, but money for multiple testing is unlikely to be sought by the law enforcement bureaucrats who handle the laboratories’ budget requests—in part because the bureaucrats are likely more interested in maximizing the number of convictions than in the disinterested pursuit of truth. Koppl argues for triplicate testing of fingerprint evidence on the grounds of cost savings; his most conservative estimate is that $9 million in extra testing would save taxpayers $61 million in prison costs by “eliminating over 98 percent of the false felony convictions” caused by errors in fingerprint analysis.

Jeffrey Hammond explains class-action litigation as a vehicle for rent extraction, using the government lawsuits against the tobacco companies as a strong example.

The book’s three chapters that use regression analysis all find fault with the election of judges at the state level. Russell Sobel, Matt Ryan, and Joshua Hall suggest nonpartisan elections as an alternative. They also relate overly aggressive prosecutions to the election of public prosecutors. Adrianna Cordis finds that judicial elections contribute to government corruption, but does note a 2008 article by Alt and Lassen that finds the contrary to be true. Aleksandar Tomic and Jahn Hakes explain judicial sentencing of criminals as a function of whether the judges face political pressure. While all three papers will doubtless enter the long-running debate over state judicial selection, they are unlikely to provide a knockout punch to the supporters of judicial elections.

In all, this book is an excellent contribution to the Public Choice literature.

Seldom have historians asked themselves why Americans would want to stay out of foreign wars. In 1940 Americans knew that the last time the subject came up was during the 1916 election, when President Woodrow Wilson vowed to keep America out of World War I. He won the election and the following year persuaded Congress to enter what he claimed was “the war to end all wars” so he could “make the world safe for democracy.” Instead the peace treaty triggered the bitter nationalist reaction that generated political support for Adolf Hitler’s totalitarian movement. Clearly those who wanted America to enter foreign wars were utterly unable to anticipate the horrifying consequences. Thus in 1940-41 many Americans wanted nothing to do with the wars in Europe and Asia.

FDR figured that if he could provoke the Japanese to attack the United States, the American public would support a declaration of war against Japan. Since Japan was allied with Germany, a war with Japan would bring America into the war against Germany. FDR was anxious to help his beleaguered British friends, even though most Americans wanted to remain at peace.

Pearl Harbor: The Seeds and Fruits of Infamy is a suspenseful detective story of that behind-the-scenes political scheming. The initial draft of the book was written by Percy L. Greaves, Jr., who served as chief of staff to the Republicans on the Joint Congressional Committee, which investigated Pearl Harbor in 1945-46. Greaves combed through countless documents and interviewed all the major (and many minor) figures involved. He continued to investigate for many years afterward, finding key pieces of evidence overlooked by everyone else. After he died in 1984, his wife, longtime FEE staffer Bettina Bien Greaves, spent more than two decades turning the manuscript into a monumental scholarly achievement.

Pearl Harbor is among the most provocative mysteries in American history. In Greaves’s account FDR appears as the grand puppeteer manipulating events—even when this meant sacrificing American lives. While the Japanese bombing is almost universally described as an outrageous surprise attack, the book presents considerable evidence that it wasn’t much of a surprise to FDR. Although he probably didn’t know for sure where or when the Japanese would attack, he had many reasons to expect they would, and Pearl Harbor was a good bet to be the target.

As the book documents, in January 1940 the U.S. government began blocking exports to Japan, including strategic minerals, iron, steel scrap, and petroleum products like gasoline. Since the Japanese weren’t willing to abandon their ambitions for conquest in Asia, it should not have been surprising that they would attempt to retaliate against the United States. In fact, when questioned by his wife, Eleanor, about his economic policies toward Japan, Roosevelt admitted that they were driving the two countries toward conflict.

Moreover, in 1940 American cryptographers cracked the top Japanese diplomatic code—known as “Purple”—used to transmit messages. That enabled U.S. officials to learn a great deal about what the Japanese government was planning. Much of the intrigue and suspense in the book involves the interception and decoding of Japanese diplomatic messages. The research done by Percy Greaves demolishes the idea, long cultivated by FDR’s followers, that the attack on Pearl Harbor took the President and his military advisers completely by surprise.

What had FDR and his advisers known—and when? After reading the book it seems beyond question that the administration knew late on December 6 that a Japanese attack was imminent, with Pearl Harbor a likely target, and yet no one took immediate action to warn the endangered base. The two Hawaiian commanders, Admiral Husband Kimmel and General Walter Short, were scapegoated to hide the administration’s incompetence and duplicity. After rigging a hasty “investigation” that declared Kimmel and Short derelict in their duty, the military engaged in a cover-up. Evidence was tampered with. Officers were pressured to have convenient “memory lapses” under questioning from counsel for Kimmel and Short. Army Chief of Staff General George Marshall (famed for the postwar Marshall Plan) comes off looking especially bad in the book’s recounting of events.

The book has two important lessons for today. One is that using duplicity to enter foreign wars is likely to backfire with terrible consequences for the ordinary people of a nation. The other is that politicians will stop at almost nothing to make themselves appear great and heroic. I recommend this book highly.

The great battle is to persuade those people that our ills are rooted in statism—that is, reliance on government to do things that should be left to voluntary action. Back in the 1930s most Americans also thought the country was on the wrong track, but unfortunately they blundered into the wrong conclusion—that a great expansion of government power was what we needed. The challenge today is to convince them that government is the problem, not the solution.

Among the most stalwart opponents of big government and its apologists is historian Thomas Woods. His 2009 book Meltdown explained why the housing bubble and its aftermath were caused entirely by politics, not the free market. With this book he and his essayists indict statism generally and argue strongly in favor of radical depoliticization. In his introduction Woods identifies a key element in our national malaise: “The more functions the state usurps from civil society, the more the institutions of civil society atrophy. Once supplanted by coercive government, the tasks the people used to perform on a voluntary basis come to be viewed as impossible for society to manage in the absence of government. . . . The spiritless population comes in turn to look for political solutions even to the most trivial problems.”

The book consists of ten essays. In the first, Brian Domitrovic gives a useful history of the growth of the American State over the last two centuries. Carey Roberts follows it with an essay showing the continuing damage we suffer due to the statist thinking of Alexander Hamilton. Swedish economist Per Bylund then demolishes the notion, so often uttered by advocates of the welfare state, that Sweden proves how effective the “third way” (a welfare state neither capitalist nor socialist) can be.

Those three essays establish a solid framework for thinking about the impact of government interference with society’s spontaneous order. Woods next places Anthony Mueller’s essay exploring the true causes of the recent financial crisis, offering a corrective to the desperate scapegoating we’ve gotten from the politicians responsible for it. Mueller’s essay is followed by one by Mark Brandly, who reasserts the case for free trade and the international division of labor, which is under attack by statists who would have us believe that free trade hurts workers in poor countries. Dane Stangler next shows how entrepreneurship is threatened by the ever-encroaching power of government and how foolish it is to think that the State can perform the entrepreneurial function.

Journalist Tim Carney contributes the next essay, eviscerating one of the great myths of modern life: that big business is opposed to big government. The truth, Carney shows, is that big business is extremely cozy with both “liberal” and conservative politicians. As a result America’s economy is steadily drifting toward a syndicalist system dominated by politically favored firms.

Two essays deal with the interface between religion and the politicized society. Gerard Casey examines the traditional hostility many Christian clerics have toward capitalism and finds that it is without any foundation in the Bible. John Larrivee also evaluates the religious arguments against the free market. In his view those arguments are not only naive but ultimately undermine both faith and civil society.

In the book’s final essay Paul Cantor shows how government intervention in culture, specifically television, substitutes bureaucratic directives for the spontaneous origins of true culture. If you ever wondered why the boat on the series Gilligan’s Island was named “Minnow” you’ll find out by reading Cantor’s essay.

These are all splendid pieces, but I am especially drawn to Per Bylund’s. In it he demonstrates the truth of Hayek’s argument that socialism destroys the foundation for prosperity by gradually changing the character of the people. Bylund observes that young Swedish adults today are far different in their outlook from their grandparents. Whereas Swedes had once been known for their solid work ethic, after many years of the welfare state and its numerous entitlements, it is largely gone. Young Swedes are known for taking as much time off as they can while collecting as much as possible in government benefits. The nation’s standard of living is falling and must continue to do so.

I have just one tiny quibble with the book’s title. When were we ever off the road to serfdom?

The authors’ criticisms of the Fed’s response to the crisis are no less trenchant. “In its rush to prop up the financial system,” they observe, the Fed rescued insolvent financial institutions, exposing taxpayers to losses on toxic assets while helping to “sow the seeds of bigger bubbles and even more destructive crises.”

But although Roubini and Mihm draw attention to some ways in which the government contributed to the crisis, they go seriously wrong in claiming that the boom “was primarily underwritten not by Fannie Mae and Freddie Mac but by private mortgage lenders like Countrywide”: Although Fannie and Freddie didn’t originate any subprime loans, they bought and (implicitly) guaranteed plenty of them, including a very large share of Countrywide’s Community Reinvestment Act (CRA) “Best Practice” loans. What Fannie and Freddie didn’t buy other lenders did, to meet their own CRA requirements. Such facts undermine Roubini and Mihm’s conclusion that “the significance of government intervention was dwarfed by the significance of government inaction.”

Roubini and Mihm’s reform proposals also fail to properly weigh government policy’s contribution to the crisis. They start well again by insisting on the need to restore to financial services “the creative destruction that Schumpeter saw as essential for capitalism’s long-term health.” Although Lehman Brothers’ failure revealed the shortcomings of ordinary bankruptcy as a means for resolving large and heavily leveraged financial firms, Roubini and Mihm note how those shortcomings could be avoided by means of “living wills” or by splitting ailing firms into “good” and “bad” parts, so that the latter might be declared bankrupt without raising Cain.

But some of Roubini and Mihm’s other proposals appear useless at best, including their endorsement of a “beefed-up” Glass-Steagall that would forcibly break up enterprises that become too big to fail, with its implicit suggestion that Gramm-Leach-Bliley contributed to the crisis. In fact that 1999 “repeal” of Glass-Steagall merely allowed commercial banks to affiliate with investment banks and played no important part in the insolvency of Lehman Brothers and other independent broker-dealers that was at the heart of the crisis.

A beefed-up Glass-Steagall Act might of course spin a much tighter web of firewalls than the original did. But as Roubini and Mihm themselves suggest, many TBTF firms exist only thanks to “heavy helpings of government largess,” including guarantees and actual bailouts, and could be left to break up naturally once improved bankruptcy procedures are in place. Perversities in executive compensation might likewise vanish on their own once imprudent decisions lead to bankruptcy rather than bailouts.

The most disappointing part of Crisis Economics is the second chapter’s hackneyed history of thought. Here Adam Smith is portrayed as a Walras-Debreu manqué who blinked at capitalism’s “vulnerabilities,” while Marx is credited with the “hugely important insight” that crises are “part and parcel of capitalism”—as if he’d predicted occasional financial panics rather than a steady decline in firm profits. The incomprehensible parts of the General Theory are treated, per usual, as proof of Keynes’s genius rather than of his being, well, incomprehensible. Finally and most disappointingly, by confusing the Mises-Hayek view of the business cycle with Schumpeter’s notion of creative destruction, Roubini and Mihm overlook the one theory of crises that best fits the housing boom-bust story.

Crisis Economics’s occasional references to the Great Depression must also be taken with a pinch of salt. It wasn’t Hoover but FDR who, in February 1933, stood by while “thousands of banks” went under; and it was growth in the money stock rather than fiscal stimulus that fueled the post-1933 recovery. The deflation of 1937–38 was mainly caused not by FDR’s belated attempt to balance the federal budget but by the Fed’s doubling of bank reserve requirements. Finally, corrected statistics show that World War II brought further stagnation rather than sustained recovery.

In short this “crash course in the future of finance” has both strengths and weaknesses. Although it contains much useful information about the subprime debacle, it understates the government’s contribution to the crisis, and although it suggests some desirable reforms, it suggests others that could prove counterproductive. Readers looking for straight A’s are advised to cram with caution.

In my view that sentiment is badly mistaken, and while Appleby recognizes the advantages of capitalism, in sum she is ambivalent: “Worldwide life expectancy went from forty-eight years at mid-twentieth century to sixty-six years in 1999 and it’s still continuing to rise! Still, it would be nice to eat cake while keeping lazy ways too.” Her often engaging and informative book is undermined by sympathy for the precapitalist lifestyle.

Appleby describes the book as being not a general study of capitalism, but instead “a narrative that follows the shaping of the economic system that we live in today.” One of the greatest changes capitalism made possible was to free men and women from the work of producing food. In traditional societies around 80 percent of the people labored just to produce enough food to meagerly feed the population. It had always been that way, and the human outlook was mostly static. Appleby emphasizes that the vast increase in productivity which capitalism made possible brought about a reversal of people’s attitudes toward the future. “At a very personal level,” she writes, “men and women began making plans for themselves that would once have appeared ludicrous in their ambitious reach.”

One of Appleby’s central themes is change and innovation, which had been objects of hostility in earlier societies. She observes that Adam Smith’s Wealth of Nations frequently testifies to the new view that capitalism brought about. “The principle which prompts us to save is the desire of bettering our condition,” she quotes Smith as writing, “a desire which tho generally calm and dispassionate, comes with us from the womb and never leaves us til we go into the grave.” Where, Appleby wonders, had Smith gotten that view of humans as naturally inclined to rational self-improvement?

She explains that to find the answer, she became “a permanent fixture at the British Museum” reading “a new genre, the writings about commerce that began appearing in pamphlets, economic tracts, broadsides, and advice books from the 1620s onwards.” From that research she learned how uncapitalistic life had been for the typical Englishman. She quotes a scholar who wrote that he lived “in a house built with monopoly bricks . . . heated by monopoly coal. His clothes are held up by monopoly belts, monopoly buttons, monopoly pins. . . . He ate monopoly butter, monopoly herrings, monopoly salmon. . . .” Opposition to all those monopolies, granted by kings starting with James I, led to revolution—politically and philosophically. Appleby notes that pamphlet writers like Thomas Mun argued that the economy should not be under the control of the sovereign. “Breaching the wall of paternalism in the 1620s,” she writes, “marked a significant moment in the history of capitalism.”

Meanwhile, the oceanic sailing and trade that began with the Portuguese and Spanish was expanded by the Dutch and English. The availability of goods produced abroad led to great improvements in living standards for common people, underscoring the fact that capitalism made economic progress possible. Similarly, the revolution in agriculture at the same time, especially in England and the Netherlands, was another advance made possible by capitalism. For the first time the prospect of widespread famine ceased to be a worry.

In her treatment of capitalism in the nineteenth and twentieth centuries, Appleby is interested in the processes of innovation and change. She emphasizes the tide of innovations rather than the political reactions to economic development that occurred in those centuries. While she remains positive about capitalism’s impact, Appleby does not take on the ferocious critics of capitalism and their claims that it fosters all manner of social and economic evils. No doubt some readers will be disappointed in the book for that reason. After all, if the author is going to bring up Marxian criticisms of capitalism, why not also bring up the rejoinders that defenders of the free market have made to them?

Appleby’s concluding chapter, “Of Crises and Critics,” deals with our present economic troubles. Again, readers are apt to find her discussion disappointing in its ambivalence.

There is much to recommend in this book, especially the author’s work on changing economic thought in the seventeenth and eighteenth centuries and the consequent emergence of market concepts. When Appleby reaches further afield of her area of specialization, however, the book is weakened by observations that I do not believe are justified.

Leonard Liggio (Leonard.liggio@atlasusa.org) is executive vice president of academics at the Atlas Economic Research Foundation.

Dowd offers a classical-liberal perspective on macroeconomic policy and specifically central-bank policy. Having written extensively on free banking, he concludes that a thorough decentralization of the banking business is essential to enduring macroeconomic stability. Hutchinson is a seasoned investment banker turned financial journalist. His firsthand, nuts-and-bolts knowledge of modern financial markets undergirds his broader perspective. Together, they provide an enlightening account of the long-run trends and short-sighted policy actions that culminated in the worst financial crisis since the Great Depression.

The “alchemists” in their story are the architects and practitioners of modern finance. Given the perverse regulatory environment, buying and selling derivatives can yield short-run profits to hedge funds and other traders while virtually guaranteeing that in the longer run the owners of the underlying real assets will suffer losses if not bankruptcy. The careful reader will understand that speculation, whether on a long-term or short-term basis, is an essential and healthy feature of a market economy. But, if anything, the authors’ likening of speculation to alchemy when it is based on the techniques of modern finance and carried out in the context of a regulated economy understates the perversity. On reflection we can see that turning future long-run losses (of other people) into current short-run profits (for yourself) is triply more disruptive than trying to turn lead into gold. We can note 1) that lead, unlike long-run losses, has a positive, though modest, value; 2) that it is your own lead; and 3) that given the laws of nature, you’re unable to turn the trick.

But if the laws of nature keep people from turning lead into gold, why don’t the laws of the marketplace preclude the financial alchemy that characterized most of this century’s first decade? The answer, our authors make clear, is government intervention. A toxic mix of interventions (regulatory, fiscal, and monetary) perverted the coordinating market forces by removing considerations of long-run systemic risk. The result was a systemic discoordination whose increasing severity eventually turned systemic risk into a crisis. The laws of the marketplace, if allowed to exert themselves, can preclude financial alchemy (or at least put strict limits on it). But government intervention, including loan guarantees and the too-big-to-fail doctrine, open a window in which short-run profit-taking in financial markets is pitted against long-run viability of the financial institutions.

While the Federal Reserve is recognized as an essential accommodating element in the most recent episode of boom and bust, Dowd and Hutchinson focus on the inherent perversity of modern finance theory in the context of the long-running efforts of the government to redistribute income and to encourage homeownership. Since the 1930s the government has used the tax code to redistribute incomes downward. Over the years the income tax—and over the generations the inheritance tax—has reduced the number of families that oversee their long-run business interests. The old partnerships (Dowd and Hutchinson’s term), which kept the owners’ skins in the game, have been supplanted by limited-liability corporations, which effectively separate management and ownership. This critical separation, which left-leaning authors take to be characteristic of capitalism, is shown by the authors to be a consequence of government systematically overriding the market-governed distribution of income. Whereas we once had business families that were in it for the long run, we now have financial managers and traders in derivatives markets who are in it for the short run, ultimately to the detriment of the financial system and the real economy.

Alchemists of Loss provides a multidimensional account of the nature and magnitude of our long-brewing economic woes. But the book provides us with little hope for the future. The authors’ suggestions for reform range from the radical (reinstating the gold standard and eliminating the central bank) to the not-so-radical (redrafting the Fed’s mandate to exclude concern about unemployment) to the superficial (moving the Fed’s headquarters to St. Louis). Even the casual reader will see that this extends from the virtually impossible to the not-worth-doing, with no promising midrange option. The implicit conclusion is that we should brace ourselves for more booms and busts.