Edward L Glaeser of Harvard University reviews “Chicago before the Fire: An Economic History” by Louis P. Cain The Econlit abstract of this book begins: “Examines the economic and business history of Chicago before the Great Fire of 1870, focusing on how the city's early growth and development determined its rise as the Midwest's dominant city.”

Half of individuals released from prison in the United States will be re-incarcerated within three years, creating an incarceration cycle that is detrimental to individuals, families, and communities. There is tremendous public interest in ending this cycle, and public policies can help or hinder the reintegration of those released from jail and prison. This review summarizes the existing empirical evidence on how to intervene with existing offenders to reduce criminal behavior and improve social welfare. (JEL D91, I18, I28, I38, K42, R23)

In Discrimination and Disparities, Thomas Sowell describes how economists think about the causes of disparities in socioeconomic outcomes. He cautions against government intervention to reduce disparities, noting that such interventions often have unintended consequences. In this review, I discuss the role of economic theory and empirical evidence in helping move society toward more equitable outcomes. I find far more reason to be hopeful about the role of government than Sowell does, but also argue for more experimentation and rigorous evaluation to be sure that our well-intentioned policies have their intended impacts. (JEL D63, J15, J16, J71, J78)

The two books being reviewed are concerned with the importance of slavery in the antebellum US South for the economic development of the Northern states. One (Schermerhorn) deals primarily with Southern financial arrangements facilitating the sales of slaves and cotton. The other (Baptist) presents a broader picture of masters' treatment of slaves, as well as how the incomes of slaveowners spurred the demand for Northern industrial production. The review argues that both books overstate the importance of slavery and cotton production for US economic growth. (JEL J15, N11, N31, N51, P16)

Alvin Roth's Who Gets What—And Why provides a richly accessible introduction to his pioneering work on market design. Much of economics ignores the institutions that allocate goods, blithely assuming that the mythical Walrasian auctioneer will handle everything perfectly. But markets do fail and Roth details those failures, like the market for law clerks that unravels because clerks and judges commit to each other too quickly. Roth combines theory and pragmatic experience to show how the economist can engineer successful markets. He has even enabled welfare-improving trades in kidney exchanges, where law and social repugnance forbids cash payments. (JEL C78, D47)

Fragile by Design by Charles W. Calomiris and Stephen H. Haber introduces a framework for understanding financial crises and credit abundance with politics at its center. Using the historical experiences of five nations to illustrate, the authors propose that democracies such as the United States and Canada can have stable banks and ample credit so long as populist forces do not dominate the policy agenda, and that strong autocratic states such as Mexico can also achieve stability at the cost of restricting credit. Weak autocracies, such as Brazil over much of its history, often require inflationary finance and suffer from the banking fragility that comes with it. The authors identify populist ideologies and related policy decisions (such as unit banking, deposit insurance, and the Community Reinvestment Act) as underlying causes of banking instability in the United States as typified by the recent subprime crisis. Canada, in contrast, by holding populist forces in check through calculated political choices, remains crisis-free. (JEL D72, E44, G01, G21, N20, O16, O17)

Christopher L. Foote of Federal Reserve Bank of Boston reviews, “The Redistribution Recession: How Labor Market Distortions Contracted the Economy” by Casey B. Mulligan. The Econlit abstract of this book begins: “Explores the decline of employment in the United States after the financial crisis and its failure to recover and considers the role of economic activity and public policy. Discusses the rise of labor productivity; the expanding social safety net; supply and demand—labor market consequences of safety net expansions; means-tested subsidies and economic dynamics since 2007; cross-sectional patterns of employment and hours changes; Keynesian and other models of safety net stimulus; recession-era effects of factor supply and demand—evidence from the seasonal cycle, the construction market, and minimum wage hikes; incentives and compliance under the federal mortgage modification guidelines; and uncertainty, redistribution, and the labor market. Mulligan is Professor of Economics at the University of Chicago.”

The choice of an overall discount rate for climate change investments depends critically on how different components of investment payoffs are discounted at differing rates reflecting their underlying risk characteristics. Such underlying rates can vary enormously, from ≈ 1 percent for idiosyncratic diversifiable risk to ≈ 7 percent for systematic nondiversifiable risk. Which risk-adjusted rate is chosen can have a huge impact on cost-benefit analysis. In this expository paper, I attempt to set forth in accessible language with a simple linear model what I think are some of the basic issues involved in discounting climate risks. The paper introduces a new concept that may be relevant for climate-change discounting: the degree to which an investment hedges against the bad tail of catastrophic damages by insuring positive expected payoffs even under the worst circumstances. The prototype application is calculating the social cost of carbon. (JEL C51, Q54, Q58)

The Stern Review calls for immediate decisive action to stabilize greenhouse gases because “the benefits of strong, early action on climate change outweighs the costs.” The economic analysis supporting this conclusion consists mostly of two basic strands. The first strand is a formal aggregative model that relies for its conclusions primarily upon imposing a very low discount rate. Concerning this discount-rate aspect, I am skeptical of the Review's formal analysis, but this essay points out that we are actually a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged. The Review's second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertainties that are difficult to quantify. Concerning this uncertainty aspect, I argue that it might be recast into sound analytical reasoning that might justify some of the Review's conclusions. The basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consumption smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings.