Knowledge that Transforms

There are many outsiders who have written critiques of the global financial system. Insiders typically do not; they have too much to lose. What makes Stiglitz's book, Globalization and Its Discontents, unusual is that it is an insider's critique. This book sketches the unfairness of the global system and how institutions, like the IMF, perpetuate the asymmetries of power and wealth. Though the book provides a morally compelling account of recent global crises, and its plea that we must think about radical change is hard to dismiss, it does not break new analytical ground nor offer concrete suggestions of alternatives. (This abstract was borrowed from another version of this item.)

among the central bank, the banking system and the non-bank public in causing variations in that crucial variable, the quantity of money.They shared Friedman=s view that, no matter how it got into circulation, the effects of money would often be very much the same, but they treated this as a conclusion to be established analytically, and in a way that would reveal when exceptions might arise, rather than as an hypothesis to be maintained pending its empirical refutation.Brunner and Meltzer also took a special interest in the effects of institutional constraints on the conduct of monetary policy, and in the influence on that conduct of beliefs about the way the economy works. 2 This book is, then, the product of a distinctive brand of monetarism, and represents an important extension of a research agenda that has been active for over three decades.It emphasises two overarching issues that are of great interest to modern monetary economists: central bank independence, and the role of economic theory in conditioning agents= behaviour.It also yields lessons that many will find unfamiliar.First, the Fed=s history makes it clear that problems arising from the interaction of politics with monetary policy are not of a sort that can be solved once and for all, for example by implementing the appropriate contract between the government and the central bank; rather, the challenge was (as it still is) to design institutions that are resilient enough to cope on an ongoing basis with the tensions these problems create.Secondly, and without denigrating the importance of the beliefs of the public at large, it is policy makers who hold the centre of the stage in Meltzer=s history, and he shows that their behaviour was often conditioned not by true economic theories, but by false theories that they believed to be true, that these theories often differed among policy makers at a particular moment, and that they changed over time too.In this essay, I shall discuss some highlights of Meltzer=s treatment of these two themes, and in the final substantive section, I shall take up what seems to me to be an important element 2 That interest may be seen as a particular example of their long-standing curiosity, reflected in a number of papers that they commissioned over the years for Carnegie-Rochester conferences, about how and why particular economic ideas become embedded in particular institutions and condition their activities for long periods of time.

MacCoun and Reuter's primary goal is to understand how current U.S. drug policies can be improved. They carefully describe the facts and trends regarding drug usage, criminal justice enforcement, and the harms associated with drug use, then discuss the public debate surrounding drug prohibition and give an informal treatment of the theory underlying the competing positions. The authors study policies towards other vices like gambling, cigarettes, alcohol, and prostitution, as well as drug policies in other times and places. The broader implication that emerges is that there is a desperate need for better data and increased research if there is any hope for making truly informed policy on illicit drugs.

Examining the development of the Japanese financial system since the Meiji era, Hoshi and Kashyap derive a number of interesting propositions on the evolution of bank-centered financing, its contribution to rapid growth, and its future transformation. They argue that the piecemeal approach to deregulation is one of the main reasons for the current banking crisis, and conclude that Japan will shift to a capital market-based financial system like the one in the United States or in prewar Japan. Hoshi and Kashyap's work makes an important contribution as a coherent long-term overview of Japan's bank-centered financial system.

Roger Backhouse's book The Ordinary Business of Life is a comprehensive history of economic thought, from the ancient Greeks to the present day. It will be useful both to specialist economists and to people with a smattering of economic ideas who want to fill in the historical gaps. Backhouse's book provides much of the material for anyone brave enough to tackle the big issues.