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.

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.

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 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.

dominate modern economic history, taking that phrase to refer to the 50-year period from 1939 to 1989. One is the increasing strain on, and eventual structural failure of, centralized planning in virtually all of the self-styled socialist world. The other, less dramatic, but of no less historical significance, is the continued success of capitalism in its major strongholds. In both cases, I use as the crucial but not sole indicator of success or failure the political fortunes of the two social orders. There have been economic successes for socialism-above all, the initial industrialization of the USSR and the early modernization of China; there have been economic failures of capitalisminstability, uneven growth, unsatisfactory income distributions, dangerous international imbalances. From the perspective of the present, however, the half century is remarkable for the political verdict that has finally been passed on the two systems. With few exceptions, socialism has experienced a public delegitimization without precedent in modern, perhaps in all, history; whereas despite its failures, capitalism has enjoyed an uncontestable, and probably rising degree of internal political support. In this paper I shall be concerned only indirectly with these historical developments, for my purpose is neither to describe nor to explain the contrasting fates of the two great social orders. Rather, I wish to review and interpret the manner in which modern developments have been perceived by economists. Thus, as my title indicates, this is an essay in the history of economic thought, not in economic history. But it would be disingenuous not to admit to a more pointed purpose of my investigation. It is to inquire into the successes and failures of economic thought in anticipating the march of actual events. It will come as no surprise that failures have considerably outweighed successes in this endeavor, even excluding the momentous, and utterly unforeseen happenings at the conclusion of the period in 1989. A few observers have offered prognoses of history's long line that were subsequently vindi-

More mothers engage in marketplace work today than ever before, with over 33% returning to work by the time their child is 3 months old. This article identifies the effects of maternal marketplace work in the initial months of an infant’s life on the child's cognitive development. Results suggest that such work in the first year of a child’s life has detrimental effects. Where significant, the results also indicate negative effects of maternal employment in the child’s first quarter of life. However, the negative effects of maternal marketplace work are partially offset by positive effects of increased family income.