Some would argue that the financial crash revealed failings in the discipline of economics as well as in the financial system. The main post-war approaches to economics, based on neo-classical and new-Keynesian principles and modelling, failed to anticipate the crash or the depth of the slump that followed. In this monograph, Roger Koppl, drawing on ideas from the Austrian school and the work that has been done on policy uncertainty, argues that the missing ingredient in many economic theories is a proper theory of ‘confidence’. The author is not only able to make sense of Keynes’s ‘animal spirits’, but also demonstrates how ‘Big Players’ – often, though not always, government agencies – can undermine confidence, reduce long-term investment, increase speculation and reduce economic growth over a long period of time.
From Crisis to Confidence not only describes the process which the economy must go through before a full recovery after the financial crash, it also describes the journey that must be travelled by the discipline of economics. As economics students and other commentators question post-war macroeconomics, Roger Koppl provides some of the answers needed to understand the long slump since 2008. A theory of confidence is needed in any economic framework that is to explain one of the most important periods in modern economic history.
‘This is a fascinating review of the major battlegrounds in macro-economics over the last few decades. Roger Koppl recounts the intellectual pitched battle of the Austrians and their classical economist allies against the Keynesians of all stripes. The smoke is still clearing over the economic battleground so it’s hard to determine the victor, but issues and debates are articulately laid out in this monograph.’ Nicholas Bloom, Professor of Economics, Stanford University