Richard Bookstaber's The End of Theory: A review essay

• Date: 01 June 2018
• DOI: http://doi.org/10.1111/infi.12143
• Author: Noah Smith
• Published date: 01 June 2018

DOI: 10.1111/infi.12143

BOOK REVIEW

Richard Bookstaber's The End of Theory:

A review essay

Noah Smith

Bloomberg View, San Francisco, California

THE END OF THEORY: FINANCIAL CRISES, THE FAILURE OF ECONOMICS, AND

THE SWEEP OF HUMAN INTERACTION

Richard Bookstaber

Princeton University Press, Princeton, NJ, 2017

Richard Bookstaber's The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of

Human Interaction is not actually about the end of theory. It is about macroeconomic theory.

Specifically, it is about why macroeconomic theory was so unhelpful before, during, and after the

financial crisis of 2008, and what might be done to fix it.

2017 seems like a bit late for such a book to come out. During the early 2000s, as the problems that would

soon cause the financial crisis built up,it would have been helpful to have a book warning that macroeconomic

theory was ignoring finance (indeed, policymakers could usefully have picked up Bookstaber's 2007

A Demon of Our Own Design). In 2008, as the system collapsed, policymakers could have used a book

warning them not to rely too heavily on macro models to guide them through thecrisis. In 2009 through 2012,

as Western economies struggled to recover from the Great Recession, it would have been nice to have a book

discussing why macro models offered few ideas for how to jump-start the economy.

Almost a decade after the crisis, however, a book about t he limitations of macroeconomics represents a

trickier and more challenging undertaking. Instead of merely warning policymakers away from bad

models, it needs to be a guide for how to make better models in the future. But Bookstaber—a risk manager,

financial regulator, and policy researcher—has written the former kind of book rather than the latter.

The End of Theory raises many good points about the limitations of the kind of macroeconomic theories

generatedineconomicsjournalsandemployedatcentral banks.But as a road map to replacing those theories,

The End of Theory falls short, for three main reasons. It fails to ground the readerin an understanding of the

problem that the book is trying to solve. It explains the problems of the dominant paradigm in ways that are

often scattershot and confusing. And the alternatives it lays out are described only in the sketchiest of terms.

In other words, The End of Theory is a book that will get readers thinking about how and why

macroeconomics is difficult. But it will leave them with more questions than before, and few answers.

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HOW AND WHY DID ECONOMICS FAIL, ANYWAY?

The End of Theory's subtitle promises to tell us about ‘the failure of economics’. But in fact, the book

offers very little explanation of exactly how economics failed, either before, during, or after 2008.

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© 2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/infi International Finance. 2018;21:214–221.