Wrong: Nine Economic Policy Disasters and What We Can Learn from Them by Richard S. Grossman (review)

Grossman’s book, as the subtitle indicates, examines nine economic “disasters” and draws lessons from them. Wrong is a clearly written work, with none of the jargon that sometimes afflicts economic history. Designed for a broad audience, the work has neither graphs nor tables, and its explanations of difficult concepts are lucid. The book emphasizes a common thread that brings together these case studies: “The main culprits were policy makers who were guided by ideology rather than economics” (xxi). However, Grossman’s approach, which emphasizes certainties rather than debate, does not always prove persuasive.

The emphasis on the dangers of ideology provides valuable insights into several of the episodes that Grossman studies. In his discussion of the British response to the Irish famine of the mid-1840s, Grossman aptly condemns the actions of the Whig government, led by Lord John Russell. The Whigs, who were committed to laissez-faire economics, cut back on relief efforts, exacerbating the misery caused by the failure of the potato crop. Grossman also stands on solid ground in criticizing the nationalist sentiments that led to the imposition of heavy reparations payments on Germany after World War I. These demands led to unsustainable burdens, the instability of the Weimar Republic, and the rise of extremism. Finally, Grossman makes a plausible argument in denouncing the Smoot-Hawley Tariff of 1930, imposed by a Republican party dedicated to protectionism. Economists at the time presciently warned that trade barriers would only worsen the downturn.

The other six episodes that Grossman studies, however, seem less straightforward than his analysis suggests. His argument that the British Acts of Trade helped to cause the American Revolution rests, in part, on a mis-reading of the Declaration of Independence: The Americans condemned only the more recent punitive measures. Similarly, his strong defense of the national banks established in the United States in 1791, 1816, and 1913 is more debatable than his text allows. Major downturns occurred on their watch, whereas strong growth prevailed between 1836 and 1913 when the United States lacked a central bank.

Questions can also be raised about Grossman’s judgments concerning events in the twentieth and twenty-first centuries. Was the decision in the 1920s by Britain—and fifty other countries—to return to the gold standard wrong? Retrospectively it might seem that way, but that perspective did not emerge until the 1930s. The analysis of Japan’s “lost decade” of the 1990s is one of the weaker chapters in the book. Grossman does not make clear what decisions or “ideology” led to slower growth. In discussing the “subprime meltdown” of 2007 to 2009, Grossman singles out President George W. Bush’s ideological dedication to lower taxes as the root of the catastrophe. Other problems, such as weak regulation or greedy institutions, are consigned to a secondary role. Moreover, Grossman’s examination of the current euro crisis lacks a strong point of view. The fate of this currency, he suggests, remains undecided.

In short, this engaging work too often simplifies the past to set forth definitive lessons for modern policymakers. A few of Grossman’s lessons are useful—governments should lower trade barriers and avoid punitive reparations—but in many other cases, the complexities of the real world defy the appealing, ordered analysis that Grossman presents.