Saturday, February 14, 2009

Book Review: Meltdown by Thomas E. Woods Jr.

It is a sad fact that most who graduate from college understand little if anything about the business cycle. It is even a sadder fact that most economists do not understand Austrian Business Cycle Theory (ABCT), even though the great economist Friedrich Hayek was specifically awarded the Nobel Prize in economics for the work he completed with regard to the theory.

Perhaps to some degree this poor understanding explains the confused reporting about the causes of the current economic crisis that regularly appear in mainstream media. If you are only getting your information about the current crisis through mainstream media reports, trust me, you aren't even getting half the story.

Meltdown by Thomas E. Woods Jr. is an antidote to this lack of understanding. Woods takes on the many fallacies that are now a part of the popular perception held about the current crisis. He does this by walking through, in timeline fashion, the start of the current crisis with the housing bubble, through the Wall Street bailouts and current government attempts to "battle" the downturn. At each step, he explodes the myths that currently exist and explains what the real causal factors are.

Woods then explains the business cycle itself, and the role of central bank manipulation of the money supply as the main culprit in creating the business cycle. This chapter alone is worth the price of the book.

From there, Woods reviews other booms and busts, including the Great Depression, and explains how they came about.

Woods concludes with an explanation of the role of money in an economy and then offers sound solutions to today's crisis that will bring the economy out of the current crisis and put it on sound footing.

There's a lot to learn from this book and there are a lot of people who should read it.

If you are simply curious about the world around you, or just a concerned citizen, this book will fill you in on how the world works from an economic perspective. If you are a businessman, an investor, or thinking about buying a house, this book will enlighten you as to the business cycle and help you make the important financial decisions in your life with much greater understanding of how the economy will impact you.

If you are a reporter, this book will put you miles ahead of your colleagues in understanding, and in your ability to provide important insights to your readers.

And, if you are President Barack Obama, you need to read this book and get a clue, because your current advisers are providing you with advise that will only result in you driving the economy off a cliff.

In short, anyone who reads this book and truly MASTERS it, will be in the top 1% of people who really understand what happened to cause the current crisis, and in the top fraction of 1% of the population who understand how the business cycle really works.


  1. Very good review, because it is 100% accurate. Time and time again we here mainstream economists say, "Only a handful of people saw this coming..." It's like parking your car on railroad tracks and being surprised that your car gets run over by a train.

  2. The book is very superficial. It raises more questions than it answers. Woods uses lots of straw men, which are very easy to knock down.
    Austrian School analysis may be correct, and it may have the explanation and the cure for business cycles, but this book doesn't prove it. As an example, Woods' most detailed example of how credit creates problems is his series of scenarios involving bakers and cobblers (of the shoemaker variety). He tries to show that extending credit to the shoemakers via the banking system will create business cycle problems (and it might), but he never explains why. His mantra is that the economy can't invest without savings (hmm, sounds Keynesian), but he never explains why that's true. It becomes apparent as the chapters unfold that Woods treats this as a postulate, not as something susceptible to analysis. Again, this isn't to say he is wrong, but this book won't give the answer to any serious analytical question of that nature.

  3. I hope Anonymous isn't an English major or all of our kids might "here" some things that are wrong.